Over two dozen BFIs seeking merger
KATHMANDU, FEB 9:
More than a year long exercise by the central bank to promote mergers seems to be paying off with almost two dozen banks and financial institutions (BFIs) formally seeking mergers in recent times.
More than 20 financial institutions have formally applied for an approval to merge at present. “We will soon be issuing a Letter of Intent (LoI) for four mergers,” informed spokesperson for Nepal Rastra Bank Bhaskar Mani Gyanwali.
The next set of approvals will include mergers between finance companies and development banks besides the merger between Global Bank and IME Financial Institution.
The central bank has already provided LoI for five mergers. In November 2011, it approved the mergers between Annapurna Development Bank and Suryadarshan Finance, Business Development Bank and Universal Finance, Pashupati Development Bank and Lord Buddha Finance, and Swastik Merchant Finance and Infrastructure Development Bank.
Recently, the central bank also gave a go-ahead for a merger between Machchhapuchhre Bank and Standard Finance.
Only after obtaining the LoI, do the banks and financial institutions give finishing touches to the merger.
Last year, Nepal Sri Lanka Merchant Banking and Finance merged with Nepal Bangladesh Bank, and Himchuli Bikas Bank merged with Birgunj Finance to form the national level H and B Development Bank.
Moreover, almost all banks and financial institutions, including commercial banks, have received approval to seek partners for possible mergers during their annual general meetings (AGM). Kist Bank is in talks with Everest Bank and NMB Bank is also looking forward to merge with Clean Energy Development Bank.
“Financial institutions have been voluntarily opting for mergers and the central bank has not compelled any of them to opt for a merger,” Gyanwali said, adding that it has, however, been directing them to seek a suitable partner, if they are going to benefit from a merger.
“But regarding banks and financial institutions promoted by a single group, we strongly advise them to merge.” For the past couple of years, the regulatory authority has been encouraging banks and financial institutions to merge as a measure to tackle the growing number in the small market that is encouraging unprofessional competition.
As the number have increased, competition has become fierce encouraging them to take greater risks in the recent years resulting in failure of some of the banks and financial institutions and a further few being declared problematic.
“Merger is the best option for banks and financial institutions to strengthen themselves and become a stronger player,” said president of Nepal Finance Companies Association Rajendra Man Shakya. “However, it is irrational to expect a merger between two weak institutions to transform them into a stronger one.”
order to promote mergers, the central bank has also brought in the merger bylaw that provides incentives for mergers like an additional five-year period for offloading cross holdings. “The central will also give priority to merged entities during the upgrading process,” he added.
Source: THT
