Financial Institutions eye merger to fortify financial position

As capital crunch and low public confidence continue to hurt financial system, more development banks and finance companies have chosen to undergo merger to stave off possible problems.

Nepal Rastra Bank (NRB) officials said Monday they have received notifications from Annapurna Bikash Bank (ABB) and Suryadarshan Finance Company Limited (SFCL), seeking the central bank´s green signal for merger. Kasthamandup Development Bank and Shikar Finance too have applied for merger approval, while Vibor Bikas Bank has already signed a memorandum of understanding (MoU) with Bhajuratna Finance to undergo merger.

Officials told Republica that the central bank was taking their requests positively.

“We expect the NRB to issue ´agreement in principle´ for Kasthamandap and Shikhar merger shortly,” said an NRB official said. He further told Republica that the central bank has also initiated dialogue with the merger committee formed by ABB and SFCL.

“We held talks with the merger committee on Monday to know how they intend to implement the merger deal,” said an NRB source.

Report submitted by the committee to the NRB shows that the paid-up capital of ABB, which targets to be a national-level development bank, stands at Rs 672 million, which is well above the stipulated capital requirement. However, the paid-up capital of SFCL is Rs 100 million -- half of the stipulated capital requirement.

Amid persistent liquidity crunch and problems seen in the financial system, the NRB has been strongly pushing the banks and financial institutions to undergo merger to cut cost and sustain. It even unveiled merger bylaws in early May 2011 and the government too has provided various tax incentives to encourage them for merger.

“Since then, about a dozen BFIs have already approached us for merger approval. This is a good sign,” said the official.

Birgunj Finance and Himchuli Development Bank completed merger formalities about a couple of months ago, forming H & B Development Bank.

Though the number of BFIs approaching for merger is growing, BFIs officials have expressed disappointment over the recently launched monetary policy for not incorporating merger issues.

BFI officials were demanding that the government announce tax exemptions for financial institutions undergoing merger. But the budget for the current fiscal year is silent on their demands.