June 9: Operators of banks and financial institutions (BFIS) have started lobbying with the Nepal Rastra Bank (NRB) to settle the merger and acquisition policy adopted by the central bank with the objective of reducing the number of banks and financial institutions.
Stating that the banks are still under pressure even a decade after the central bank adopted the merger and acquisition policy, the operators urged the NRB to wrap up the process.
Bhoj Bahadur Shah, senior vice-president of the Confederation of Banks and Financial Institutions Nepal (CBIFIN) and chairman of Mega Bank said, “The issue of merger has become an evergreen agenda in our country. It has always put pressure on the managers of banks and financial institutions. It needs to be addressed properly now.” He informed that an informal conversation was held with the Governor of NRB Maha Prasad Adhikari and the issue be formally raised through CBIFIN.
NRB had put forward the policy of bank merger in 2008 by issuing regulations on merger or acquisition of banks and financial institutions. In 2013, the central bank issued Regulations on Acquisition (2013) for the purchase of banks and financial institutions. In the year 2016, NRB merged the two regulations and issued the regulations regarding merger and acquisition of banks and financial institutions.
As many as 241 banks and financial institutions joined the merger / acquisition process by mid-April 2018 after the merger and acquisition process of banks and financial institutions started. Of these, the licenses of 177 institutions were revoked and the number dropped to 64.
A large number of mergers took place after NRB adopted the policy of increasing the paid-up capital four times within two years through the monetary policy of 2015. However, the number of commercial banks did not decrease even though the number of development banks and finance companies decreased after the large institutions started acquiring smaller ones.
The number of commercial banks, which reached 32, has dropped to 27 after the merger policy of NRB. At present, Nabil and NB Bank are in the final stages of merger process. Similarly, the number of development banks reaching 90 dropped to 18 while the number of finance companies dropped to 17 from 79.
With the decline in the number of development banks and finance companies, the issue of 'big merger' is still under discussion in recent years. Even though the issue of big merger has put pressure on the banks, the bank operators complained that the NRB has not come up with any package to encourage them.
In a recent study by NRB, stakeholders suggested that it would be appropriate to reduce the number of commercial banks to 15.
A study report by CIBIFIN on the state of banks and financial institutions also suggests that incentives should be provided in a way that would encourage merger instead of forcing mergers.
During a meeting with bank operators last Thursday, Governor Adhikari indicated that NRB is about to change its merger policy. He informed the bank operators that the incentives and facility being given for the merger will not be available from the next fiscal year and indicated that the such facility available for merger will be maintained only till the next monetary policy. After the given period, he indicated that the merger will need to be done under pressure on the basis of necessity and justification.
Banks are under pressure due to the lack of liquidity in the current fiscal year and failure to meet the indicators set by NRB. Banks are also under pressure to merge as returns are declining due to fierce competition.