Banks to remain closed for five days during Dashain

 The commercial banks have decided to close their branches for five days during the Dashain vacation, according to the Nepal Bankers Association (NBA).

All the branches of all 27 commercial banks will remain closed from October 23 to October 27, the NBA decided, adding that they decided to remain closed owing to the Covid-19 pandemic. Earlier, some branches of the commercial banks used to remain open even during the festival vacation. But this year the banks have decided to close the branches – due to coronavirus spread – and promote digital services. “The customers are advised to opt for online banking in the times of a pandemic,” the NBA said.

Government plans to buy accommodations to civil servants to rescue housing sector

The government is planning to purchase housing units and apartments for residential purpose of civil servants to help boost the confidence of ailing real estate sector.
The High Level Financial Sector Coordination Committee meeting today decided to form a committee to conduct a comprehensive study on the plausibility of purchasing housing units and apartments with soft loans for civil servants, special class officials and constitutional bodies’ chives. A committee will have central bank deputy governor, director general of Department of Housing and Urban Development, administrator of Employees Provident Fund (EPF), president of Nepal Bankers Association, president of Nepal Land and Housing Development Association (NLHDA) and executive director of Citizens Investment Trust.
"It will conduct a study on necessary steps required to implement the process that will not only give boost to the housing sector but also relief to the civil servants," said finance secretary Krishna Hari Baskota.
The package offered by the high level committee to revive the real estate sector also decided to ask the central bank to revise the ceiling of personal home loans from the current ceiling of Rs 8 million to Rs 10 million. "The central bank has responded positively," said a high level central bank official after the central bank's board meeting today evening. "We are bringing a package to boost the confidence of the housing sector that has seen its low in recent months."
The realtors have been putting pressure on the government and the central bank to come up with plan to salvage them from the bust. They have been demanding refinancing and restructuring facility from the central bank on the loans they have borrowed to construct the buildings. Increasing the personal home loan's ceiling was also a major demand of the realtors as a measure to stimulate the demand.
Likewise, the high level committee has also decided to recommend the central bank to extend the deadline for the banks and financial institutions to bring down the exposure to real estate loans within 25 per cent of total lending by the end of fiscal year 2013.
The central bank board meeting that had in December 2009 capped the lending capacity of financial institutions to real estate directing the financial institutions to bring down loans floated to the sector to 25 per cent of total loans by the end of current fiscal year has also responded positively today evening.
Currently, the class A, B and C banks and financial institutions have lent Rs 98 billion, according to the central bank, "The class A commercial banks' reported exposure to the sector stands at Rs 68 billion."If the realtors fail to pay back interest and principle amount many financial institutions will also land in trouble, according to the realtors, who claim that the second quarters' balance sheets of the banks and financial institutions will reflect the current trouble in the real estate sector.
The meeting today also instructed Land Reform and Management Department to prepare an action plan to allow foreigners to buy apartment and submit it to the cabinet by next week.
The budget of the current fiscal year had opened up purchase of apartments by foreigners in Nepal for certain period of time.

Cenral bank opens 'special' refinancing window to ease liquidity crisis

Central bank today opened a 'special' refinancing window for banks and financial institutions to avert systemic risk from tight liquidity situation.
"We have opened 'special' refinancing facility to banks and financial institutions under lender of the last resort to avert systemic risk," said central bank spokesperson Bhaskar Mani Gyawali.
Though the central bank has been providing refinancing facility since April to boost investment on productive sectors, "today's move has increased amount they can get and is tragetted at easing liquidity crunch," he said.
"A financial institution can get refinancing facility up to 60 per cent of capital fund at seven per cent interest rate for four months against good loans," he added. "But they must have been maintaining good governance as the central bank takes note of longer or shorter term problem apart from going through its books to check either it's a managerial or liquidity problem."
The financial institutions should also not exceed their non-performing loans more than five per cent to get the 'special' refinancing facility.
Nepal Bankers Association president Ashoke Rana hailed the central bank's move. "It is the most required move in this liquidity stressed situation," he said, adding that the move will also boost confidence of depositors as the depositors have recently been confused due to various financial institutions 'failure'.
Due to low depositors' confidence, deposit mobilisation of commercial banks could not grow at the rate it used to grow in the past years.
According to central bank data, the commercial banks have Rs 647 billion deposit by the end of May. By the end of last fiscal year, they had Rs 617 billion worth deposit. "The deposit growth rate slowed down in the past couple of months due to low confidence of depositors," Rana added. "The current tight liquidity situation came also due to liquidity mismatch in the financial institutions."

Vibor gets Rs 500 million
KATHMANDU: The central bank today provided Rs 500 million 'special' refinancing under lender of the last resort facility to Vibor Development Bank. "The central bank has provided 'special refinancing facility of Rs 500 million against good loans for a maximum of six months at seven per cent interest rate," according to the central bank that has also asked the Class B financial institution to submit liquidity management plan within 15 days. The board of directors of Vibor has also agreed to go to merger with another financial institution within three months.

Liquidity crunch leading towards credit crunch

Liquidity crunch is leading to credit crunch, according to the bankers.
"The liquidity crunch has forced the banks to delay already committed loans also," said a member of Nepal Bankers Association (NBA).
Unlike the bankers expectation that tight liquidity situation will improve from April, the situation is still not yet comfortable.
Delayed budget coupled with government’s inability to spend led to liquidity crunch in the financial sector, the banker said, adding that normally the banks face tight liquidity situation for two months every year "but this fiscal year, it has lengthened to almost one year."
Due to liquidity crunch banks are not being able to finance automobiles let alone productive sector and housing sector – a separate portfolio created by central bank on request of housing developers for easy financing facility.
Due to tight liquidity situation, some 300 vehicles have been stranded at Birgunj customs as the banks have stopped financing automobiles. "It has also hurt government coffer as automobiles is one of the key contributors of the revenue," Automobiles Dealers Association president Saurav Jyoti, said, adding that automobiles import has plunged by 40 per cent.
Similarly, housing and real estate sector is also bearing the brunt of tight liquidity situation. " in 2009-10, not a single project has been approved due to tight liquidity situation, though demand for housing is rising ,” vice president of Nepal Land and Housing Developers' Association Om Rajbhandari, said, adding that in the last seven years, only 33 housing projects have been approved.
However, the government officials and central bank do not agree. “The banks have been lending for a longer period and collecting short term deposits creating a deposit-lending mismatch that is one of the key reasons of tight liquidity," according to senior economic advisory of Finance Ministry Keshav Acharya.
"The government treasury has Rs 6.47 billion surplus by the nine months of current fiscal year, he said, adding that the amount is not that huge and on top of that the banks are buying development bonds but not interested in repo that could have injected liquidity.
“They have bought Rs 2 billion worth repo, while the central bank had issued Rs 5 billion repo last week," said central bank spokesperson Bhaskar Mani Gyawali. "Had there been tight liquidity situation, the banks would have bought Rs 5 billion worth repo," he said, adding that, on the other hand, the central bank received Rs 7 billion worth application for Rs 5 billion worth development bond last week.
Though, the bankers are claiming that Credit to Deposit ratio has gone up, central bank governor Dr Yubraj Khatiwada claimed that the CD ratio has not gone over the board. "All the indicators including CD ratio of commercial banks are sound," he said, adding that there is, however, mistrust among the banks themselves and bankers’ belief that deposit growth rate will remain constant has led to today's tight liquidity situation. "They lent aggressively believing that the deposit growth rate will remain constant," he added.
According to central bank data, the commercial banks have Rs 647 billion worth deposit by the May end. By the end of last fiscal year, they had Rs 617 billion worth deposit. "The deposit growth rate has slowed down," the governor said.

Electronic cheque clearing in offing

The central bank has prepared guidelines for Banks Network Requirements that will help clear cheques electronically through Nepal Clearing House.
The central bank, along with commercial banks and Smart Choice Technologies (SCT) have set up Nepal Clearing House in December. The agreement was signed with Jordan-based software developing company ProgresSoft Corporation to develop the software for Cheque Truncation System (CTS) in the country. The new system is expected to start operation from next fiscal year.
At present‚ a single cheque clearance takes anything between two days to months as it is done manually by the central bank.
The customers have to wait for weeks for transaction to materialise. The cheques had to get to the central bank’s clearing office‚ then the staff there clears the cheques‚ then permit the banks to make and receive transfers.
The process being time-consuming‚ general public avoids‚ making cheque payments of the bank other than the one from which cheque has been drawn.
Nepal Clearing House will introduce and implement CTS that will provide automated cheque clearance service so that cheques will be cleared within seconds so that beneficiaries can access the fund the same day.
The automated system is supposed to make whole cheque clearing system less tedious‚ quicker and efficient‚ encouraging people to rely more on payments through cheques.
Nepal Bankers’ Association (NBA), along with Nepal Rastra Bank (NRB) and other financial institutions, has established Nepal Clearing House that has has 60 per cent share of NBA. Similarly, SCT has 15 per cent, NRB has 10 per cent and the remaining 15 per cent shares will be distributed between Nepal Development Banks’ Association and Nepal Finance Compnaies’ Association.

Bankers concern about proposed BAFIA amendment

Amendment back tracks the liberal economic policy

Nepal Bankers Association (NBA) has termed the proposed amendment of Banks and Financial Institutions Act (BAFIA) as a regressive step as it has not only tried to back track liberal economic policy but also curtail the central bank and private sector's roles.
“It is a policy reversal," said vice-president of Nepal Bankers Association Rajan Singh Bhandari. "It has also tried to encroach the territory of the central bank," he said, adding that the proposed amendment will clip the regulatory wings of the central bank and discourage the private sector investment.
"With such draconian proposal, no new investment will come," said former NBA president and CEO of Kumari Bank Radhesh Pant. "The overall economy will suffer due to such Act," he said, adding that the proposed reduction in the single promoter share could lead to a crash in the secondary market due to over supply.
"The promoters have to off load their shares flooding the secondary market that could bring the share prices to the lowest level," said Sudhir Babu Khatri, president and CEO of DCBL Bank.
The proposed amendment is going to create lots of confusions, according to the bankers. The cap on CEO's salary — the much controversial issue lately — CEO and director's roles and repsosibilities, hike in deprived sector lending and venture capital are some of the issues the bankers showed serious concern over.
"The Act should not categorically mention percentage and fix ceilings as it would create practical hurdles in the future," suggested CEO of Lumbini Bank Shovan Dev Pant. "The Act should be forward looking," he said, adding that the proposed amendment has, but, back tracked the liberal economic policy adopted by the country some two decades ago.
"It has also included the clauses that could be addressed by Nepal Rastra Bank's directives and Act," Bhandari said," The NRB Act and proposed amendment will contradict each other.
The proposed amendment has also discouraged the industrialists to open banks and financial institutions to avoid conflict of interest, which is principally correct. However, Bhandari asked, “If not the entrepreneurs, who has the money to be the promoters?"
The CA members have suggested amendments after discussions in Parliamentary sub committee but it seem to be guided through their political affiliation rather than economic sense, according to the bankers.

Automated cheque clearance on cards

Nepal Rastra Bank (NRB) along with commercial banks and Smart Choice Technologies (SCT) have set up Nepal Clearing House Ltd (NCHL). NCHL today signed an agreement with Jordan-based software developing company ProgresSoft Corporation to develop the software for Cheque Truncation System (CTS) in the country.
The new system is expected to start operation in eight months. At present‚ a single cheque clearance takes anything between two days to months as it is done manually by the central bank.
The customers have to wait for weeks for transaction to materialise. The cheques had to get to the central bank’s clearing office‚ then the staff there clears the cheques‚ then permit the banks to make and receive transfers.
The process being time-consuming‚ general public avoids‚ making cheque payments of the bank other than the one from which cheque has been drawn.
NCHL will introduce and implement CTS that will provide automated cheque clearance service so that cheques will be cleared within seconds so that beneficiaries can access the fund the same day. “The company has plans to later establish a national payments gateway to facilitate the electronic payments and financial transactions across banks and financial institutions in Nepal‚” said Sashin Joshi‚ president of Nepal Bankers’ Association (NBA) that has been actively involved in the project.
The automated system is supposed to make whole cheque clearing system less tedious‚ quicker and efficient‚ encouraging people to rely more on payments through cheques.
“The operation of NCHL will relieve the central bank from its subsidiary work and free the resources so that it can focus more on its core activities‚” said Dr Yubaraj Khatiwada‚ Governor of the central bank that has 10 per cent stake in the Nepal Clearing House Ltd.
The ProgresSoft’s software is the system that electronically transfers cheque images that eliminates the need of physically transporting cheques from banks to the central bank’s clearing office. Electronic cheque clearance is the specialty of ProgresSoft as the company has successfully implemented the system in Qatar‚ Oman‚ Jordan among others.

Risky loans on rise

Coupled with increased lending portfolio, risky loans of domestic banks have also gone up overshadowing profits, according to their financial reports.

With Non-Performing Assets (NPA), loan loss provisioning has shot up eclipsing profits, reveal the unaudited reports of 14 commercial banks published till date.

Nabil Bank -- one of the largest banks that provisioned Rs 45 million in 2008-09 -- provisioned over eight times to Rs 345.98 million in 2009-10. Likewise, Standard Chartered Bank Nepal Ltd -- another bank’s provisioning went up by Rs 200 million by end of 2009-10. “Out of 14 commercial banks, seven banks’ loan loss provisioning have gone up,” according to the report.

“A bank making a small number of risky loans will have a low loan loss provision compared to a bank taking higher risks,” said market analyst Rabindra Bhattarai. “Exposure to risky loans hurts shareholders,” he said, adding, “Had their loan loss provisioning not increased, shareholders would have got more dividends as the banks have posted more profits compared to the previous fiscal.” Provisioning guarantees a bank’s solvency and capitalisation, if and when the defaults occurs, he said, adding that the loan loss provision allocated each year increases with the riskiness of loans a bank floats.

President of Nepal Bankers Association (NBA) Sashin Joshi thinks this could be only the tip of the iceberg. “It could be the outcome of the difficult phase we went through last year,” he said, adding that full impact of asset price correction was yet to be seen.

According to the central bank’s directive, a bank has to provision one per cent as soon as it lends. Similarly, after six months, the loan is dubbed sub-standard and the bank has to provision 25 per cent. If the principle and interest is not paid till one year, it is considered a doubtful loan and 50 per cent of the total loan has to be provisioned. If borrowers don’t pay after one year, it is considered a bad loan and 100 per cent of the loan has to be provisioned. Sub-standard, doubtful and bad loans are calculated in the NPA.

The good loan is not calculated in NPA. But sub-standard, doubtful and bad loans are calculated in the NPA. The largest NPA is registered by Rastriya Banijya Bank that has been reduced to 9.81 per cent from 15.64 per cent a fiscal year ago. RBB has posted Rs 2.01 billion. Among the private commercial banks, Nepal Investment bank Ltd has registered the highest profit of Rs 1.26 billion in 2009-10.

Deposit and Credit Guarantee Corporation brings deposit guarantee scheme

Deposit and Credit Guarantee Corporation (DCGC) has increased its paid-up capital and is planning to start a deposit guarantee scheme for the first time in the country of 'small depositors'. DCGC has been providing guarantee to credit earlier. It begins deposit guarantee from the current fiscal year.

"To guarantee the deposits of small depositors up to Rs 200,000 of all the financial institutions, we need a huge capital base," said Bhaskar Mani Gyawali, chairman of the DCGC here today. "However, we have started to guarantee the deposits of upto Rs 200,000 of Class-D financial institutions from July 17."

There is around Rs 2 billion in deposits from small depositors that is below Rs 200,000 in the Calss-D micro-credit institutions, according to the Nepal Rastra Bank (NRB) figures.

"In the beginning, we will have no problem as with increased paid-up capital of Rs 210 million, it will be enough for the deposit guarantee of below Rs 200,000 deposits of Class-D financial institions," Gyawali said adding DCGC is in talks with the government and Nepal Bankers' Association (NBA) to increase the paid-up capital to Rs 2 billion.

"If the government provides us with a seed money of Rs 500 million or NBA comes to join with us as a shareholder, it will be easier for us to increase our paid-up capital to Rs 2 billion," he said adding that there is around Rs 80 billion including commercial banks, development banks, finance companies and micro-credit institutions that has to be guaranteed.

"We charge Rs 0.20 per Rs 100 as guarantee fee," said the chairman of the corporation that has prepared a Regulation for the credit guarantee of less than Rs 200,000 of financial institutions. The Regulation has come into effect from July 17.

According to the Regulation, in case of bankruptcy of a financial institution, a small depositor (natural person), who has a deposit up to Rs 200,000 will get the total deposit amount and interest within 90 days from the date the institution goes under liquidation.
The commercial banks can be share holders in DCGC according to the ratio of small deposits in their institutions, according to the Regulation.

In Nepali society, there is a wrong perception that banks do not go bankrupt.

"The central bank takes guarantee of all the deposits," Gyawali, who is also executive director in the central bank, said, "But without deposit guarantee it would be not possible."

After Nepal Development Bank was sent to liquidation by the central bank due to its bad-financial health, the small depositors were worried and the government has brought a deposit insurance scheme for the small depositors in the budget for the fiscal year 2009-10, but it could not be implemented.

Will the Monetary Policy be effective?

The central bank is preparing to bring the Monetary Policy -- for the first time before the fiscal policy popularly known as budget -- to plug in the loop holes of the economy.

However, the experts doubt the effectiveness of the Monetary Policy as it could not support the full-fledged budget that might come in two months. "Given the size of the 'Special Budget' that is Rs 110.21 billion, the actual budget size could be expansionay to be at around Rs 335 billion," said Prof Dr Bishworbher Pyakurel.

"It calls for expansionary Monetary Policy to support growth and credit flow," he said adding that 'Otherwise, it could not absorbe the macro-economic shock.

But the bankers think that the expansionary policy could create more trouble. "We need tight Monetray Policy that could support banks and financial instuitution," said Radhesh Pant, former president of Nepal Bankers' Association (NBA).

Though, expansionary Monetary Policy could pull the interest down and increase money supply, it would be ineffective currently in an absence of good investment-climate that could only be ensured by the budget and its policies.

This is the first time the central bank is bringing the Monetary Policy before budget despite its bad experience of last Policy's failure.

The ex ante stance of monetary policy of 2008-09 was made tight in the face of arising trend of prices. "It was made tight considering rising pressures on prices of goods and services, liquidity overhang of a year ago, rising asset prices and likely adverse impacts of volatility in asset prices-the prices of real estate and shares in economic activities and banking sector stability in the long run," the central bank had said then.

But it could neither contain the price hike nor eased pressure on liquidity rather the banks and financail institutions have faced liquidity crunch. "The liquidity of the commercial banks has gone down by 5.1 per cent in the first 11 months," a central bank authority said.

As last fiscal year's Monetary Policy failed to create microeconomic stability and crack whip on price hike that has posted a double digit growth despite the Policy's target to contain within seven per cent, the central bank has to analyse the tools it has used.

One of the major objectives of Nepal Rastra Bank (NRB) is to maintain stability by adopting suitable monetary policy. However, it failed in not only raising public confidence on banking and financial system, but also to provide excellent services by promoting monetary and financial system stability and ensuring a financial sector for achieving sustainable economic growth.

Another key objective of the Monetary Policy is also to facilitate economic growth through price and external sector stability. The Balance of Payment -- that registered a deficit in last 25 years -- is another challenge for the Policy.

IFC trains bankers

The South Asia Enterprise Development Facility, managed by IFC, in partnership with United Kingdom's Department for International Development, Norwegian Agency for Development and Nepal Bankers' Association, organised a three-day training programme on 'Hydropower and Renewable Energy Financing' for bankers.

IFC -- a member of the World Bank Group -- is working with the Nepal Bankers' Association (NBA) to bring about awareness on financial risks and opportunities associated with hydropower and renewable energy projects. Given Nepal's current energy crisis, hydropower holds great potentials for the country as a clean alternative source of energy.

The bankers lack the experience of financing small hydropower projects. Such investments usually involve high risk with long repayment periods and complex technical aspects, said the IFC. The training programme helped bankers understand these projects better by exploring topics ranging from market potential in Nepal, credit assessment, financing structures, laws, licenses and policies, risk and mitigation, insurance to legal issues related to hydropower. Other renewable energy financing options were discussed and participants visited a hydropower plant to gain real on-site understanding of these projects.

"Nepal is strategically located to tap this resource, so this programme represents a great investment opportunity for bankers and businesses alike," said NBA president Sashin Joshi.

Ian Crosby, Head of SEDF, said, "This training was a critical step toward creating opportunities for financial institutions to build a sustainable energy finance portfolio that will address climate change issues, improve energy security and reduce pollution in Nepal, while increasing bank profits."

SEDF is working with financial institutions to develop strategies, products, services and marketing plans in order to enhance their sustainable energy finance portfolios. SEDF also is developing the capacity of energy auditors and providing the latest market information to assist banks in financing energy-efficient projects.

IFC is the only international financial institution focused exclusively on private sector, the engine of sustainable development in emerging markets. Along with IBRD, it is currently seeking to increase capital to strengthen its ability to create opportunity for the poor in developing countries. It plans to increase financing for renewable energy and other energy efficient projects.

Higher denomination notes in short supply

ATMs closed, banks’ ceiling on withdrawal ahead of Dashain

The Nepal Rastra Bank (NRB) is facing a tough time ahead of Dashain. There is an acute crisis of currency notes of higher denomination.
Krishna Bahadur Manandhar, deputy governor, NRB, however, failed to allay revellers’ apprehension. “A shipment, carrying Rs 12 billion, is only expected on October 6. It will help tide over the scarcity,” he said. But that makes little sense for the revellers. Dashain will be over on October 3. A team of Nepal Bankers’ Association (NBA), too, lodged a complaint with the NRB about the looming crisis.
In a departure from the norm, a few desperate bankers were compelled to accept Indian Currency (IC) to meet the growing customers’ demand. But a peeved banker pointed out the legal constraints of paying the customers in IC. In the run up to the festive season, a bank requires around Rs 1 billion in cash daily to pay the customers.However, Manandhar explained the logistical problem that led to the crisis.
“We’ve been expecting the consignment from France earlier. But it got delayed due to unavoidable circumstances. The shortage stands at Rs 4,800 million,” he explained. As the crisis deepened, some banks were forced to shutdown their ATMs from this evening.
A few banks have put a cap on withdrawal as well. A depositor cannot withdraw more than Rs 1 lakh. Agriculture Development Bank Nepal has instructed its branches not to pay more than Rs 25,000, sending the customers into a tizzy.
“Though the central bank gave us Rs 10 million today, the demand is five fold,” said a banker.Uma Kant Thapaliya, president, NRB Employee's Association (Thapathali), said that there had also been an increased demand for lower denominations
.“This year, we’re not giving more than Rs 4,000 in lower denominations to an individual. This is half of the usual amount during the festive season,” he said.
He took a dig at the NRB for mismanagement, alleging it has been able to fulfill only 10 per cent of the demand. Thapaliya said that the crisis could have been averted had a proper planning was in place around six months ago.

NDB depositors withdraw cash
KATHMANDU: Around 60 depositors of the Nepal Development Bank (NDB) on Tuesday withdrew Rs 4.84 million — 50 per cent of their deposit. The withdrawal process took place between 3 and 5pm. “It’ll continue for the next two days," said Kirti Madan Joshi, president, Nepal Bikas Bank Pidith Sangh. On Friday, the Patan Appellate Court had directed the Nepal Rastra Bank (NRB) to release funds for the cash-strapped depositors. Subsequently, the central bank released Rs 27.9 million on Sunday. The court has ordered the NRB to let the depositors withdraw 50 per cent of their sum but not exceeding Rs 2 lakh.

Development banks want bigger pie

Development banks want a bigger role in the financial market.
"The central bank should ensure our representation in Credit Information Bureau (CIB)," said Development Bankers Association president and CEO of Malika Bikas Bank Jhapat Bohara, adding that Development banks also want to be the part of Central Depository Company, Banking Training Institute and Clearing House.
The Central Depository Company that is being established for the modernisation of the domestic capital market will have 50 per cent share of Nepse, 10 per cent share of CIB, 15 per cent of CIT and 25 percent of a group of six commercial banks -- Standard Chartered Bank, Nabil Bank, Nepal SBI Bank, Bank of Kathmandu, Nepal Investment Bank and NIC Bank -- as promoters. Bohara urged the Nepal Bankers Association (NBA) to give development banks also a chance to be part of it.
NBA -- along with Nepal Rastra Bank (NRB) and other financial institutions -- has established Nepal Clearing House Ltd that will commence Automatic Check Truncation and Clearing Systems to be evolved into a nation-wide payments system. It has 60 per cent share of NBA, 15 per cent of SCT, 10 per cent share of NRB and the remaining share is planned to be distributed between development banks and finance compnaies.
NBA -- with the help of NRB and Rural Microfinace Development Centre (RMDC) and other financial institutions -- has also planned National Banking Training Institute (NBTI). The training institute has a support base of $2 million from Asian Development Bank (ADB). "It will be developed as a self-sustainable institute that will be run by a professional CEO," said Nepal Rastra Bank (NRB) deputy governor Bir Bikram Rayamajhi, inaugurating the one-day seminar on 'Corporate Good Governance in Banks and Financial Institutions' organised by Development Bankers Association here yesterday.
Giving his presentation on Corporate Good Governance in Banks and FIs, Kumari Bank chief executive officer Radhesh Pant said that lack of good corporate governance will result in collapse of banks and financial institutions.
"Good corporate governance will increase depositors' trust leading to rise in premium, Price to Earning (PE) ratio and share price of institutions as a whole," he said adding that corporate good governance will also increase access to finance, spruce up brand image and help mobilise funds.
"Banks are the custodians of public money and thus they need to ensure good corporate government for the better management of public money," Pant added.
"Lack of good corporate governance will lead banks and financial institutions to suffer a fate similar to that of Nepal Development Bank (NDB)," Bohara said.

Discussion on good corporate governance

Corporate governance is an area of great importance for all financial and real sector institutions, opined experts here today during a seminar on 'Good corporate governance means good business' organised jointly by Nepal Stock Exchange (Nepse) and International Finance Corporation (IFC), the private sector arm of the World Bank Group.
"For companies, good governance means securing access to broader based, cheaper capital," said Nepse general manager Shanker Man Singh, adding that for investors it means enhanced shareholder value. "Good governance equals good business. All of us are working towards that goal, whether through legislative measures, training or inculcating new standards of ethics in business," he said.
At a time when domestic companies are deep into boardroom disputes, corporate good governance is in a shambles. Regulatory authorities like Nepal Rastra Bank (NRB), Securities Board of Nepal (Sebon), Beema Samiti, Company Registrar and front line regulator Nepse face great challenges in safeguarding depositors' and shareholders' rights.
Though in April 2005 Corporate Governance Country Assessment -- a corporate financial governance project that provided the impetus for the development of Nepali capital market -- with the help of World Bank, the situation has not yet improved.
For the regulatory authorities supervision and monitoring are becoming more challenging due to lack of trained manpower, infrastructure and increasing number of public companies.
"The Company Act provides basic corporate framework, but when companies go public and their shares get publicly traded at the sole secondary market, their corporate good governance is a matter of concern for the public as well," Singh said.
"Capital market is limited to family, multinationals are not going public and public enterprises are suffering from political influence," said Constituent Assembly member and industrialist Padhma Jyoti. With a five-decade long experience and expertise in Nepali corporate business, he urged entrepreneurs to escape from political turmoil.
Mike Lubrano, MD of Catrca Capital, Washington presented a paper on, "Stock Exchange and Improvement in Corporate Governance: the Case of Novo Mercado, Brazil'. Sanaa Abzouzid of IFC presented a paper on 'Preparing a family business for IPO'. She explored the feasibility of transformation of family business into public business in Nepal.
A firm with good governance can attract higher investment premiums, have cheaper access to debt, outperform its peers in the long run and gain better access to multilateral investors. To establish good corporate governance, a firm should have well-defined shareholders rights including protection of minority shareholders, solid control environment including strong risk management and internal control, high levels of transparency and disclosure and an empowered and capable Board of Directors.
"Business is not just about making sound investment decisions, taking and managing risks and dealing with economic uncertainties. Today, it is about social responsibility, putting all of our actions under public scrutiny and responding to the concerns of those among whom we conduct our business in open and accountable way," Singh said adding that it is important for all to remember that good governance, like personal integrity, is no longer a luxury but a necessity.
Securities Board of Nepal chairman Dr Sur Bir Poudel, Nepal Bankers' Association president Sashin Joshi, Himalayan Distillery chairman Narendra Basnyat and Unilever Nepal managing director Kamran Baqr also shared their experiences of corporate good governance.
NRB deputy governor Krishna Bahadur Manandhar and Washington-based IFC corporate governance unit's Maxin Garvey also shed light on good corporate governance.

NDB individual depositors to get money back

Atleast its a little relief for the depositors of Nepal Development Bank (NDB) after a stressful week of uncertainity. Individual depositors of the troubled Nepal Development Bank (NDB) need not worry as according to Nepal Rastra Bank (NRB), NDB has Rs 16.5 million cash and Rs 160.3 million bank deposit -- including Rs 95 million deposit in Nepal Cooperative -- Rs 95.7 million savings deposit, Rs 84.9 million fixed deposit and Rs 193.5 million other deposits.
"The findings of NRB show that except institutional depositors -- Employee Provident Fund (Rs 331.4 million) and Nepal Army (Rs 180 million) -- individual depositors need not worry as they will get their deposits back," the central bank said. The NDB has not been able to return the Nepal Army's and Employees Provident Fund's (EPF) term deposits -- even after maturity -- and they might lose their deposits. Nepal Army and EPF have been asking for their money back repeatedly but the bank is unable to return it.
On June 2, NRB decided to ask NDB why should it be not sent into liquidation. It sent a letter on June 3 to NDB asking why it should not be liquidated.
According to clause 86 of the Nepal Rastra Bank Act, NRB has given a 15-day deadline for the clarification to NDB. If the clarification is not satisfactory, NRB will file a case at Patan Appellate Court under clause 74 of Banks and Financial Institutions Act (BAFIA) to begin the process of NDB's liquidation.
After seeking clarification, NRB seized all the cash, cheques and securities of the bank and froze its accounts in various financial institutions.
NDB -- Nepal's first development bank -- started operations in 1998 and has a paid-up capital of Rs 320 million but its accumulated loss is more than double the paid-up capital, Rs 690.2 million by the end of mid-March. Its non-performing assets (NPA) is at 55.09 per cent and capital adequacy ratio (CAR) at a whopping 48.31 per cent. A bank must maintain its CAR at 11 per cent.
The NDB top brass has blamed NRB for taking biased action. "NRB has treated other financial institutions and NDB unequally," blamed NDB chairman Amar Gurung.
However, NRB governor Dipendra Bahadur Kshetry said that other financial institutions obeyed the NRB directives and have been improving. "Over the last four years, the NDB board never followed NRB's directives," Kshetry said adding that had NDB paid heed to the directives the condition of the bank would have improved.
The central bank has declared it a 'problematic bank' on October 11, 2007 after NDB and its board repeatedly flounted the central bank's directives. "NDB board members constantly failed to abide by NRB directives, were involved in personal gain and put depositors' money at risk," said NRB. "Financial institutions are custodians of public money and they have no right to put public money at risk."
Nepal Bankers' Association (NBA) has suggested NDB come up with a concrete plan within 15 days to revive itself. "NDB still has time to furnish its explanation with a convincing business plan to save itself," said Sashin Joshi, president of NBA and CEO of NIC Bank. NBA has also recommended a bottom-up approach in distributing deposits to depositors.

Good corporate governance in shambles

The Nepal Rastra Bank (NRB) has created waves recently. As the central bank, it is the guardian of the financial institutions that take people's deposits. Some think NRB's recent bold decisions were uncalled for but others think that the central bank took too long a time for these decisions, which should have come much earlier to protect the public money.
Nepal Bankers Association (NBA) claims that the banking sector has the highest standards of corporate governance. It is true in comparison with many other institutions in the country, which are completely non-transparent.
This is one of the reasons why the financial sector has shown encouraging growth in the country. But there is always considerable scope for improvement. The recent case of Bank of Kathmandu (BoK) is just a tip of the iceberg.
The dispute in the BoK's board led to the takeover of its management -- though for a short period of three months -- by the central bank.
But in the case of National Life Insurance Company Ltd (NLICL), a non-financial institution -- the regulatory authority of the insurance companies, Beema Samiti, cannot take such a decision. It is yet another case of lack of good corporate governance.
Beema Samiti has requested the central bank to temporarily freeze the accounts of the NLICL. The central bank has also frozen its accounts. The other financial institutions are not without problems or disputes afflicting their governing boards. Admittedly, serious disputes among the directors could hit the financial health of the institution concerned, making public money vulnerable.
In making the takeover decision on the BoK, the NRB governor Dipendra Bahadur Kshetry sought to send out a certain message to other financial institutions, but the million dollar question is, has the message come across powerfully?
Still, there is serious dispute in some of the financial institutions and they have shown no signs of correcting themselves and adopting internal good internal governance.
"Takeover was an unfortunate decision," a former governor said, adding that however NRB could not afford to encourage such practice of lack of good corporate governance. As the financial institutions are the custodians of public deposits, the central bank must ensure their safety. The issue of Bank of Kathmandu would never have reached the central bank inviting it to take over its management had the BoK Board acted as suggested by the central authority. "It's the result of lack of internal good governance," the chairman of a financial institution said adding that the institution has to be run by the professionals.
Sachin Joshi, president of Nepal Bankers Association (NBA) and the CEO of the NIC Bank, agrees. "There should be a clear separation between the Board of Directors (BoD) and Management, as the latter is fully entrusted with day-to-day management and is accountable to the Board of Directors that makes the bank's policy.
The central bank sought an explanation following a dispute over the BoK board's move to recall its managing director Radhesh Pant. The four directors of BoK had decided against Pant while the remaining two -- Sitaram Thapaliya and Sudarshan Poudel - had supported Pant. The central bank -- following the BoK Board's 'unsatisfactory' clarification about the action against Pant, who has been running the institution profitably -- took over the bank's management.
Similarly, the seven board members of NLICL have been divided into two rival camps for the last six months. Former chairman Dambar Bahadur Malla and present chairman Prema Rajya Lakshmi Singh have claimed their majority in the management. Among the seven promoters, four are with Singh and three with Malla, each side claiming its majority in the Company Registrar's office and the Beema Samiti. But it remains unclear how the dispute will be resolved without affecting the future of the insurance company and its policyholders.
At present NLICL is in a sound financial condition like the BoK. But the same is not true of other financial institutions whose condition deteriorated following their boardroom disputes and because of their lack of internal good governance.
What better recent example could be given of the result of lack of internal good governance than the troubled Nepal Development Bank (NDB)? Uttam Pun, the Board chairman, and his henchmen used the bank to serve their personal interests. Dr Ramesh Kumar Bhattarai, one of the NDB board members during 2000-2001, who represented Employees' Provident Fund (EPF) - one of the founding promoters of the NDB -- said the one year as a Board director in the NDB was the most humiliating period of his career. “The NDB has not faced the present crisis overnight," he said.
The successive CEOs left, as they could not bear with the Board of Directors and the condition of the first development bank of Nepal started going down. According to the central bank's directives, NDB tried to hire a professional CEO, but none was interested as the Board and its chairman had undermined the post. The central bank repeatedly warned and gave directives to NDB to improve but it did not pay heed, going to the court instead. As a result, the central bank had to take the ultimate action - send it into liquidation.
The financial institutions should be more transparent, follow prudent norms and practice good internal governance. Otherwise, people will lose confidence in the financial sector itself. To prevent such a dire scenario, NRB should take action against the bad institutions to safeguard the good ones, their depositors and their shareholders. NRB should also increase its supervisory and monitoring capacity and act immediately, when and where necessary, to safeguard the interest of depositors, shareholders and promoters too.
Only in this way can the vibrant health of the financial sector be ensured and its role as the driver of the national economy realised.

NBA establishes Clearing House, training centre

Nepal Bankers' Association (NBA), along with Nepal Rastra Bank (NRB) and other financial institutions, has established Nepal Clearing House Ltd.
"The clearing house will commence an Automatic Check Truncation and Clearing Systems to be evolved into a nation-wide payments system," said Sachin Joshi, president of NBA and CEO of NIC Bank.
NBA has 60 per cent, SCT 15 per cent, NRB 10 per cent and the remaining shares will be distributed between Nepal Development Banks' Association and Nepal Finance Compnaies' Association in the Clearing House Ltd.
The process of the hardware and software bidding has already started for the clearing house that wil lhelp clear cheques automatically from anywhere in Nepal. "The system will come into effect from the next fiscal year," Joshi said adding that it would be developed as a national payment system.
At a time when banks are aggressively opening branches, the system would help increase accessibility of people to banking channels. The new distribution channel like branchless banking is needed to cater to customers as the the cost of branches would not be affordable, said Joshi.
NBA, with the help of NRB and Rural Microfinace Development Centre (RMDC) and other financial institutions has also established National Banking Training Institute (NBTI) that will disseminate banking knowledge and train professionals. "The institute will be expanded into all five regions across the country," according to NBA.
The training institute has a support of $2 million from Asian Development Bank (ADB). "It will be developed as a self-sustainable institute that will be run by a professional chief executive officer (CEO)." NBA is in search of professional CEOs for both, the clearing house and NBTI, according to the bankers' association that is expanding the delivery of financial products and services through the introduction of new technology and innovative solutions.
NBA has said that the increase in access to finance is sine qua non to fostering economic growth.

Kist starts operating as 26th commercial bank

Kist Bank Ltd has started operations as the 26th 'A' class commercial bank of the country.
Established on February 21, 2003 as Kist Merchant Banking and Finance Company Ltd -- a C- class finance company -- Kist Bank is the second finance company to upgrade directly to A-class commercial bank after NMB Bank.
Though Nepal Rastra Bank (NRB) had already permitted Kist Bank to operate as an A-class commercial bank, NRB deputy governor Bir Bikram Rayamajhi today formally inaugurated it as the 26th commercial bank.
On the occasion, bank CEO Kamal Prasad Gyawali said Kist Bank plans to become the best bank in the country by providing innovative and better services.
"The bank will open a total of 50 branches," informed Rajesh Shakya, chairman of the bank that has 5,000 share holders. It has 24 branches and 22 ATMs currently.
The total number of the branches of all 26 commercial banks has touched 640. There are a total of 26 commercial bank, 58 development banks, 78 finance companies and 12 micro-finance companies, according to NRB data. The total deposit of all the financial institutions has touched Rs 4.78 trillion.
With the increasing number of financial institutions in the country, the issue of good governance has also come to fore. "Good governance of the institutions is a must for for sustainable growth," said Sashin Joshi, president of Nepal Bankers' Association (NBA) and CEO of NIC Bank.
Securities Board of Nepal (Sebon) chairman Dr Subir Poudel also said, "The companies now have to focus on good governance."

Banks and their branches
1. Nepal Bank Ltd -- 99
2. Rastriya Banijya Bank -- 123
3. Nabil Bank Ltd -- 27
4. Nepal Investment Bank Ltd -- 27
5. Standard Chartered Bank Nepal Ltd -- 14
6. Himalayan Bank Ltd -- 21
7. Nepal SBI Bank Ltd -- 31
8. Nepal Bangladesh Bank Ltd -- 17
9. Everest Bank Ltd -- 29
10. Bank of Kathmandu Ltd -- 26
11. NCC Bank Ltd -- 17
12. Lumbini Bank Ltd -- 5
13. NIC Bank Ltd -- 19
14. Machhapuchhre Bank Ltd -- 31
15. Kumari Bank Ltd -- 15
16. Laxmi Bank Ltd -- 17
17. Siddhartha Bank Ltd -- 10
18. Agriculture Development Bank Ltd -- 63
19. Global Bank Ltd -- 12
20. Citizens Bank International Ltd -- 9
21. Prime Commercial Bank Ltd -- 6
22. Bank of Asia Nepal Ltd -- 12
23. Sunrise Bank Ltd -- 20
24. Development Credit Bank Ltd -- 5
25. NMB Bank -- 5
26. Kist Bank -- 24

Sebon awaits govt nod to Mutual Fund Regulation

The Securities Board of Nepal (Sebon) is waiting for the Finance Ministry's final nod to the Mutual Fund Regulation.
"We have sent the final draft of the regulation to the finance ministry," said Niraj Giri, director at the Securities Board of Nepal, the regulatory authority of the capital market. The ministry has formed a three-man team to finalise the regulation that is expected to lure small investors to the capital market.
Even after more than 16 years of securities trading, Nepal is yet to bring a regulation to better manage and regulate mutual funds.
After getting suggestions from Nepal Rastra Bank (NRB) and Nepal Bankers' Association (NBA), Sebon forwarded the draft regulation for mutual funds to the ministry. "After getting the clearance from the ministry, the regulation will come into effect," Giri added.
Mutual fund -- with a face value of Rs 10 per unit -- is the most suitable investment for a common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
After the regulation, Mutual fund is expected to fuel the capital market -- that is at present slowing down -- as many commercial banks have shown keen interest in it. It will also create institutional investors also -- something that the domestic capital market lacks at present.
Despite an absence of the regulation, NIDC Capital Markets Ltd and Citizen Investment Trust (CIT) had issued NCM mutual fund and CIT unit trust. However, NIDC had a bitter experience in the absence of transparency and any regulation.
The regulation is expected to have all the tools that a transparent and professional fund must have. Besides the sponsors that issue Mutual Funds, the draft envisions an Asset Management Company (AMC) that will manage the fund, a trustee that will act as a watchdog, a custodian and a depositor, all of whom will have to get separate licences from Sebon.
Commercial banks and financial institutions can sponsor the mutual fund and sponsors will appoint AMCthe . According to the draft regulation, mutual funds can also invest 50 per cent of their funds in foreign country.
A mutual fund is a trust that pools the savings of many who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit-holders in proportion to the number of units owned by them.
They can even be traded in the secondary market as well. Apart from that, these funds are convertible and have liquidity. Unlike other institutions, they can be stopped or liquidated or transferred to a new scheme if 75 per cent of the unit-holders complain of mismanagement of the fund or if any foul play is suspected.

Nepal at 121st position in the Corruption Perception Index

Nepal ranks at the bottom 121st position on the Corruption Perception Index (CPI) 2008 published by Transparency International.
Nepal scored 2.7 in 2008, slightly above than in 2007 when it had scored 2.5. Countries scoring below three – out of the total 10 -- are said to be in rampant corruption.
"To improve Nepal's grading and atleast score above three is our goal," said CIAA acting chief commissioner Lalit Bahadur Limbu during an interaction between the financial institutions and Commission for Investigation of Abuse of Authority (CIAA) here today.
To improve the score the private sector must be brought into the net of CIAA, he said adding that to improve Nepal's grading the private sector -- especially financial institutions -- must be more transparent and self-regulated.
"However, a highly developed country like the US also failed in maintaining financial discipline -- which brought about the recent global crisis -- so how can Nepali financial institutions self-regulate?" said central bank governor Dipendra Bahadur Chhetri. "The global financial crisis is the result of failure of self-regulation in US financial institutions," he said adding that Nepali financial institutions should be more vigilant. "One of the measures could be maintaining a Code of Conduct," he said.
"To self-regulate, please maintain a Code of Conduct," CIAA acting chief commissioner Limbu also said.
The anti-corruption body organised the interaction to inform financial institutions on the convention -- that is going to be ratified by the parliament in the next session -- to give more teeth to the CIAA to act against private financial institutions also.
"There are lots of complaints against private banks also and the private sector will also be brough into the net of the CIAA after the convention is ratified," he said.
"The financial institutions -- custodians of public deposit -- should be more self-regulated," Bed Prasad Siwakoti, commissioner at the CIAA said hailing the bankers' efforts at self- regulation.
On the occasion, the bankers informed of their institutions' Code of Conduct and initiatives of Nepal Bankers' Association (NBA). The banking sector is considered one of the most transparent sectors in Nepal, though it has still to pass a lot of tests.
Nepal Rastra Bank (NRB) took Nepal Bangladesh Bank (NBB) under its control to safeguard the public deposit. It is one of the best examples of how lack of self-regulatory mechanism hurts a financial institution and puts public's money in danger.