Thursday, June 27, 2019

Central bank seeks commitment from commercial banks for mergers

Central bank today asked the commercial banks to work-out for 'big' merger and acquisition, as the Monetary Policy for the next fiscal year is going to encourage banks and financial institutions to go for Merger and Acquisition (M&A).
Summoning chairpersons and chief executive officers of all the 28 commercial banks, the central bank governor Dr Chiranjibi Nepal urged them to contemplate on the possible merger partner and inform the central bank about the potential amalgamation. He told the bankers to submit names of banks that they wanted to partner with or submit a commitment letter for merger to the central bank before the Monetary Policy that is going to be announced in mid-July. A banker – who was in the meeting – informed that the central bank has asked them to inform about their merger plan by July 4.
Presenting the budget speech for the fiscal year 2018-19 on May 29, finance minister Dr Yuba Raj Khatiwada had said that the government will take a policy of encouraging big' merger among BFIs. Thus the Nepal Rastra Bank (NRB) has urged the banks to submit written commitments in line with the budget. The banks that have already found partners for merger or acquisition should submit their confirmation with the partner’s name and those seeking partners can submit their commitment, according to the central bank.
The central bank brings Monetary Policy every year to support the fiscal policy after discussion with the banks and financial institutions. Thus, the central bank also collected recommendations for the Monetary Policy from the bankers.
The government has also announced to grant tax exemption for one year to encourage BFIs to opt for M&A, the central bank – the government’s financial advisor – said. “M&A among BFIs will contribute to safety and soundness in the banking sector,” the central bank said, against the popular myth of ‘too big to fail.’
The commercial banks are though positive towards merger, they complain that the time is too short. “Choosing a partner for business is also a matter of taking risk,” according to a banker, who said that it will difficult to complete the whole process of M&A by the time the Monetary Policy is announced in next fifteen days.
Earlier, the central bank had – couple of years ago – asked banks to raise their paid-up capital to Rs 8 billion from Rs 2 billion to encourage consolidation in the banking sector. But the decision could not help decrease the number of commercial banks as the central bank could not restrict them to float rights and bonus shares to meet the four-times paid up capital.

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