Financial sector reform costing dearly: Experts

Himalayan News Service

Kathmandu, July 4:

Financial sector reform initiated two years ago focusing on Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB) has failed to produce sound results, which has pushed the reform process in disarray giving a big loans’ burden on cash-strapped Nepalis, experts worried here today. Dr Tilak Rawal, governor, Nepal Rastra Bank (NRB), while addressing a programme on ‘the growth of financial institutions: Challenges and Opportunities,’ organised by Economic Post weekly today, expressed serious concerns over the ‘unsatisfactory’ reform process in the NBL. The foreign management team that has been appointed for NBL’s reform is completing its contract this month.

Dr Rawal said that no one wants to run expensive reform process such as the present one. “We cannot be sure that in two years’ time, there would be a ‘magic’ in these two banks. There is no room to be complacent on recovery front. We want to expedite reform process but not by paying over $30,000 per person as it will not be sustainable for us.” “NRB is re-thinking for the continuation of the reform team,” he added. “The saying of non-performing loans (NPLs) reduction to less than 10 per cent has not been possible till date and still hovers around 61 per cent. But the time frame for the reform process can be extended to five years with suitable management team,” Rawal said. Presenting a paper on the occasion, Shovan Dev Pant, former general manager of Nabil Bank said “as per the earlier expectation, NBL’s NPLs should have gone down to five per cent by now, but it still stands at 61 per cent. NBL’s new management has failed in key indicators such as NPL reduction, computerisation and privatisation, and immediate review of the reform strategy needs to be re-evaluated.”

Privatisation of the two banks is estimated to cost Rs 20 billion which is very expensive for the reform process, Pant added. Narendra Bhattarai, president of Nepal Bankers’ Association (NBA) talking about financial sector reform said that the remaining time for the present management team to reduce the NPL is not possible. It will, at least, take five to seven years for effective reform process which needs re-evaluation.

Chairing the session, former vice-chairman of National Planning Commission suggested to bring reform mechanisms in the forthcoming budget. “The cost and timeframe of the financial sector reform should be re-evaluated properly,” he added. Rajan Singh Bhandari, executive director of NRB said the banking sector lacks competition despite the numbers of private banks on rise. And failure of state-owned banks helped the private banks to grow. Financial sector reform at least needs five years to see turnaround, he said adding that NRB will not go ahead sans re-evaluation of reforms. “Cost of the reform will be calculated on the basis of quality of service and objectives,” he said adding that if existing management team in NBL did not agree in reducing cost, options could be sought. The next phase of financial sector reform will cost over $6.5 million, which needs to be reduced by over 30 per cent, experts opined. However, the World Bank is pressurising NRB to renew ICC bank, the present management team, in NBL, which is totally unreasonable.