Tells CEOs, chairpersons why M&A is now a must for financial consolidation
KATHMANDU, June 28: Nepal Rastra Bank (NRB) has sought commitments from the commercial banks for their readiness to go for 'big' merger and acquisition (M&A) in line with the announcement made in the budget speech for the upcoming fiscal year 2019/20.
Summoning chief executive officers (CEOs) and chairpersons of all commercial banks on Thursday, the NRB Governor Chiranjibi Nepal and other top ranking officials urged them to contemplate on the possible merger partner and inform the central bank about the potential amalgamation.
The central bank's directive to the commercial banks comes in the wake of preparation to draft monetary policy for the upcoming fiscal year.Not only did the NRB seek suggestions from bankers on M&A, it also made a presentation on why the M&A among BFIs was a must for financial consolidation in the country.The NRB's move to summon bankers to discuss about the M&A indicates that the central bank is likely to focus its monetary policy for the upcoming fiscal year on prodding BFIs to go for amalgamation.“The government is in favor of big merger. Through the meeting with CEOs and chairpersons of commercial banks, we have tried to send a message that the upcoming monetary policy will facilitate the government's intent of amalgamating commercial banks merger in line with the budget speech and its financial policy,” Chintamani Shiwakoti, a deputy governor of the NRB, told Republica.
Milestone in Mergers
According to two bankers present in the meeting, the central bank has urged the commercial banks to inform it about their merger plan by July 4.
The NRB is likely to unveil its monetary policy on July 12.
Presenting the budget speech for FY2018/19 on May 29, Finance Minister Khatiwada had said that the government will take a policy of encouraging big' merger among BFIs. “The policy to merge banks and financial institutions will be continued, while large banks and financial institutions will also be encouraged to undergo merger,” read the budget statement.
To encourage merger, Finance Minister Khatiwada has also announced a waiver in income tax for a merged entity for additional one year.
While the central bank has been encouraging M&A among BFIs for last few years through various facilities as well as relaxations on rules, there has not been much interest among commercial banks. Some think that the central bank is now taking a 'carrot and stick approach' for sending commercial banks into merger.
“There is a broad consensus that the number of BFIs is very high. The high number is not a problem in itself. But, the unhealthy competition due to higher number of banks has raised concerns over the lack of governance in banking sector,” Bhuvan Dahal, CEO of Sanima Bank Ltd, told Republica. “It seems the NRB is now taking two-pronged approach for merger among commercial banks: encourage and compel.”
As noted by Dahal, the presentation made by the NRB in the meeting with banking executives and chairpersons also highlights the recent anomalies in banking sector. Breach of prudential lending limit, dual financial statements and 'ever-greening' of loans were some of the problems that were pointed out by a senior NRB official in his presentation.
Laxmi Prapanna Niroula, the spokesperson for the NRB, confirmed the central bank's concerns expressed through the presentation. “The operating cost of banks is rising so rapidly that many institutions will increasingly find it harder to survive. The central bank's early warning system is sending flashes,” Niroula told Republica. “Merger is the issue which has been on discussion for last few years. Some small institutions toed the line and went into the merger process. Now, we want bigger institutions also to follow the suit," he said, adding: "The governor's message to commercial banks was to come up with their perspective as well as commitment.”
