Banks promoted by same groups warned of forceful merger

Nepal Rastra Bank (NRB) has started approaching commercial banks, particularly the ones promoted by same groups, in order to persuade them to undergo merger.

In this connection, NRB has asked Nepal Industrial and Commercial (NIC) Bank and Bank of Asia Nepal (BoAN) -- largely promoted by same groups -- to either undergo merger voluntarily or face the fate of forceful merger.

The central bank passed on such a message during a meeting with the board of directors and top management officials of those banks recently. NIC and BoAN officials confirmed the central bank´s move.

“Merger is a long pushed agenda of NRB and we are open to it as well. Hence, it is pretty normal for the central bank to discuss the issue with us,” BoAN CEO Parshuram Khettri told Republica.

Although he refused to divulge further details, an NRB source said it was not just a regular consultation. “We have given them a clear message that if they continue to drag their feet, the central bank will get them merged forcefully,” said the source.

The central bank´s move has nothing to do with their financial health though, officials clarified, stressing that the financial outlook of both NIC and BoAN are good and are performing soundly.

“It is just that we believed it would be easier and also appropriate for banks promoted by the same business houses to merge,” the source said. Bishal Group and Shanghai Group are common promoters of NIC and BoAN and according to NRB, these groups hold majority stakes in them.

Furthermore, NRB officials said the instruction given to NIC and BoAN was just a beginning. Meaning: the central bank would be approaching other banks (promoted by same groups) as well to persuade them to undergo merger voluntarily.

“If they do not pay heed, we will execute forceful mergers,” said the source.

Promoters cold shoulder NRB´s call
Though the central bank officials said their message to the banks was serious, promoters of the two banks that NRB approached have simply cold shouldered the central bank´s call.

“We heard what the central bank officials said, but have not yet discussed it in our board meeting,” said Rajendra Aryal, a board director of NIC Bank.

He even said that the warning of NRB to force two smoothly functioning banks to merge just for having common promoters was unfair. “It is not that easy because there are other promoters as well,” he stated.

BoAN officials expressed similar opinion. “There are other relatively weak banks promoted by same groups. Why does NRB not start rightsizing the banks from them? Why us?” said an official there, venting ire against the central bank for issuing such a warning.

While BoAN officials did not disclose any merger plan, Aryal of NIC said his bank was presently holding talks with a couple of Chinese banks, exploring possibility of forging a joint venture. “We are eying foreign banks for partnership,” he stated.

NRB has been pushing banks and financial institutions (BFIs) to undergo merger after liquidity crisis and financial crisis hit the country in early 2011. The central bank in May 2011 even endorsed Merger Bylaw, with provisions for incentives and forceful merger of BFIs in case the central bank deemed it appropriate.

Since the enforcement of the bylaw, about half-a-dozen financial institutions have already undergone merger, but no such outcome has been seen in the banking sector.

Source: Republica