Central bank enforces PCA on financial institutions

The central bank has enforced prompt corrective actions (PCA) on Himalayan Finance and Arun Finance and sought explanation from Crystal Finance and Kuber Merchant Bank and Finance.
The management decision has enforced the PCA on them as they failed to maintain capital adequacy. Once the PCA is imposed, the banks and finance companies cannot mobilise deposits, open branches, distribute dividends and increase salaries and incentives of employees and add new employees that could add expenses.
The three class C finance companies have only not been able to maintain capital adequacy ratio but were suffering from bad corporate governance that attracted the central bank's move, according to the central bank sources.
The Nepal Rastra Bank regulation states that a class ‘C’ financial institutions must maintain 11 per cent capital adequacy ratio that is a measure of the amount of a bank’s core capital expressed as a percentage of its risk-weighted asset.
Earlier, the central bank has asked clarification from the finance companies  but their answer were found unsatisfactory forcing the central bank to enforce PCA.
Similarly, Crystal Finance and Kuber Merchant Bank and Finance have been asked to clarify why they have not been able to maintain capital adequacy and good corporate governance. After their reply, the central bank will impose PCA on them too, according to the central bank officials.
Meanwhile, the central bank board meeting today approved the merger between Global Bank, IME Financial Institution and Lord Buddha Finance.
On Monday, the special general meeting of Global Bank and IME Financial Institution has decided on the share price swap ratio of each financial institution for merger.
The special meeting — of the class ‘A’ commercial bank and class ‘C’ finance company under the same group — had approved the decision of the financial institutions to swap 100 unit shares of IME Financial Institution for 105 unit shares of Global Bank based on net worth calculated during Due Diligence Audit.
Global has a paid up capital of Rs 1.6 billion and a deposit base of Rs 18.9 billion and has floated loans worth Rs 15.2 billion. The bank’s listed stock in the share market exceeds 15 million units with market capitalisation worth Rs 2.4 billion. The bank’s stocks were last traded in February at Rs 160 per unit before it formally took up the merger procedure.
Likewise, IME provides banking services to more than 111,000 customers through 26 branches across Nepal. The finance company’s shares were last traded at Rs 201 in February. It has more than 3.6 million unit shares listed at Nepse with market capitalisation of Rs 723 million.
IME has a record of distributing dividends annually without fail. Following the merger, the combined paid up capital of the merged entity will be more than Rs 2 billion and will be able to fulfill Nepal Rastra Bank (NRB)’s regulation.
Similarly, Lord Buddha Finance had also applied or merger with Global Bank and IME Financial Institute. Similarly, Pashupati Bikas Bank and Uddhayam Biaks Bank also got LOI for merger.