After initial dread, more BFIs opting for mergers
KATHMANDU, APR 23 -
When Nepal Rastra Bank (NRB) introduced merger guidelines for banks and financial institutions (BFIs) one and a half years ago, there was apprehension whether they would be willing to join together.
However, there has been a string of merger s since June 2011 when Himchuli Finance and Birgunj Finance blazed the merger trail and combined to become H&B Development Bank.
As of the present, 26 BFIs have come together resulting in 12 BFIs, while two more are set to merge within this fiscal year after getting the central bank’s final approval.
Similarly, 24 other BFIs have received letters of intent (LoI) from NRB, and their merger s will bring down their number to 10. Another 12 BFIs are waiting for their LoIs from the central bank to become five BFIs. The latest NRB data shows that 64 BFIs have merged or are in the process which will bring down their number to 36.
“The number of merger s over the last 21 months was just incredible,” said a senior NRB official. “With BFIs required to increase their capital to the level fixed by the central bank at the end of the current fiscal year, many more are expected to go for merger s.”
Although most of the commercial banks have already increased their capital to the required amount, several development banks and finance companies have not been able to do so. With three months to go before deadline, bankers say there is no alternative but to merge. “I don’t see any other way out unless NRB gives other options,” said Rajendra Man Shakya, president of the Finance Companies’ Association of Nepal.
Under the central bank’s new licensing policy, commercial banks are required to have a paid-up capital of Rs 2 billion. National-level development banks need to have a capital base of Rs 640 million, while finance companies are required to have a paid-up capital of Rs 200 million. BFIs which were opened before the new licensing policy came into force seven years ago have been told to increase their capital on a proportional basis every year to reach the required level by mid-July 2013.
Shakya said that the banking sector witnessed a surge in merger s as BFIs did not have other options to increase business without expanding the size of their capital. The central bank’s directive stipulates that BFIs cannot extend loans beyond 10 percent of their core capital. Shakya said that despite the flurry of merger s, BFIs have not felt its synergic effect to reinforce the view that merger s are the only way to strengthen themselves.
An NRB official sees the possibility of commercial banks acquiring local-level development banks and finance companies as a way to increase their capital and expand their presence.
Source: The Kathmandu Post
