Kathmandu, April 30

A majority of the problematic financial institutions (FIs) in the country have chosen to transfer their ownership to new parties to bring them back into operation. Nepal Rastra Bank (NRB) Governor Chiranjibi Nepal, today, said that six out of the nine problematic financial institutions are in the process of transferring ownership to new parties.

“The central bank has been able to reduce the number of problematic institutions from 16 to nine now. And six problematic financial institutions out of the nine remaining are in the process of transferring their ownership,” informed Nepal. “The memorandums of understanding have already been signed and the Problematic Bank Resolution Division of NRB has been informed about the transfer process.”

NRB has given problematic financial institutions multiple options to bring them back into operation under the resolution framework developed by the central bank. Except for three problematic financial institutions, which have filed a case at the court, the remaining six financial institutions will be brought into operation by new management teams very soon, according to Governor Nepal.

As per NRB, Capital Merchant Banking and Finance Ltd, Kuber Merchant Finance Ltd, World Merchant Banking and Finance Ltd, Nepal Finance Ltd, Lalitpur Finance Ltd and Corporate Development Bank Ltd have signed memorandums of understanding to transfer ownership. The three problematic financial institutions that have filed a case at the court are Nepal Sharemarkets and Finance Ltd, Crystal Finance Ltd and Narayani Development Bank Ltd.

“The central bank will dissolve the Problematic Bank Resolution Division and transfer the staffers who are engaged in the division to other departments after the cases of the problematic institutions are settled and the institutions are handed over to new management teams,” said Governor Nepal.

Citing that the failure of the financial institutions was due to lack of corporate governance on the part of the concerned institutions themselves and also due to lack of supervisory capacity of the central bank, Governor Nepal said that NRB has raised the paid-up capital of banks and financial institutions (BFIs) and taken various regulatory and supervisory measures for the stability of the financial sector.

“BFIs should also support the central bank’s objective to develop a strong and stable financial system through self-regulation,” the governor said. “Many institutions in the past failed due to arbitrary decisions taken by their boards and the top layer management to fulfil their self interests,” he stated. “But the promoters and top management of BFIs should realise that they are only trustees of the public’s deposits and they should abide to all the rules of NRB.”

NRB, in this regard, is preparing to expand risk based supervision for development banks and finance companies to enhance the supervision of the central bank. It introduced risk based supervision of commercial banks in fiscal

2015-16. The central bank has developed risk profile based on credit, market, system and operational risks of 28 commercial banks in operation and intervened in concerned areas where risk is high, according to Maheshwor Lal Shrestha, executive director, Bank Supervision Department of NRB.

Currently, the central bank has started risk based supervision of two national level development banks — Kailash Bikas Bank and Yeti Development Bank — in the initial phase and risk based supervision will be introduced for all development banks in the next phase by fiscal 2018-19 and then for finance companies, as per Shrestha.