Market propels financial institutions merger
KATHMANDU, July 9:
Market forces have compelled financial institutions to seek consolidation as a measure of survival.
“All the mergers or attempts at mergers that are taking place right now are being propelled by market forces without any force from the central bank,” according to the spokesperson for the central bank Bhaskar Mani Gyanwali.
The growing number of financial institutions in a market size like Nepal is unsustainable for the overall financial sector, thus mergers of banks and financial institutions have been referred to as the best measure for long-term financial stability.
Little after a year Nepal Rastra Bank (NRB) announced its merger guidelines to encourage mergers, the Nepali financial system is witnessing numerous mergers as consolidation has become the best weapon to fight for survival in the overcrowded market.
The deadline to increase their paid up capital to regulatory requirements is over with the end of the current fiscal year 2011-12, and financial institutions are seeking mergers as the best possible measure.
Commercial banks have to increase their paid up capital to Rs 2 billion, national level development banks to Rs 640 million and national level finance companies need to raise their paid up capital to Rs 200 million.
“The obligation to increase the paid up capital by this fiscal year end has driven much of the merger campaigns,” pointed out president of Nepal Finance Companies Association Rajendra Man Shakya. “And lately, most financial institutions have realised that mergers will increase their capital bases which in turn will strengthen their financial health.”
There are 42 financial institutions that have applied for merger approval from the central bank. Among them, eight pairs have already received approval and three have started operations as merged entities.
Likewise, Global IME Bank — the merged entity of Global Bank, IME Financial Institution and Lord Buddha Finance — and Machchhapuchhre Bank after the merger with Standard Finance will start operations from tomorrow.
Another six pairs have been granted Letter of Intent by the central bank and another six pairs have applied for Letter of Intent. By the end of the current fiscal year, there will be five less finance companies in operation due to mergers. For development banks and finance companies, expansion in the area of operation along with increased capital base is another motivating factor to opt for mergers.
“For class ‘B’ and ‘C’ financial institutions, upgrading and expansion in the area of the operation is one of the most lucrative results of a merger,” pointed out Shakya, who is also chief executive of CMB Finance that is seeking a merger with Alpic Everest and Butwal Finance.
“The central bank has the legal authority to force financial institutions to merge, if it deems necessary, but we have not exercised the measure so far as market forces have motivated the financial institutions to seek consolidation on their own accord,” pointed out Gyanwali.
However, it is no secret that central bank has been directing financial institutions being promoted by the same group to merge. The merger between Global Bank and IME, and the upcoming merger between Bank of Asia Nepal and NIC Bank was pushed by NRB due to common promoters.
Source: THT
