Central bank nod must to hire or fire chief executive officer

Banks and financial institutions (BFIs) will now have to take permission from the central bank to hire as well as fire their chief executive officers (CEOs).
The bill to amend the Banks and Financial Institutions Act-2017, registered at the Parliament by Finance Minister Dr Yuba Raj Khatiwada yesterday has proposed mandatory consent from the central bank for banks and financial institutions to recruit or dismiss their chief executives. Earlier, the board of directors of the BFIs could appoint or sack chief executives on their own.
The government is introducing the provision to address the trend of BFIs’ board pressuring the chief executive to issue loans to people based on their recommendations and also at low interest rates. In such a context, the chief executive had no option but to accept recommendation of board members or quit.
The provision has been proposed to make the chief executive officer more professional, the central bank claimed, adding that the provision of taking consent before hiring or firing chief executive is certain to dishearten the boards of directors. “But the bankers themselves also not seem to be happy with the new provision proposed in the amendment bill of BAFIA as according to them, allowing the board to appoint the chief executive makes the board more responsible towards activities and decisions of the bank.”
They said that the central bank should focus on ensuring the appointment of more professional directors in the board. The central bank’s interference in appointment and dismissal of chief executives seems to be driven by the fact that 90 per cent of investment in banks is from public and thus the chief executive should be made more responsible.
They also claimed that the proposed provision is restrictive in nature. The central bank has already set the criteria for qualification and experience that a bank’s chief executive, now the central bank should focus on whether the boards of directors are making appointments of chief executives accordingly or not.
Likewise, the bill – to amend BAFIA – has also fixed maximum of two tenures – altogether four years – for board members at the banks and financial institutions.

Central Bank plans to separate industrialist and bankers

Central bank mulls to dismantle industrialist-bank nexus to avert possible risk in the financial sector.
Nepal Rastra Bank (NRB) governor Dr Chiranjibi Nepal said that the financial sector regulator plans to dismantle the business-bank nexus also to avert conflict of interest.
Though, six years ago then governor and incumbent finance minister Dr Yuba Raj Khatiwada advised bank directors to either become a banker or a businessperson, the central bank has not been able to separate banker and business person as most of the banks and financial institutions have been promoted by the businessmen and industrialists.
It is the central bank’s responsibility to keep hawk’s eye on the banks as they are only the custodians of the public money, he said, adding that the Finance Ministry is preparing an amendment to the Bank and Financial Institutions Act (BAFIA) 2017 including the provision of separating industrialist and banker.
The regulator’s move to include a provision forbidding industrialists and business owners – on the basis of their investment in other private companies – from taking the helm of financial institutions as directors will come after the amendment of the BAFIA is approved by the house.
The amended law is expected to control the practice of injecting public deposits in right shares by directors of financial institutions. Currently, the central bank has barred directors of a bank from withdrawing loans from the financial institution they represent.
In India, a person is not allowed to run a business and a bank simultaneously. And Nepal is trying to follow the Indian model in the banking.
The amendment in the BAFIA-2017 will also have provision that a bank requires to appoint its chief executive officer only after central bank’s screening of the candidate. “A fit and proper test of proposed CEOs, who guide the banks, is necessity of the time.”

Central bank caps CEO's remuneration

The Central Bank has fixed the salaries of the chief executives of the banks and financial institutions (BFIs). However, the new directives will not attract the pay and perks of the existing chief executives.
"The bank's chief executives renumeration cannot exceed the last three fiscal years' average pay and perks of the total employees of the financial institution or maximum of 0.025 per cent of the last fiscal year's total assets, which ever is less," said the Nepal Rastra Bank (NRB) directives issued here today.
The central bank -- under fixed annual compensation -- said that in case of the banks and financial institutions that are into operation for less than three years, the chief executives' remuneration should not exceed the industry average.
However, the chief executives under current assignment will come under the directives.
Similarly, the central bank has also directed the banks and financial institutions to follow the NRB directives on performance-based pay and other pre-requesitives.

World Investment Forum to meet on September 6-9

Some of the greatest minds and movers in the field of investment will assemble in Xiamen, China, on September 6-9 at UNCTAD’s World Investment Forum 2010 (WIF 2010) to discuss how to promote sustainable investment and development in the new phase of globalisation and take advantage of opportunities that could arise across the globe.

More than 1,000 people from 90 countries are expected to attend the WIF 2010, including investors and representatives of governments, businesses, international organizations,investment promotion agencies, and civil society. Among the participants will be 11 Heads of State, 53 ministers and ministerial-level officials, 200 senior business executives, 46 senior academic experts, 20 senior representatives of international organisations, and numerous chiefs of national investment promotion agencies.

The biennial event will see world leaders investment summit, in which political leaders and CEOs of the world's largest transnational corporations will discuss the new international investment landscape in the post-crisis era. They will identify policy options for maximising the developmental benefits of foreign investment and for taking advantage of new opportunities as the world emerges from recession.

Ministers in charge of investment policies from leading investment source and recipient countries, as well as heads of international organisations, will address such issues as balancing investment liberalisation and regulation and enhancing coherence between national and international investment policies.

Similarly, there will be a high-level tripartite conference, where CEOs and chief strategists of global corporations, senior government officials, and heads of investment promotion agencies will join leading experts in identifying key issues affecting FDI and in discussing the impacts of investment on sustainable development that will include world investment prospects, finding new strategies for investment promotion, and promoting green investment.

The 2010 International Investment Agreements Conference will bring together policymakers, negotiators, and investors to discuss challenges facing the international investment agreement (IIA) regime. These include policies for generating tangible development benefits in the post-crisis investment landscape; the interaction of the IIA regime with key public policies and the systemic evolution of the IIA regime and the investor-State dispute settlement system.

At the Sustainable Stock Exchanges Conference 2010, CEOs of stock exchanges, large institutional investors and issuers, and senior securities regulators will examine how stock exchanges can promote sustainable business practices and responsible capital markets.

A special conference on 'Promoting Responsible Sovereign Lending and Borrowing' will provide an occasion for senior government officials, central bank governors, and high-level representatives of international organisations to discuss the promotion of responsible lending and borrowing.

During the eighth meeting of the UNCTAD-International Chamber of Commerce (ICC) Investment Advisory Council, heads of State, government ministers, executives of global companies, and heads of international institutions will debate practical means for addressing obstacles to achieving the Millennium Development Goals (MDGs) through investment. Investment Showcase events will include 'investment climate' presentations by government ministers from Cambodia, Jordan, Lao People's Democratic Republic, Namibia, Viet Nam, and Zambia to investors.

There also will be presentations on the investment guide programmes of UNCTAD and the China Investment Promotion Agency (CIPA).

Govt set to amend tax system to encourage M&A

The government is planning some incentives to facilitate Merger and Acquisitions (M&A).
"The government -- after its bitter experiences from the past -- is planning to bring some changes in tax system to facilitate merger and acquisitions," said finance secretary Ramehwor Khanal, speaking at an interactive session on 'Appreciating Mergers & Acquisitions' organised by National Banking Training Institute (NBTI) and Nepal Economic Forum (NEF) here in the capital today.
Mergers & Acquisitions are slowly becoming the buzzwords in Nepali business-o-sphere but due to various constraints like taxes are the hindrances. "Thus, the government has also been thinking of giving tax rebate as a sweetener," Khanal added.
"Domestic banks should merge and have bigger capital base to increase their competitiveness," he said adding that after January, Nepal is open to international banks for wholesale banking.
"Thus, it's important for local banks to be stronger and prepare for the competition," he said adding that the M&A could reduce the cost of operations, though in Nepal merger has been also difficult due to egos and prestige issues among the chairmen and CEOs.
"The cultural integration, technology adaptation, and the huge cost are some of the serious issues that could spoil the M&A scene," said Suman Rayamajhi co-founder of the Beed Investment.
"Despite various hurdles, M&A is inevitable," he said adding that there has to be lots of homework and pre-and -post merger planning for a successful merger.
However, the rate of success of M&A across the globe is at 15 per cent only.
Sujit Mundul, CEO of the Standard Chartered Bank Nepal, sharing his experience of merger between the Standard Chartered Bank and Grindlays Bank agreed that the rate of successful merger is very low.
Sujeev Shakya, president of NEF, urged the government to bring some soaps like tax rebate and golden hand-shake to facilitate the mergers, as it is the need of the hour.
"It's the right time to discuss the mergers as rights issues are being under-subscribed and liquidity crunch is hurting the banking sector," said Siddhanta Raj Pandey, CEO of Ace Development Bank and board member of NBTI. "However, the government's revised tax system and labour law will decide the fate of possible mergers," he added.

PEs spend more on staff
KATHMANDU: Talking about the cost on employees, finance secretary said that per capita expenditure on the Public Entreprises (PEs) is much more. "The PEs spent Rs 50,000 per head," he said adding that it is much more than any private institutions that are considered better pay masters. "Even the loss-making PEs are spending Rs 25,000 per head," Khanal added. "The productivity of the employees is however less than the money spent on them." —HNS