KATHMANDU, DEC 02 - 2012
Commercial banks are adopting a cautious approach while doing business with Chinese construction companies after two banks risked losing around Rs 1.30 billion for giving counter guarantee to a Chinese bank that had given guarantee to the Chinese contractor involved in Melamchi Drinking Water Project.
After the China Construction Bank refused to release the guarantee amount citing the court order, two Nepali counter guarantors—Himalayan Bank Limited (HBL) and Bank of Kathmandu (BoK)—are in a big trouble.
A meeting of the Nepal Bankers’ Association (NBA) on Friday concluded that doing business with Chinese contractors is risky and asked all member banks to adopt caution while giving counter guarantee.
A majority of banks also agreed not to do business with the China Construction Bank, according to a NBA source.
“There will not be any transactions with the China Construction Bank henceforth,” said HBL CEO Ashok Rana, who is also the president of NBA. “We will have to be careful if a similar problem arises in other projects, in which Chinese contractors are involved.”
China Railway 15 Bureau Group, with which the Melamchi project terminated the contract for bad performance, has filed the case in the Chinese court arguing it would not pay the guarantee amount as it had to give up the job due to bad work environment in the project site and Nepal.
The two banks have given counter guarantee to the Chinese bank for performance security of $6.62 million and guarantee for advance payment of $6.62 million and 1.4 million euro (Rs 1.3 billion).
As per existing mechanism, the Chinese bank should have released that amount to the Nepali banks, which would have been paid to the Melamchi Project.
With the Chinese bank refusing to release the guarantee amount, the two Nepali banks are facing trouble after the Melamchi
Water Supply Development Board asked them to release the guarantee amount.
“We are holding discussion with all relevant
parties, including the Melamchi Board and Nepal Rastra Bank, after the Chinese bank refused to release the guarantee amount, citing court’s order,” said Ajaya Sharestha, CEO of BoK. “We are
also exploring legal options on what can be done in
such cases.”
He said the process of giving counter guarantee is similar internationally. “This is a rare case and has alarmed us,” he added.
As work on many other projects in which Chinese contractors are involved has not been encouraging, Nepali banks are suspicious about the possibility of emergence of similar situation in future. That’s why they said they had to take such a decision.
Melamchi Board of Krishna Acharya said they have asked the two Nepali banks to pay the guar-
antee amount, but also acknowledged the banks’ problem.
“That’s why we have also sent a letter to the Nepal Rastra Bank to help recover the amount,’ said Acharya.
Source: The kathmandu Post
Commercial banks are adopting a cautious approach while doing business with Chinese construction companies after two banks risked losing around Rs 1.30 billion for giving counter guarantee to a Chinese bank that had given guarantee to the Chinese contractor involved in Melamchi Drinking Water Project.
After the China Construction Bank refused to release the guarantee amount citing the court order, two Nepali counter guarantors—Himalayan Bank Limited (HBL) and Bank of Kathmandu (BoK)—are in a big trouble.
A meeting of the Nepal Bankers’ Association (NBA) on Friday concluded that doing business with Chinese contractors is risky and asked all member banks to adopt caution while giving counter guarantee.
A majority of banks also agreed not to do business with the China Construction Bank, according to a NBA source.
“There will not be any transactions with the China Construction Bank henceforth,” said HBL CEO Ashok Rana, who is also the president of NBA. “We will have to be careful if a similar problem arises in other projects, in which Chinese contractors are involved.”
China Railway 15 Bureau Group, with which the Melamchi project terminated the contract for bad performance, has filed the case in the Chinese court arguing it would not pay the guarantee amount as it had to give up the job due to bad work environment in the project site and Nepal.
The two banks have given counter guarantee to the Chinese bank for performance security of $6.62 million and guarantee for advance payment of $6.62 million and 1.4 million euro (Rs 1.3 billion).
As per existing mechanism, the Chinese bank should have released that amount to the Nepali banks, which would have been paid to the Melamchi Project.
With the Chinese bank refusing to release the guarantee amount, the two Nepali banks are facing trouble after the Melamchi
Water Supply Development Board asked them to release the guarantee amount.
“We are holding discussion with all relevant
parties, including the Melamchi Board and Nepal Rastra Bank, after the Chinese bank refused to release the guarantee amount, citing court’s order,” said Ajaya Sharestha, CEO of BoK. “We are
also exploring legal options on what can be done in
such cases.”
He said the process of giving counter guarantee is similar internationally. “This is a rare case and has alarmed us,” he added.
As work on many other projects in which Chinese contractors are involved has not been encouraging, Nepali banks are suspicious about the possibility of emergence of similar situation in future. That’s why they said they had to take such a decision.
Melamchi Board of Krishna Acharya said they have asked the two Nepali banks to pay the guar-
antee amount, but also acknowledged the banks’ problem.
“That’s why we have also sent a letter to the Nepal Rastra Bank to help recover the amount,’ said Acharya.
Source: The kathmandu Post
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