SYNERGY FINANCE FACES PROMPT CORRECTIVE ACTION

KATHMANDU, Aug 26:

Nepal Rastra Bank (NRB) has taken prompt corrective action against Butwal-based Synergy Finance Company Ltd after the latter's capital adequacy ratio deteriorated.

Prompt Corrective Action refers to a type of penalty that the central regulatory bank imposes on licensed 'A', 'B' and 'C' class banks and financial institutions (BFIs) if their capital adequacy ratio (CAR) falls below the prescribed level.

Issuing a notice on Wednesday, the NRB said it took the decision after Synergy's CAR slipped to 8.5 percent -- below the regulatory requirement of 11 percent.

CAR is the ratio of bank's capital to its risk which the central regulatory bank tracks to ensure that it can absorb a reasonable amount of loss and complies with statutory capital requirements.

"We had sought clarification from Synergy about the discrepancy on CAR. But we were not convinced by its clarification. We have taken action based on the audit report of mid-June which shows that Synergy's CAR was below the regulatory requirement," Janak Bahadur Adhikari, executive director of NRB, said.

The central bank has also instructed the finance company to submit recapitalization plan to raise its capital. With the enforcement of prompt corrective action, Synergy will not be allowed to announce bonus shares and dividends. Likewise, the company will also be prohibited to open new branch office and mobilize deposits and loans exceeding the levels it has on Wednesday.

Similarly, Synergy will have to take permission from the central bank before adding any fixed property or taking property on lease.

Though the central bank has taken action against Synergy on the basis of its failure to meet minimum CAR requirement, the finance company's unaudited financial statement for fourth quarter of the last fiscal year 2014/15 shows that it's CAR, or also known as capital fund to risk weighted average (RWA), was at 13.6 percent.

However, NRB official said unaudited financial statements can change in the auditing process.

"The action will be lifted automatically once the finance company meets the minimum CAR requirement," Trilochan Pangeni, NRB Spokesperson, said.

Synergy's shares were last traded in Nepal Stock Exchange (Nepse) on August 23 at Rs 85 against the face value of Rs 100.

Source:republica