Central bank puts cap on bankers' shares

KATHMANDU:

Chief executives and management staff of banks and financial institutions from now onwards will be barred from holding enormous stake in the institution that they are serving.Chief executives and management-level staff of commercial banks, for instance, cannot hold shares exceeding one per cent of the paid-up capital in the institution they are serving, says a directive issued today by Nepal Rastra Bank (NRB), the banking sector regulator.

CEO and management-level staff of development banks, on the other hand, cannot hold a stake in excess of two per cent of the paid-up capital in the institution they are serving. Similarly, chief executives and management staff of finance companies cannot hold shares exceeding five per cent of the paid-up capital in the institution they are serving, says the directive.“If staff members of the banks and financial institutions are currently holding more than the prescribed number of shares, they, however, will be allowed to remain in office till their term ends,” adds the directive. This means such staff will either have to relinquish their shares or step down from their post after completion of their existing term.Commercial banks currently have to maintain paid-up capital of at least Rs two billion, while national-level development banks must have a minimum paid-up capital of Rs 640 million. Similarly, minimum regulatory capital requirement for national-level finance companies conducting leasing business has been fixed at Rs 300 million, while other national-level finance companies must maintain a minimum paid-up capital of Rs 200 million.

NRB has also said that banks and financial institutions must not allow chairmen, chief executives and board directors from remaining in their post for more than two terms of four years each. “This provision must be included in the company’s regulation. If such condition has not been incorporated, then the upcoming general meeting must make necessary amendments to the regulation,” says the directive.

Also, banks and financial institutions should not extend loans to firms in which chief executives and management staff of banking institutions have over 50 per cent stake, adds the directive. “If such loans have been extended, then they should not be renewed.”

Source: THT