NRB set to split FI supervision dept

KATHMANDU, NOV 09 -

The Nepal Rastra Bank (NRB) has decided to split its Financial Institutions Supervision Department into two divisions—one looking after development banks and the other monitoring finance companies. Currently, the single department monitors 166 B and C class financial institutions (FIs).

Realising that a single department cannot effectively supervise such a huge number of FIs, the central bank’s board took such a decision so that focused attention could be paid to both B and C class financial institutions. A senior NRB official said the work on splitting the department is going on at war-footing and that it will be completed within mid-December. After this separation, there will be four separate departments to look after A, B, C and D class FIs.

Currently, there are three departments that oversee A class commercial banks, D class micro-finance institutions and B and C class FIs. “It was a too hectic for the department to carry out both on-site and off-site supervision with limited human resource,” said the official.

The latest decision came after the central bank decided to intensify on-site supervision of FIs after finding out massive wrongdoings in some of them. The central bank has decided to conduct on-site supervision of all FIs every year. Earlier, such supervision used to be carried out every two years. The large-scale misappropriation of funds in Nepal Share Market and Finance, Gurkha Development Bank, People’s Finance, Capital Finance and Samjhana Finance were uncovered during NRB’s on-site supervision.

According to a recent assessment of the International Monetary Fund (IMF), risks in Nepali banking sector have increased as FIs proliferated amid weak supervision. “Asset quality has deteriorated and liquidity pressures increased following the bursting of a bubble in the real estate market, to which banks are significantly exposed,” the IMF report states.

Given NRB’s weaknesses being criticised at the international level, the Nepali central bank is refocusing on FIs which are more vulnerable. It is planning to increase human resources after the formation of the two separate departments. The departments will have three directors each and will be headed by separate executive directors.

Source: Kantipur