NRB seeks commitment from commercial banks for mergers and acquisitions

Kathmandu, June 27

Nepal Rastra Bank today summoned chairpersons and chief executive officers of all 28 commercial banks in operation to discuss possible mergers and acquisitions in the future.

During the meeting, NRB told bankers to submit names of banks that they wanted to merge with or submit a commitment letter for merger to NRB before the Monetary Policy is announced in mid-July.

As per the announcement of the budget for fiscal 2019-20, NRB has urged banks to submit written commitments that they are ready for M&A, said Laxmi Prapanna Niroula, spokesperson for the central bank. “The banks that have already found partners for M&A should submit their confirmation with the partner’s name and those seeking partners can submit their commitment,” he said.

He added that the discussion was held also to collect recommendations for the Monetary Policy. “The upcoming Monetary Policy will aim to encourage banks and financial institutions to go for M&A,” he said, adding, “As this will help create good governance in the banking sector of the country, the meeting today aimed to discuss the same with stakeholders.”

Meanwhile, in order to encourage BFIs to opt for M&A, the government has also announced that such banks will be granted tax exemption for one year, he added. “M&A among BFIs will contribute to safety and soundness in the banking sector,” Niroula said, adding, “We are just conveying a message that the government is positive towards reducing the number of BFIs to ensure the quality of service.”

According to him, the push for M&A is not ignoring the open market policy, rather it is for the survival and sustainability of the BFIs.

Bhuvan Dahal, CEO of Sanima Bank, said commercial banks were positive towards NRB’s decision, but the time limit given by the central bank for the M&A was not enough. “Choosing a partner for business is a matter of taking risk. So, it will be difficult for us to complete the whole process of M&A by the time the Monetary Policy is announced,” he said.

Dahal said the number of BFIs in the country was comparatively high when taking the market size into account. “The number should be reduced, but how to do so needs to be thought through,” he said. “The NRB responded positively to our request for more time.”

Ashok SJB Rana, CEO of Himalayan Bank, said bankers were obliged to follow the government’s decision.

Prior to this, NRB had asked banks to raise their paid-up capital to Rs 8 billion from Rs 2 billion to encourage consolidation in the banking sector. However, only a few BFIs did so forcing the central bank to come up with the M&A policy for big banks.

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