Capital Merchant Bank and Finance Company pulls shutter down

Yet another finance company -- Capital Merchant Bank and Finance Company -- pulled its shutter down today citing acute cash shortage.
However, spokesperson of the central bank Bhaskar Mani Gyanwali said that management cannot shut down whole operation and stop payments with an excuse of liquidity crunch.
"It is illegal," he said, adding that the central bank had been monitoring the finance company since last week. "We have instructed its management to resume operation and they have also expressed commitment to try their best to recover loan and pay its customers," he added.
Capital Merchant Bank and Finance Company -- that was facing acute shortage of cash from last one week -- has also applied to the central bank for special refinancing facility and central bank team was studying its books.
"After a week-long wait bowing to the pressure of withdrawal, we decided to close down," said a senior official of the finance company without wanting to be named.
After closing the transaction, they went to the central bank to ask for rescue package.
The bank's management and central bank along with Nepal Finance Companies' Association today held discussions on the possible rescue of the class C financial institution -- that has 12 branches including its head office at Battisputali in Kathmandu -- has posted Rs 40.84 million profits in the third quarter. It has posted Rs 52.43 million profits in the second quarter, according to its published unaudited report.
The finance company that has CD ration at 82.84 per cent by the third quarter has Rs 935 million paid up capital. It has also floated shares that were traded at Rs 132 per unit at the secondary market last time.
President of Nepal Finance Companies' Association Rajendra Man Shakya, who was in the talks, however, said that the central bank has to release special financing facility quicker to rescue the financial institutions.
The central bank on June 9 had opened a 'special' refinancing window for banks and financial institutions under lender of the last resort to avert systemic risk from tight liquidity situation.But the central bank has set good governance as the condition to get the special refinancing facility for the four months period against good loan at 10 per cent interest rates.
"The central bank seemed little reluctant pushing the financial institutions to closure," another finance company that has applied for the special refinancing facility said.
"Though, refinancing facility is a short-term measure, there is no alternative for the moment," Shakya said, adding that the central bank should bring a long term strategy to solve the crisis.
Due to low depositors' confidence deposit mobilisation could not grow at the rate it used to grow in the past years flaring a series of failures of financial institutions.
On one hand, the financial institutions that are heavily dependent on institutional depositors have been facing problem due to Assets Liability mismatch and on the other bad corporate governance has also plagued some of the financial instutitons.
Last week, the Parliamentary committee has also directed the central bank to prepare a work plan to avert the systemic crisis in case the current liquidity crunch prolongs.