NRB declares NFL 'problematic'

KATHMANDU:

Nepal Rastra Bank (NRB), the banking sector regulator, has declared Nepal Finance Ltd (NFL) ‘problematic’ as its financial health deteriorated drastically due to haphazard practices.

The Kamaladi-based finance company has accumulated bad loans to the tune of 54.18 per cent of the credit portfolio and its capital adequacy ratio has dipped to a negative of 4.36 per cent as against the minimum regulatory requirement of 11 per cent, says a statement issued by NRB. Similarly, the paid-up capital of the class ‘C’ financial institution stands at Rs 135.80 million — way lower than the minimum regulatory requirement of Rs 220 million mandated by NRB.

During investigations, it was found that the finance company had extended loans of over 25 per cent of the core capital to a single borrower, crossing the NRB’s single obligor limit.

It was also found that Rabichandra Man Shrestha, who had assumed the position of chief executive at the company for a long time, his family members and people and companies related to him had held over 36 per cent stake in the company.

After detecting these lapses and holes in its balance sheet, NRB on July 11 sought clarification from the finance company on why the regulator should not declare it ‘problematic’. But after NRB did not get a satisfactory response, it took a decision to label the company as troubled.

The finance company now has six months to implement reforms and prop up its financial health. By that time, it should meet the minimum paid-up capital and capital adequacy ratio fixed by the regulator.

The company also needs to bring down the portion of non-performing loans to less than five per cent of the total credit portfolio.

At the same time, it cannot mobilise fresh deposit or renew the tenure of matured deposits. It should also take the permission of NRB while returning deposits or settling liabilities of over Rs 200,000.

The company will also be barred from extending new loans, buying or selling fixed assets, declaring or extending dividends and raising salaries and allowances of staff members.

If these measures fail to improve the financial condition of the finance company, NRB may instruct the troubled institution to merge with other institutions or create groundwork for other BFIs to acquire the problematic institution. It may also sell shares of any shareholder to individuals, firms, companies and groups deemed appropriate by referring to the Problematic Bank and Financial Institutions Resolution Regulation enforced in July.

In this process, NRB can suspend or remove board directors, CEO and other staff of troubled institutions, and make necessary changes to the management to protect the interest of depositors and shareholders.

If all these measures fail to prop up the financial condition of the institution, NRB may liquidate it. NRB has so far sent Nepal Bikas Bank, Samjhana Finance, United Development Bank, Crystal Finance Ltd and Himalaya Finance Ltd into liquidation.

At a glance

• Bad loans accumulated to the tune of 54.18pc of credit portfolio

• Capital adequacy ratio dipped to a negative of 4.36pc as against minimum regulatory requirement of 11pc

• Paid-up capital stands at Rs 135.80m — way lower than minimum regulatory requirement of Rs 220m

Source: THT