Nepal | September 28, 2020

NRB indirectly pressuring BFIs for merger

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Though the government and Nepal Rastra Bank (NRB) have been saying that banks and financial institutions (BFIs) will not be compelled for merger and acquisition, the central bank is seen indirectly pressuring banks to go for merger.

As per sources, NRB is preparing to seek progress report on merger and acquisition from banks that had earlier expressed commitment to go for merger and acquisition

Former NRB governor Chiranjibi Nepal last year had sought written commitment from banks, especially from commercial banks for merger and acquisition. Subsequently, 22 BFIs had presented their written commitment to go for merger and acquisition.

Though a few BFIs have already completed their merger and acquisition process, those reluctant to go for merger were happy after the government and the new central bank leadership said that merger would be voluntary and no bank would be forced to go for merger.

However, NRB officials said that though merger and acquisition is voluntary, those banks who have already expressed their commitment to go for merger should complete their merger process.

The Monetary Policy for fiscal 2020-21 was expected to introduce different subsidy packages for BFIs that go for merger.

However, NRB only relaxed some provisions for merged entities like spread rate and cooling period for bankers, which seems to have discouraged banks to go for merger immediately.

“Banks that had expressed commitment to go for merger before the Monetary Policy was announced are also delaying their merger process. Thus, we plan to soon take progress update from all BFIs who had expressed commitment to go for merger,” said a central bank source.

At present, NRB seems to be compelling banks with cross-holding to go for merger and it has already sought cross-holding details from different banks. In case banks with cross-holding and other banks who have expressed their commitment to merge fail to start merger and acquisition process within mid-August, NRB plans to issue a direction for banks to go for merger.

“We are not promoting forced merger. However, if BFIs fail to execute their merger commitment, we will direct strong and weak BFIs to merge with one another,” said the NRB source. “NRB discourages merger between small entities. We want large entities to acquire smaller ones.”

A version of this article appears in e-paper on August 3, 2020, of The Himalayan Times.

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