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NRB able to revive most of the problematic BFIs

2018-08-08

Nepal Rastra Bank (NRB)’s Problem Bank Resolution Division has revived most of the banks and financial institutions (BFIs) that were declared problematic in past five to six years.

NRB Governor Chiranjibi Nepal said most of the problematic BFIs, except Nepal Share Markets and Finance Ltd, have been revived or are on the verge of being revived through transfer of ownership to new parties.

Out of the total 16 BFIs declared problematic, only the case of Nepal Share Markets and Finance Ltd is complex. “However, we are looking at options to transfer ownership of Nepal Share Markets and Finance to other credible parties to revive the financial institution instead of opting for liquidation,” said Nepal. “The central bank will be relieved once the division established to look into the problematic financial institutions can be dissolved.”

The problematic Gurkha Development Bank was downgraded to Gurkha Finance Company while it was being revived by transferring its ownership to a new board of directors. Similarly, H&B Development Bank’s name had been changed to Society Development Bank and later merged with other financial institutions. Also, General Finance was revived and started operation as Best Finance Ltd.

To deal with the situation, the Problem Bank Resolution Division opened the way for new credible investors to chip in investment and revive the problematic financial institutions instead of granting them new licence from the central regulatory and monetary authority.

Likewise, Arun Finance, Lalitpur Finance, Kuber Merchant Finance and Corporate Development Bank came into operation after the central bank lifted the tag of problematic financial institutions from them.

As per NRB, Capital Merchant Banking and Finance Ltd, World Merchant Banking and Finance Ltd and Nepal Finance Ltd have signed memorandums of understanding to transfer ownership and undergo the process of coming into operation with new board of directors.

Crystal Finance, Himalaya Finance and Narayani Development Bank are seeking new parties to transfer ownership.

The central bank was unable to deal with the cases related to Nepal Share Markets and Finance Ltd, Crystal Finance Ltd and Narayani Development Bank Ltd for long as the board of directors of the concerned BFIs had filed cases against central bank’s policy to force them to transfer ownership to revive the financial institutions.

NRB has said that lack of corporate governance on part of the institutions themselves and also lack of supervisory capacity of NRB were the major reasons for the failure of the concerned financial institutions.

Following  failure of class ‘B’ and class ‘C’ financial institutions mostly, NRB has expanded risk-based supervision for development banks and finance companies. Risk-based supervision of commercial banks was started in fiscal 2015-16. NRB has developed risk profile based on credit, market, system and operational risks of 28 commercial banks in operation and intervened in concerned areas where the risks are high.

Risk-based supervision has been introduced for all development banks from this fiscal. It will be expanded to finance companies in the next phase.

Source: The Himalayan Times