Central bank tells NBB it can not write off promoter loans

KATHMANDU, APR 19 -

The central bank has told NBB that it will not recognize its cancellation of loans issued to the promoter group. NBB said it had written off loans worth Rs 200 million issued to Lalitpur Engineering Company and NB Batra Hospital and Medical Research Centre and Harisiddhi Brick and Tile Factory. These companies are widely believed to have been promoted by the NB Group, but its stake in them cannot be legally established.

“As allowing banks to write off loans related to their promoters is against the spirit of good governance, we have refused to give recognition to NBB’s decision to write off promoter-related loans,” Said the NRB official.

The bank will now face a shortfall in its capital adequacy ratio which should be 10 percent, according to NRB officials. After adjusting the written off loans, its capital fund was positive by 10.02 percent as of the second quarter of the current fiscal year. The shortfall in the capita adequacy ratio means it will face action under prompt corrective action. As per the NRB directive on prompt corrective action, if a bank fails to meet the minimum capital adequacy, the bank may face a number of actions such as being forbidden to distribute dividends or bonus shares, issue loans and collect deposits as per the extent of the shortfall in its capital adequacy ratio.

“The board will decide what action is to be taken under prompt corrective action against NBB for failing to meet the capital adequacy ratio,” said the central bank official.

Meanwhile, NRB is mulling introducing a provision barring banks from writing off loans given to their promoters even after five years of the expiry of the term.

The central bank’s existing directive requires banks and financial institutions (BFIs) to cancel loans that are not repaid within five years after the deadline expires.

However, there is nothing in the rules about credit issued to promoter groups as promoters having a stake of more than 1 percent are not allowed to take loans from their own banks.

The issue emerged after Nepal Bangladesh Bank (NBB) wrote off loans given to its promoter group as per the central bank’s directive.

Central bank officials have started initial discussions on the proposal to bar BFIs from writing off such loans. “We will probably formulate a clear provision forbidding banks from writing off loans that went to promoters,” said a senior NRB official.

Source: Kantipur