Khatiwada soft on BFI merger

Kathmandu, Sept. 17

Finance Minister Dr. Yuba Raj Khatiwada has taken a soft stance on the much-publicised merger of the banks and financial institutions (BFIs).


He was not opting for forced merger, and just made a call to the banks and financial institutions (BFIs) to work themselves about creating stronger institutions.


"The government encourages strong and bigger institutions, however, it will not happen at the risk of making the system weak and unmanageable," he said while speaking at the Banking Summit 2019 in the Capital.


Nepal Rastra Bank in its Monetary Policy for 2019 had announced the policy to promote merger and create stronger institutions but made it clear that the central bank was not in the mood for the enforced merger.


Earlier, there were rumours that in an effort to create mega banks, the central bank might raise the paid-up capital requirement for the 'A' class commercial banks up to Rs. 25 billion. Commercial banks currently need to have Rs. 8 billion paid up capital.


However, the World Bank in its recent report 'Nepal Infrastructure Sector Assessment' published last week, had recommended increasing the paid-up capital requirement to Rs. 16 billion.  


"Nepal's domestic banks and financial service institutions are highly fragmented and require consolidation to enable more efficient deployment of capital," it said. "Banks in Nepal have a small capital base, which limits lending to individual projects. Due to an asset-liability maturity mismatch, the banks have limited ability to lend in the long term," read the report.


Finance Minister Dr. Khatiwada said that he always wanted the banks to be more rational and increase financing so that they could contribute to the economic progress.


"The banks can drive the economy to a higher growth but their finance should be inclusive so that the development could also be inclusive," he said.


According to him, banks are catalytic to create and promote business including the infrastructure ventures.


The former Governor of the Central bank also said that the banking industry was at the cross-roads due to the globalisation of finance and information technology-enabled services.


"Now they have to do more than core commercial banking, such as microfinance, insurance and other subsidiary business, in the globalised world so they need to to be more competitive and conscious both at the same time," he said.


He urged the BFIs to move to the virtual banking and increase the digital presence.


He also said that strong legal instruments were needed to curb financial crimes which were on the rising trend. "Risks are ever increasing which force us to be prepared in terms of policy and infrastructure," said Dr. Khatiwada.


Shekhar Golchha, Vice-President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) said that the current liquidity situation had created challenges for business financing.


"Investors are getting depression doubting that the economy might go into recession," he said.


Former Governor of the Bangladesh Bank Atiur Rahman said that Nepali banking industry should learn from the crises as they were best opportunity for reform.


He said that creating doing business environment in the country will be instrumental in enhancing the business financing.

Published in The Rising Nepal daily on 18 September 2019.