More financial institutions opt for mergers

KATHMANDU, Nov 19:

Almost half the existing financial institutions are opting for a merger
as market forces have compelled them to consolidate due to the shrinking market pie.

“Some 22 financial institutions have acquired final approval from Nepal Rastra Bank (NRB) to merge into 10 financial institutions, besides the 23 that have already got a Letter of Intent from NRB,” said spokesperson for NRB Bhaskar Mani Gyanwali.

Likewise, more than 50 financial institutions are looking for suitable partners, he added.

Mergers were instrumental in reducing the number of operating financial institutions from 219 at the end of fiscal year 2010-11, to 213 by the end of fiscal year 2011-12.

Last fiscal year, three finance companies merged with two commercial banks, seven development banks and five finance companies completed mergers with each other.

The end of last fiscal year saw the emergence of Global IME Bank — merged entity of Global Bank, IME

Financial Institution and Lord Buddha Finance — and merged Machhapuchchhre Bank with Standard Finance.

Commercial banks like NIC Bank and Bank of Asia Nepal, and Kumari Bank and Siddhartha Bank are also looking to merge.

Even though the Nepali financial system is not witnessing mergers as expected after the central bank announced its merger guidelines to encourage financial institutions to merge, the number of mergers being undertaken by financial institutions has grown over the past year.

“Mergers will not take place just because of a few policy level changes. The market will compel financial institutions to opt for a merger as it is happening now,” pointed out Gyanwali.

For most financial institutions, consolidation has become the best weapon to fight for survival in the present overcrowded market. As of recent, the amount of deposits has gone up but borrowers have become scarce, and financial institutions have realised the importance of mergers.

Moreover, the fast approaching deadline for increasing their paid up capital to the regulatory requirement which will be over with the end of the current fiscal year, has compelled financial institutions to opt for mergers as the best possible measure.

According to regulations, commercial banks have to increase their paid up capital to Rs two billion, national level development banks to Rs 640 million, and national level finance companies need to have their paid up capital at Rs 200 million.

“For most financial institutions, a merger is one measure that will help them meet the capital requirement by the deadline, thus instances of mergers have increased of late,” pointed out president of Nepal Finance Companies Association Rajendra Man Shakya.

NRB had implemented the merger policy as the best measure to deal with the excessive number of financial institutions in a market the size of Nepal, which is unsustainable for the overall financial sector.

Likewise, NRB has been directing financial institutions promoted by the same group to merge.

The merger between Global Bank and IME Financial Institution, and the upcoming merger of Bank of

Asia Nepal and NIC Bank has been pushed by NRB because they both have common promoters.

Source: THT