NEWS ANALYSIS : Financial sector reforms fail

Himalayan News Service

Kathmandu, July 5:

Former governor Satyendra Pyara Shrestha and the incumbent governor, Dr Tilak Rawal’s have said that the future of financial sector reforms is quite bleak, particularly if the performances of Nepal Bank Ltd (NBL) and the Rastriya Banijya Bank (RBB) are any indicators.

Dr Rawal’s rather sarcastic comments came at a time when the management contract for NBL will come to an end by the second week of July. The governor himself has reiterated that the management NBL contract would not be renewed at ‘a high cost’ and also, assured bankers and people in general that the ‘reform process’ would be expedited with lesser funds.

The figures for the non-performing loans (NPL) in NBL are different between statistics provided by KPMG International and ICC Bank of Ireland team, led by Craig McAllister, that is in charge of the reforms in NBL. Former governor of NRB, Satyendra Pyara Shrestha said that KPMG International had calculated the NPL at 30 to 35 per cent in 2000.

However, after the reforms initiated with World Bank loans, the NPL has gone up to 61 per cent, which is ‘dangerous’, as per the report submitted by NBL management team. If the NPL has gone up so high, the reform process has failed in its mandate, said former governor Shrestha. One of the financial experts involved in NBL reform process, Shovan Dev Pant who worked as a chief of lending section, revealed that NPL has been ballooning up even after the reforms started by the foreign management team in NBL. According to him, NBL has over Rs 4.0 billion worth of ‘sweetheart loans’. It also has four billion rupees worth of negative worth. In the case of RBB, the negative net worth is over Rs 18 billion. According to Pant who has been closely watching the reform process for long, “Automation of the bank, manpower development and recovery initiatives including privatisation process all seemed to be a hogwash so far.”

“Even if the government wants to privatise NBL and RBB at its present status, it will cost over Rs 20 billion which is totally impossible,” Pant opined. The central bank’s executive director, Rajan Singh Bhandari who looks after financial sector reforms, commented that the financial sector reform’s objective has many facets such as capacity building, improving the health of the banks, applying information technology, among others. “The reform process will be taken ahead, following review of past performances,” he said. Reforms will take more than two to five years, but it is difficult to backtrack on the reform process. He added an efficient management team for NBL will be needed. We don’t need foreign experts to reform our banks as Nepalis are efficient enough. According to present calculations, the second phase of reforms will cost around $6.6 million which should can be reduced by over 30 per cent. NBL and RBB alone occupy about 50 per cent of the total banking assets of the country. Narendra Bhattarai, president of NBA, asked for a revival package in the forthcoming budget for the financial sector. The reform process of NBL and RBB should be evaluated properly and loans should not be wasted.