16 banks pledge to undergo M&A

Kathmandu, July 7

A total of 16 banks have pledged with the Nepal Rastra Bank (NRB) to undergo merger and acquisition (M&A) in the near future.

At a time when the merger talks are doing the rounds in the financial market just ahead of launch of the Monetary Policy for 2019-20, banks — namely, Century Commercial, Citizens, Civil, Global IME, Himalayan, Kumari, Laxmi, Machhapuchchhre, Mega, NCC, NIC Asia, Nepal Investment, Nepal SBI, NMB, Sanima and Sunrise — have informed the central bank regarding their plans and preparations to merge with other banks or acquire other banks.

Meanwhile, Janata Bank and Global IME Bank have already decided to go into merger process.

As a part of the government’s policy to encourage banks to go for M&A, the central bank had earlier sought commitments from all 28 commercial banks for the same before the Monetary Policy is announced in mid-July.

Announcing the budget for 2019-20, Minister for Finance Yubaraj Khatiwada had said that banks would be encouraged to merge.

This government policy primarily intends to bring down the number of banks in the country and raise their capital, thereby enhancing their lending capacity.

Through the Monetary Policy for 2015-16, the central bank had compelled banks to raise minimum paid-up capital to Rs eight billion from Rs two billion.

“Banks have formed core teams to go for merger and acquisition and are currently busy doing the necessary groundwork,” said Laxmi Prapanna Niroula, adding that a number of banks are expected to finalise their M&A plan before the announcement of the Monetary Policy for the next fiscal.

Despite their readiness, banks have been seeking tax incentives from the government for M&A citing that all commercial banks have been operating legally by taking licences from NRB and the central bank cannot pressurise any bank to go for forced merger.

Bankers have said that the government should reduce income tax levied on banks by at least five percentage points for a period of five years for those banks who choose to merge with others.

Currently, the government imposes 30 per cent income tax in the banking sector.

Though NRB is reluctant to say how the upcoming Monetary Policy will encourage the banks to go for merger, sources at NRB said that banks choosing to merge are likely to get tax incentives for a certain period.