Proposed sale of Nepal Bangladesh Bank shares is not illegal

KATHMANDU, OCT 13 -

The Finance Ministry has opined that allowing Nepali promoters of Nepal Bangladesh Bank ( NBB ) to sell their shares to their Bangladeshi partner would be legal.

The Nepal Rastra Bank (NRB) had asked for the ministry’s opinion on whether such a transaction would be an insider trading which is barred by the Bank and Financial Institution Act (BAFIA). The ministry’s positive opinion has made it easy for the central bank to take a decision on the matter.

Nepali promoters of NBB , who hold a joint 26 percent stake in the bank, are planning to sell their shares to their Bangladeshi partner—International Finance Investment and Commerce (IFIC) Bank which holds 10 percent stake in the bank.

The Act bars directors, chief executives, auditors or secretaries of banks and financial institutions (BFIs), or people directly involved in the management and accounting functions of BFIs from selling/purchasing shares of the companies (or subsidiaries) they are involved with under their own name or in the name of their family members and their companies until one year of their exit from those companies.

In its response to NRB, the Finance Ministry argued that the transaction would not be an insider trading given both seller and buyer of the promoter’s shares would be well aware about the financial status of the bank.

“When we took the Law Ministry’s opinion, it advised that the transaction would not be an insider trading, and we responded to NRB accordingly,’ said a senior Finance Ministry official. The central bank’s legal department had also given a similar opinion.

Following the ministry’s opinion, the central bank said that it would not take much time to take a decision on the matter. “The ministry’s opinion has made it easy for us to take a decision,” said a senior NRB official. “A decision will be taken soon.”

Although a proposal on allowing the sale of Nepali promoters’ shares to Bangladeshi shareholders had reached the NRB board, the board could not take a decision due to strong opposition, citing the BAFIA provision, from some board members ‘having close connection with the domestic NBB promoters’.

The central bank seeks to achieve its twin objectives—ensuring the handover of the NBB management to better a promoter and recovery of loans gone to the domestic promoters—by allowing the share sale. NB Group has bad reputation as a bank promoter.

The central bank has already arranged a mechanism that the amount the domestic promoters—having loan liability to the bank—receive from the Bangladeshi purchaser should be collected in a separate account with the bank or the central bank, which would first be used for the loan repayment.

According to the central bank, NBB has to recover around Rs 1.4 billion from the Nepali promoters. The loans are the main reason for the troubles at NBB , which landed in crisis six years ago and is still struggling.

The bank’s financial health further deteriorated after its merger with Nepal Sri Lanka Merchant Bank and Finance one and half years ago due to the merchant bank’s huge liabilities—to the tune of Rs 800 million.

Source: The Kathmandu Post