Banks and financial institutions (BFIs) have been on a merger spree since Nepal Rastra Bank (NRB), the central bank, issued the Merger Bylaws, 2068 (BS), on May 2011.
Mergers, NRB said, would promote the overall financial system and increase the public’s trust toward it.
Since then, a total of 43 BFIs have merged to become 18 institutions. Of those, only two were commercial banks -- NIC Bank and Bank of Asia --merged to become NIC Asia, while 41 BFIs are ´B´, ´C´ and ´D´ class financial institutions.
Another 25 BFIs, of all ‘A’, ‘B’, ‘C’ and ‘D’ classes, have taken Letters of Intent (LoIs) from the central regulatory body to start the merger process. If these 25 complete their merger intents, they will form 10 BFIs.
Mergers help BFIs strengthen their capital base by putting them in a better position to withstand stiff banking.
Financial analysts have warned that the number of BFIs is too high considering that small size of the country and a low volume of economy.
“These financial institutions, among others, should boost the overall economy and bring people into the banking system. Compared to the growth in the number of banks, the outcome has not been up to a satisfactory level due to various reasons, including the quality of their services,” financial analyst Parshuram Kunwar Chhetri said.
The need of the hour is strong and large BFIs rather than small and many, he added.
There are 31 ´A´ class (commercial) banks, 89 ‘B’ class (development) banks, 75 ´C´ class financial institutions and 22 ´D´ class (micro-credit development) banks operating.
NRB has been urging the BFIs to strengthen their capital base to enhance their competitive and financial capacity as well as to reduce operational expenses. Apart from voluntarily initiatives by the BFIs to merge with each other, NRB can also direct them to adopt mergers.
“The central bank can instruct or suggest BFIs to merge in case representatives of the same group, firm or company are found assuming posts in the board of directors of both BFIs and their financial conditions remain unhealthy,” reads the merger bylaw.
According to the bylaws, BFIs can get a notice from NRB to merge if their non-performing loans (NPL) exceed 5 percent of their total loan portfolio for three straight years or they faced prompt corrective action (PCA) in three or more instances.
However, Chhteri observes a different set of reasons for BFIs opting to merger.
“Earlier BFIs were undergoing merger due to their own low capital base or the instruction of the regulatory body,” he said. “Now they are coming themselves voluntarily for mergers,” he added, citing an instance of merger process initiated between Global IME Bank and Commerz and Trust Bank.
Global IME and Commerz and Trust Bank have almost finalized their merger process.
Global IME has called a special annual general meeting (AGM) for March 5 to seek approval of shareholders, while Commerz and Trust Bank has called similar meeting for March 3. After the merger, the paid-up capital of the merged entity will be Rs 4.41 billion -- the highest paid-up capital among private banks.
“The main reason that we decided to go for a merger is to enhance our capacity as the merger will help consolidate paid-up capital. After the merger the bank will be in a position to invest on large-scale projects that are worth Rs 2 billion, which was, otherwise, not possible due to a low capital base,” Anal Raj Bhattarai, the chief executive officer (CEO) of Commerz and Trust Bank, told Republica.
FRAUGHT WITH CHALLENGES
The merger process is also fraught with challenges. While BFIs are rushing for amalgamation, they are finding the process of managing their new human resources in the merged entity to be the main challenge.
Sashin Joshi, the CEO of NIC Asia told Republica that the integration of software, management of branches of the two merging partners -- particularly those that are close to each other, and the cultural integration of the bank´s staff are the challenges of a merger process.
“The policy framework of NRB is fine but it would further encourage BFIs to merge if it waives income tax to some extent,” he added.
Uday K Upadhyay, the CEO of Kumari Bank, another commercial bank seeking merger, also points out the need of a win-win situation for the merging partners. “Merger is a complex process and it cannot be done overnight. The merger should bring synergy to the partners,” he said. “The synergy that I talk about comes in various forms. There are regional-level development banks and they could be potent merger partners for us. This can help us reach where we are not being able to expand our branches. This will give synergy to them and also us,” Upadhyay added.
FINANCIAL INTERMEDIARY NGOS TOO ON MERGER
Most of the Financial Intermediary NGOs (FINGOs) licensed by NRB are also mulling over merger options after the central bank came up with a policy to convert FINGOs into ´D´ class micro-financial institutions.
According to a source at the Micro-Finance Promotion and Supervision Department of NRB, FINGOs are preparing to merge with bigger institutions as most of them do not meet the minimum capital requirement of Rs 10 million for a ´D´ class micro-financial institution.
In its Monetary Policy for Fiscal Year 2013/14, NRB said a provision will be made for FINGOs to covert into ´D´ class micro-finance institutions by mid-July 2015.
NRB spokesperson Bhaskar Mani Gyawali told Republica that the central bank has asked FINGOs to furnish their upgradation plans by mid-July 2015. Gyawali warned that NRB would scrap the licenses of FINGOs that failed to convert into ´D´ class institutions.
A total of 31 FINGOs are serving across 50 districts at present. Sunsari-based Forum for Rural Women Ardency Development (FORWARD) and Saptari-based Mahuli Samudyik Bikas Kendra upgraded themselves into ‘D’ class micro-finance in Fiscal Year 2012/13.
source: republica,20 feb 2014
LINK
Mergers, NRB said, would promote the overall financial system and increase the public’s trust toward it.
Since then, a total of 43 BFIs have merged to become 18 institutions. Of those, only two were commercial banks -- NIC Bank and Bank of Asia --merged to become NIC Asia, while 41 BFIs are ´B´, ´C´ and ´D´ class financial institutions.
Another 25 BFIs, of all ‘A’, ‘B’, ‘C’ and ‘D’ classes, have taken Letters of Intent (LoIs) from the central regulatory body to start the merger process. If these 25 complete their merger intents, they will form 10 BFIs.
Mergers help BFIs strengthen their capital base by putting them in a better position to withstand stiff banking.
Financial analysts have warned that the number of BFIs is too high considering that small size of the country and a low volume of economy.
“These financial institutions, among others, should boost the overall economy and bring people into the banking system. Compared to the growth in the number of banks, the outcome has not been up to a satisfactory level due to various reasons, including the quality of their services,” financial analyst Parshuram Kunwar Chhetri said.
The need of the hour is strong and large BFIs rather than small and many, he added.
There are 31 ´A´ class (commercial) banks, 89 ‘B’ class (development) banks, 75 ´C´ class financial institutions and 22 ´D´ class (micro-credit development) banks operating.
NRB has been urging the BFIs to strengthen their capital base to enhance their competitive and financial capacity as well as to reduce operational expenses. Apart from voluntarily initiatives by the BFIs to merge with each other, NRB can also direct them to adopt mergers.
“The central bank can instruct or suggest BFIs to merge in case representatives of the same group, firm or company are found assuming posts in the board of directors of both BFIs and their financial conditions remain unhealthy,” reads the merger bylaw.
According to the bylaws, BFIs can get a notice from NRB to merge if their non-performing loans (NPL) exceed 5 percent of their total loan portfolio for three straight years or they faced prompt corrective action (PCA) in three or more instances.
However, Chhteri observes a different set of reasons for BFIs opting to merger.
“Earlier BFIs were undergoing merger due to their own low capital base or the instruction of the regulatory body,” he said. “Now they are coming themselves voluntarily for mergers,” he added, citing an instance of merger process initiated between Global IME Bank and Commerz and Trust Bank.
Global IME and Commerz and Trust Bank have almost finalized their merger process.
Global IME has called a special annual general meeting (AGM) for March 5 to seek approval of shareholders, while Commerz and Trust Bank has called similar meeting for March 3. After the merger, the paid-up capital of the merged entity will be Rs 4.41 billion -- the highest paid-up capital among private banks.
“The main reason that we decided to go for a merger is to enhance our capacity as the merger will help consolidate paid-up capital. After the merger the bank will be in a position to invest on large-scale projects that are worth Rs 2 billion, which was, otherwise, not possible due to a low capital base,” Anal Raj Bhattarai, the chief executive officer (CEO) of Commerz and Trust Bank, told Republica.
FRAUGHT WITH CHALLENGES
The merger process is also fraught with challenges. While BFIs are rushing for amalgamation, they are finding the process of managing their new human resources in the merged entity to be the main challenge.
Sashin Joshi, the CEO of NIC Asia told Republica that the integration of software, management of branches of the two merging partners -- particularly those that are close to each other, and the cultural integration of the bank´s staff are the challenges of a merger process.
“The policy framework of NRB is fine but it would further encourage BFIs to merge if it waives income tax to some extent,” he added.
Uday K Upadhyay, the CEO of Kumari Bank, another commercial bank seeking merger, also points out the need of a win-win situation for the merging partners. “Merger is a complex process and it cannot be done overnight. The merger should bring synergy to the partners,” he said. “The synergy that I talk about comes in various forms. There are regional-level development banks and they could be potent merger partners for us. This can help us reach where we are not being able to expand our branches. This will give synergy to them and also us,” Upadhyay added.
FINANCIAL INTERMEDIARY NGOS TOO ON MERGER
Most of the Financial Intermediary NGOs (FINGOs) licensed by NRB are also mulling over merger options after the central bank came up with a policy to convert FINGOs into ´D´ class micro-financial institutions.
According to a source at the Micro-Finance Promotion and Supervision Department of NRB, FINGOs are preparing to merge with bigger institutions as most of them do not meet the minimum capital requirement of Rs 10 million for a ´D´ class micro-financial institution.
In its Monetary Policy for Fiscal Year 2013/14, NRB said a provision will be made for FINGOs to covert into ´D´ class micro-finance institutions by mid-July 2015.
NRB spokesperson Bhaskar Mani Gyawali told Republica that the central bank has asked FINGOs to furnish their upgradation plans by mid-July 2015. Gyawali warned that NRB would scrap the licenses of FINGOs that failed to convert into ´D´ class institutions.
A total of 31 FINGOs are serving across 50 districts at present. Sunsari-based Forum for Rural Women Ardency Development (FORWARD) and Saptari-based Mahuli Samudyik Bikas Kendra upgraded themselves into ‘D’ class micro-finance in Fiscal Year 2012/13.
source: republica,20 feb 2014
LINK
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