Nepal Rastra Bank’s decision to enforce its regulation allowing only foreign financial institutions to own a stake in Nepali financial institutions is going to force big players like Nabil Bank and Nepal Investment Bank Limited, and mid-sized banks like NMB Bank, to overhaul their ownership structure.
Issuing a circular, the central bank has directed foreign companies other than financial institutions that own a stake in Nepali financial institutions to divest their shares by mid-July next year. The foreign companies have to relinquish their shares either to Nepali investors or to foreign financial institutions.
The new circular is a reiteration of the clauses in NRB’s Bank and Financial Institution Act 2063 (Bafia) that allow only foreign financial institutions to hold a stake in Nepali banks. “Regarding foreign investment, the Bafia has mentioned that only foreign joint ventures between foreign and domestic financial institutions or full subsidiary of a foreign financial institution will be granted licence,” informed Maha Prasad Adhikari, Deputy Governor, NRB. “However, over the period of time, some of the foreign promoters have transferred their shares to other entities. The directive will provide such financial institutions some time to get their ownership structure straightened as per the law.”
This rule will affect Nabil Bank, one of the largest commercial banks, the most. The bank’s 50 per cent stake is owned by an Irish company NB International, which is not a financial institution.
NRB has blocked the dividend payment worth more than Rs 600 million to the Ireland-registered company while probing its holding in the bank.
The banking regulator was prompted to initiate action as per the recommendation of the Commission for the Investigation of Abuse of Authority following Nepali industrialist Binod Chaudhary’s revelation in his tell-all autobiography, published last year, as to how he acquired majority stake of the bank through NB International using back channels.
Moreover, an article published in Forbes magazine in June 2008 also tells that Chaudhary holds a stake in Nabil Bank through an offshore entity in Ireland — NB International. “The 50 per cent stake was acquired from Emirates Bank, which sold it first to the National Bank of Bangladesh, which in turn reached a deal with the Irish firm. Earlier, a court had stalled a direct Chaudhary purchase,” says the article written by Forbes staffer, Naazneen Karmali.
Although the large-scale share transfer from one entity to another can only be undertaken after the regulator’s approval, NRB seems to have paid little attention to the ownership transfer so far.
Likewise, NMB Bank’s 13 per cent shares are held by a Malaysian real estate company called Young Leon Real Estate.
These banks are not the only ones that will have to revise their capital structure. Another big bank — Nepal Investment Bank Limited — will have to issue additional 10 per cent of its equity to the public, as the latest directive instructs financial institutions that have broken ties with foreign banks to sell at least 30 per cent shares to the general public by mid-July next year. According to NIBL’s financial statement, 20 per cent of the issued capital is owned by public.
“As its foreign partner Indosuez Bank does not have any stake in the bank, the bank will not be liable to enjoy privileges meant for foreign joint ventures,” pointed out Adhikari.
source:the himalayan times,11 march 2014
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Issuing a circular, the central bank has directed foreign companies other than financial institutions that own a stake in Nepali financial institutions to divest their shares by mid-July next year. The foreign companies have to relinquish their shares either to Nepali investors or to foreign financial institutions.
The new circular is a reiteration of the clauses in NRB’s Bank and Financial Institution Act 2063 (Bafia) that allow only foreign financial institutions to hold a stake in Nepali banks. “Regarding foreign investment, the Bafia has mentioned that only foreign joint ventures between foreign and domestic financial institutions or full subsidiary of a foreign financial institution will be granted licence,” informed Maha Prasad Adhikari, Deputy Governor, NRB. “However, over the period of time, some of the foreign promoters have transferred their shares to other entities. The directive will provide such financial institutions some time to get their ownership structure straightened as per the law.”
This rule will affect Nabil Bank, one of the largest commercial banks, the most. The bank’s 50 per cent stake is owned by an Irish company NB International, which is not a financial institution.
NRB has blocked the dividend payment worth more than Rs 600 million to the Ireland-registered company while probing its holding in the bank.
The banking regulator was prompted to initiate action as per the recommendation of the Commission for the Investigation of Abuse of Authority following Nepali industrialist Binod Chaudhary’s revelation in his tell-all autobiography, published last year, as to how he acquired majority stake of the bank through NB International using back channels.
Moreover, an article published in Forbes magazine in June 2008 also tells that Chaudhary holds a stake in Nabil Bank through an offshore entity in Ireland — NB International. “The 50 per cent stake was acquired from Emirates Bank, which sold it first to the National Bank of Bangladesh, which in turn reached a deal with the Irish firm. Earlier, a court had stalled a direct Chaudhary purchase,” says the article written by Forbes staffer, Naazneen Karmali.
Although the large-scale share transfer from one entity to another can only be undertaken after the regulator’s approval, NRB seems to have paid little attention to the ownership transfer so far.
Likewise, NMB Bank’s 13 per cent shares are held by a Malaysian real estate company called Young Leon Real Estate.
These banks are not the only ones that will have to revise their capital structure. Another big bank — Nepal Investment Bank Limited — will have to issue additional 10 per cent of its equity to the public, as the latest directive instructs financial institutions that have broken ties with foreign banks to sell at least 30 per cent shares to the general public by mid-July next year. According to NIBL’s financial statement, 20 per cent of the issued capital is owned by public.
“As its foreign partner Indosuez Bank does not have any stake in the bank, the bank will not be liable to enjoy privileges meant for foreign joint ventures,” pointed out Adhikari.
source:the himalayan times,11 march 2014
LINK
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