Trading of 10 out of 23 National Level Development Banks halted; Mergers disrupt regular trading
At present, there are total of 23 national level development banks in Nepal. After the monetary policy 2072/73, 10 of the national level development banks have entered the process of merger which accounts for almost half (43.47%) of national level development banks in Nepal. Many other development banks are planning for merger as it is impossible for them to reach paid up capital of Rs 2.50 arba by the end of Ashad 2074.
The trading of these 10 development banks have been halted in NEPSE. On an average it takes about 4-6 months for merger process to complete even when the process is expedited. We have examples where the merger process has taken more than a year to complete!
The following table illustrates the national level development banks that are currently in the merger process:
Most of the remaining national level development banks are expected to go into merger too. This will significantly lower the number of national level development banks trading in NEPSE. The following table lists the National Level development banks that are still being traded in NEPSE:
The Nepal Rastra Bank (NRB) has plans to halt trading of smaller Bank and Financial Institutions (BFIs) only in merger process in order to lower the effect of merger process. However, this plan has not been implemented yet as it may have lost its charm in bureaucratic hassle.
With all the BFIs gearing up to reach the stipulated paid up capital within the time frame provided, more and more BFIs are expected to merge. BFIs occupy a large chunk of market capitalization in the only secondary market of Nepal. If the NRB does not come out with new plans anytime soon, trading majority of the companies listed on NEPSE will be halted.
As investors will have fewer options to invest, this may artificially increase the price of share of remaining companies traded in NEPSE. This will create higher demand as more and more investors are eager to buy from the same small pool of companies. The fundamental concept of economics, supply and demand, dictates that when there is higher demand than supply, the price will go up regardless fundamentals of the company.
