Saturday, October 6, 2018

Call for stronger regulation for financial sector stability


Kathmandu, Oct. 5:
Experts have suggested strengthening regulation of all financial, capital as well as insurance sectors to ensure financial sector stability in the country.

Banking, finance, capital market, insurance, saving and credit cooperatives and non-banking financial institutions are interlinked with each other and problems in any of these sector may result in the whole financial sector crisis, they said at a workshop on ‘Financial Sector Stability: A Priority for National Agenda’ organised here on Friday.

The experts also pointed towards the need for a better and pragmatic coordination among the regulating agencies of these diverse sectors to maintain financial health of the country.

Governor of the Nepal Rastra Bank (NRB) Dr.Chiranjibi Nepal warned that the loosely regulated cooperatives, which mobilise deposits, could be the biggest threat to the financial sector stability in the country.

“Saving and deposit cooperatives and the non-banking financial institutions have posed unseen risks to the financial sector stability in Nepal,” he said.

“The monetary policy for the current fiscal year 2018/19 has introduced several measures to strengthen the financial stability. Other financial institutions, including saving and credit cooperatives are ‘unseen threats to the regulatory system’,” he added.

However, he maintained that the regulatory system of the banking sector was very strong and the central bank was strong and capable to control bank and financial institutions.

According to Dr. Nepal, as more than 15 per cent of the money in the financial market is mobilised by the institutions that are out of the regulatory domain, and any shock could pose a threat to the entire financial system of the country.

Strengthening the supervision and monitoring of systemically important banks, branch audit of commercial banks, plan to develop housing price index and raising the limit of deposit guarantee to Rs. 300,000 from Rs. 200,000, among others, are some of the measures were introduced in the monetary policy as part of the efforts to strengthen the financial system of the country.

Governor Dr. Nepal underlined the need of consistency of the financial sector stability. “There should be consistency in the stability of the financial sector. As observed in the 2008 financial crisis, any incident can destabilise the system. So our focus should be on maintaining consistency of the financial stability,” he added.

Experts, policy makers and regulators also said that the financial stability was a pre-requisite for economic growth and should not be taken as granted.

Chief of International Economic Cooperation Coordination Division (IECCD) at the Ministry of Finance Shree Krishna Nepal said that the financial stability was a pre-requisite to the economic growth of any country.

“The global economy is moving towards normalcy and there is not any upheaval. But what we can learn from the global financial crisis is that if we cannot manage financial system, it can inflict damage on the economy and we have to suffer,” he said.

Nepal said that the government had taken various measures to make the financial system prudent, reliable and stable.   

Bimal Koirala, Political Economy Advisor at UK Aid-funded Financial Sector Stability Program, underscored the need for strengthening the regulatory and supervisory capacity of regulatory bodies to maintain financial stability of the country.

Former Deputy Governor of the NRB Krishna Bahadur Manandhar said that the economy of the country should be analysed from the financial sector stability.

He asked the regulators to be vigil as even the well-regulated institutions could be vulnerable to crisis.

Nara BahadurThapa, the Research Department Chief of the NRB, said that state-owned Rastriya Banijya  Bank and Nepal Bank Ltd had threatened the financial sector stability of the country in the past.

Stating that the government had to bail out these banks through the tax payers’ money of Rs. 3.5 billion, he said that the crisis also led to several reform initiatives in the financial sector.
Strahan Spencer, Senior Economic Adviser at DFID Nepal, said that the firms and households were vulnerable to economic or financial shocks.

“One of the important lessons from the global financial crisis of 2008 is that we should not take financial stability as granted,” he said, warning that sophisticated financial products could pose a risk to the financial sector.

The programme was organised by Society of Economic Journalists – Nepal (SEJON).

Published in The Rising Nepal daily on 6 October 2018. 

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