Wednesday, July 31, 2013

Mergers of Banks & financial institutions gain momentum

The merger policy introduced by the central bank two years back has been successful as almost one-fourth of the financial institutions have opted for mergers since then.

Since April 2011, when Nepal Rastra Bank (NRB) introduced the Merger Bylaws, 43 financial institutions have merged so far and 13 more are in the process of merging.

When the bylaws were introduced, there were 198 class ‘A’, ‘B’ and ‘C’ financial institutions in existence. The number has come down to 176, including five development banks that have come into existence since then.

Though the merger bylaws had failed to create an immediate impact in the banking fraternity, mergers have gained momentum over the past year. So far, the Nepali banking sector has witnessed 21 sets of mergers — three were undertaken before the Merger Bylaws were introduced.

“We were aware that the merger bylaw was not a magic wand that would impel financial institutions to opt for mergers immediately, but it gave them a firm base when ready,” pointed out spokesperson for NRB Bhaskar Mani Gyanwali. Since the promulgation of the bylaw, there have been 18 sets of mergers while 18 financial institutions were provided with Letters of Intent for six sets of mergers.

Last fiscal year saw the maximum number of mergers taking place with nine sets of mergers between 22 financial institutions including commercial banks, development banks and finance companies to form two commercial banks, seven development banks and two finance companies.

Before the end of fiscal year 2012-13, NIC Bank and Bank of Asia Nepal started operations as NIC Asia Bank. Likewise, Global IME Bank that was formed a year back following a merger with Lord Buddha Finance and IME Financial Institution again merged with Gulmi Bikas Bank and Social Development Bank in mid-July.

“Market forces have made financial institutions recognise the need to consolidate and all of them have approved to seek mergers in their annual general meetings,” said Gyanwali.

The IMF has strongly suggested NRB to bring down the number of financial institutions to less than 100 by the end of next fiscal year.

Moreover, the compulsion to increase the paid up capital as of the end of fiscal year 2012-13 was the driving force behind the increase in mergers. The regulator has extended the deadline to increase paid up capital to the end of the current fiscal year so more mergers will be taking place as it is the best possible measure for institutions that lack ample reserves and promoters.

“Most of the smaller financial institutions have opted for mergers to increase the paid up capital requirement, while for some mergers have become a measure to avoid regulatory action as well,” informed president of Nepal Finance Companies Association Rajendra Man Shakya.

Four commercial banks, 18 development banks and 21 finance companies have undergone mergers. Before the merger bylaw was announced, Laxmi Bank and Hisef Finance had already merged. Nepal Sri Lanka Merchant Finance and Nepal Bangladesh Bank had also merged, and Narayani Finance and National Finance had merged to become Narayani National Finance.
src : THT