NRB sets criteria for banks to open liaison office abroad
KATHMANDU, JAN 31 -
The Nepal Rastra Bank (NRB) has fixed certain criteria for commercial banks to open liaison or representative offices abroad, making it clear that only the financially sound banks can open such offices.
A liaison or representative office facilitates banks to engage in more letter of credit business and international trade.
Issuing a circular on Wednesday, the central bank said a bank willing to open a contact or representative office abroad should have adequate paid-up capital as fixed by the central bank and should have maintained an additional one percent buffer capital in the required capital adequacy ratio. Also, the bank should have maintained non-performing loan (NPL) below 5 percent in the last three years. “If a bank has faced penalty from the central bank, the date of penalty imposed should have crossed six months,” states the directive.
Earlier, the central bank had not issued a clear-cut circular regarding the eligibility of banks to open office outside the country. There was just a provision that banks, including the joint venture ones, could open liaison or representative offices abroad by adhering to the condition put forth by the central bank. “With a few banks showing interest to open such offices abroad, we made a clear-cut provision on the matter,” said Bhaskar Mani Gnawali, spokesperson for NRB. “This will ease the LC and remittance transactions for banks.”
No commercial bank has so far opened liaison or representative offices abroad, according to the central bank. However, banks dealing with remittance have their offices abroad. “A liaison or representative office, however, covers a wider area of business,” said Gnawali. He also clarified that it is not the permission to open branch abroad. Bankers have welcomed the central bank move. President of Nepal Bankers’ Association Rajan Singh Bhandari said the new circular will broaden the areas of transactions for banks.
A bank willing to open such an office abroad should first apply to the central bank for approval in principle. While applying, the bank should submit the decision of the board of director, rules of the regulator in the host country and a self assessment about whether the bank could abide by those rules.
Likewise, the bank should also submit a feasibility study about the business prospect of opening such an office, and an annual financial report of the last three years, according to the new circular.
The central bank will then study the documents and ask the bank concerned to get approval from the regulator of the host country within the next six months and apply to NRB for final approval. “The NRB will study the application and give approval to open a liaison or representative office on the basis of the ‘aforementioned’ conditions and additional conditions if required,” states the circular. The bank concerned then should conclude the opening of such an office within six months after final approval from the central bank’s foreign currency management department.
The NRB has also made it mandatory that the banks will have to make available the documents, such as letters, cheques and receipt, in Nepali language too except for the ones that are used in international transactions.
Source: The Kathmandu Post
