The merger of development banks and finance companies are gaining momentum as the central bank has approved the merger of three more sets of financial institutions.
Nepal Rastra Bank (NRB) board meeting today issued Letter of Intent (LoI) for the merger of Banepa-based Annapurna Development Bank and Kathmandu-based Suryadarshan Finance, Pokhara-based Business Development Bank and Kathmandu-based Universal Finance and Banepa-based Pashupati Development Bank and Kathmandu-based Lord Buddha Finance.
Following the merger, the merged entity will operate as national level development banks as per the central bank's regulation. The biggest incentive for the class 'B' and 'C' financial institutions is the viability for the upgradation to national level financial institutions.
Two weeks ago, the central bank had issued similar LoI to the merger of Swastik Merchant Finance and Infrastructure Development Bank.
After getting LoI from the central bank, Special General Meeting of the financial institutions need to endorse the decision. As the general meetings of the financial institutions have green signaled to the mergers, now, they have to apply to the Company Registrar Office and central bank for the merger and upgradation with necessary documents and infrastructures.
The merger among class 'C' and 'D' financial institutions has gained quite a momentum in recent times. According to the NRB, there are more than 30 financial institutions holding talks about getting merged.
The beginning of the year 2011 saw the merger of Nepal Sri Lanka Merchant Banking and Finance into Nepal Bangladesh Bank Ltd. Himchuli Bikas Bank and Birgunj Finance also got merged four months back into national level H and B Development Bank. NRB has been prescribing merger as the solution to most of the financial institutions that are in difficulty since last year. The growing numbers of banks and financial institutions in the size of market has considered being unsustainable for the overall financial sector thus merger of the banks and financial institutions has been referred as the best measure for long term financial stability and competitive financial sector.