Bank of Kathmandu accepts central bank's offer

Bank of Kathmandu (BoK) has opted for Nepal Rastra Bank's (NRB) proposal to take over the reins of the bank's management. BoK authorities have urged all not to be worried over the turn of events -- NRB will take charge for the next three months.
"We have a sound financial health. The central bank took over the management due to dispute among board members," said BoK.
NRB took control of the 10th commercial bank at an emergency board meeting late last evening to safeguard the interests of BoK's promoters and depositors, which could have been at risk following the differences of opinion among its board members.
However, NRB's move did not have a cascading effect on the bank's share price that traded at Rs 1,485, only Rs 22 less than yesterday. Investors find BoK share a good bargain as it had a deposit base of Rs 17.47 billion and earned a net profit Rs 332.96 million by the end of third quarter. In the last fiscal year, it had also distributed 40 per cent bonus shares.
NRB has suspended the BoK board and sent a four-member team, led by its director Laxmi Prapanna Niraula, who will work with acting CEO Sabin Lal Shrestha. With this move, the central bank wanted to send across a message to all financial institutions that the regulatory authority of the financial market is serious about safeguarding the public deposit.
The growing perception is that financial institutions have to be run by professionals and not by the board. But BoK had argued that a bank's board had full authority to appoint or dismiss any staff and no law allowed NRB to intervene. But, professionals opined that NRB was well within its right to step in since financial institutions were custodians of public money.
"It is an unfortunate decision," said Rajendra Khetan, chairman, Laxmi Bank. He felt that take over was not a solution."NRB has to play the role of a guardian. Undoubtedly, CEOs call the shots in banks. But in the domestic context, promoters would like to have their say," he explained.
Sashin Joshi, CEO of NIC Bank, who is also the president of Nepal Bankers Association (NBA), also felt that the decision was unfortunate. "NRB's intention might be as per the law," he said adding that the dispute should not have reached the central bank.
Agreed Khetan, "The take over could have been averted it the dispute did not have reached the central bank and some body -- aggreed by both the parties -- mediated.
But the dispute in the board is inevitable and more disputes are likely in the future.