Banks bitten by merger bug

KATHMANDU, JUL 03:

Nepal’s banking sector has been bitten by the merger bug with six banks and financial institutions (BFIs) applying to Nepal Rastra Bank (NRB) to come together.

NIC Bank and Bank of Asia, Kathmandu Finance and Civil Merchant and Finance and Social Development Bank and Corporate Development Bank are the latest pairs to apply to the central bank for a letter of intent (LoI) to merge.

Three weeks ago, Reshunga Bikas Bank of Tamghas and Shine Development Bank of Butwal and Araniko Development Bank of Dhulikhel and Surya Development Bank of Charikot had applied to NRB to combine and are awaiting their LoIs.

The central bank has issued LoIs to five pairs and one trio of financial institutions to merge. Six pairs of BFIs have either merged or are in the final stages of merging, according to NRB.

“The number of BFIs in the financial system will come down by 18 to 200 after all those that have received LoIs or have applied for them complete their mergers,” said an NRB official.

Among the recent mergers, the joining of NIC and BoAN will be considered an historic one as it is the first merger between commercial banks. The two banks promoted by the same promoters had signed a memorandum of understanding (MoU) for amalgamation last Thursday. Their merger process is expected to be complete by mid-January 2013.

NIC’s CEO Sashin Joshi said that the merger between NIC and BoAN would encourage other commercial banks to follow suit.

He added that after the merger, the consolidated bank would have the advantage of economies of scale and cost savings as there would be no need for two headquarters, the surplus employees could be mobilised for business expansion and the different strengths of the two banks could be capitalised on. He demanded that the government slash the income tax for banks that go for a merger from the current 30 percent to 20 percent.

Source: The Kathmandu Post