Banks cautious about business with Chinese companies

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

Forex reserves exceed US$ 5 billion

KATHMANDU, Dec 2, 2012

Despite the widening of the trade gap by almost 41 percent, with increased outflow of foreign currency in the form of trade payments, Nepal´s foreign currency reserves jumped by 2.5 percent and crossed the US$ 5 billion mark in the first quarter of this fiscal year, thanks to Nepalis employed abroad remitting more money back home.

“In terms of dollars, the forex reserves that the country held in mid-October, 2012 were US$ 5.08 billion, an all-time high,” said a senior Nepal Rastra Bank (NRB) official.

The country´s reserves in mid-July 2012, when the previous fiscal year ended, were US$ 4.96 billion. Moreover, gross foreign exchange holdings data released by NRB shows that the reserves recorded in mid-October this year were US$ 1.41 billion higher than during the same month last year.

“This is a record growth,” said the NRB official.

What´s more, such expansion has caused the country´s foreign currency reserves to more than double in five years. Nepal´s total foreign currency holdings were US$ 2.50 billion in mid-October 2007, according to NRB.

Officials attributed the rosy forex reserves outlook in mid-October 2012 to a sharp rise in money that Nepalis brought back home in remittances and pensions.

“Remittance receipts during the first quarter of this year crossed US$ 1.15 billion. Such receipts were US$ 971 million in the same period last year,” said the official, adding that the country recorded a hefty 19 percent growth in remittances received in dollar terms during the first quarter of fiscal year 2012/13.

Likewise, Nepalis who retired from service in foreign lands also brought in US$ 105.5 million in pensions during the quarter. The figure was US$ 85.22 million in the same period last year.

Officials said such strong forex reserves have created an environment whereby Nepal can easily persuade foreign investors to put their money into this country. This has also bolstered Nepal´s capacity to execute large development projects.

On the flip side, such rise in foreign currency reserves is expected to step up the money supply, causing inflation to rally.

Amid higher import growth and low remittance receipts, Nepal´s foreign currency reserves at the time of the post-2008 global financial crisis were hovering between US$ 3.4 billion and US$ 3.7 billion till 2010/11. But since September 2011, the reserves had surpassed the US$ 4-billion mark amid a strong rebound in remittance receipts, exports and tourism income during Nepal Tourism Year 2011.

In terms of the Nepali rupee, however, the total forex holdings of the country dropped by 2.2 percent to Rs 429.94 billion in mid-October, compared to mid-July 2012. The drop is attributed to the strengthening of the rupee vis-à-vis the US dollar over the period.

According to NRB, the exchange rate for the dollar was Rs 84.77 in the month ending mid-October, whereas it was Rs 89.50 in mid-July 2012.

Source: Republica

NT decides to award contract for 5.2m GSM lines to Huawei

KATHMANDU, DEC 02, 2012

Nepal Telecom (NT) has decided to award ´Package A´ of its 10 million GSM lines project to Chinese telecom vendor Huawei.

The state-controlled telecom operator did not have any option other than approaching Huawei after the other two bidders cold-shouldered its offer. Still, NT took some time to award the contract to Huawei after some of its board members showed unwillingness to award the contract to install 5.2 million GSM lines to the Chinese vendor.

Huawei has already signed final agreement with NT to execute ´Package B´ of the project. As the lowest bidder, the Chinese firm had bagged the contract for Rs 6.75 billion.

"The board meeting on Wednesday finally decided to issue Letter of Intent to Huawei for the installation of 5.2 million GSM lines," said Pramod Gurung, one of the board members of NT. He told Republica that the board took the decision after two of the three vendors who participated in the bid rejected the offer.
Gunakeshari Pradhan, spokesperson of NT, said the operator would issue the Letter of Intent to Huawei shortly.

The bid for the ´Package A´ consisting of 5.2 million GSM lines was originally won by another Chinese vendor ZTE. But it later pulled out after NT turned down its request to raise the cost for implementing the project.

After seizing ZTE´s bid bond worth Rs 420 million, NT had offered the project to Ericsson. But the Swedish vendor, which had quoted the highest bid among three bidders, also cold shouldered NT´s offer.

Under ´Package A´, NT plans to distribute 2G, 3G and 4G lines in rural and hilly areas of central, eastern, far-western and mid-western development regions. Although it had targeted to complete the project by 2015, it is likely to be pushed back.

Similarly, under ´Package B´, NT targets to cover Bagmati, Gandaki, Dhaulagiri and Lumbini zones, mostly urban areas.

According to NT, the equipment delivery for many areas of the capital has been completed and installation has begun. NT is preparing to distribute new lines under this project by the end of current fiscal year.

Source: Republica

Government aims to boost export to Rs 100bn

KATHMANDU, DEC 02, 2012

Despite the gloomy external trade scenario, the government has again promised to boost exports to up to Rs 100 billion in the current fiscal year by improving production, processing and packaging of agriculture goods.

The country had exported merchandise worth Rs 74.26 billion in the last fiscal year.

“The government has set a target to boost exports to more than Rs 100 billion in the current fiscal year,” said the secretary at the Prime Minister’s Office and Council of Ministers Krishna Hari Baskota while evaluating the performance of the Ministry of Commerce and Supplies.

“We have to lay emphasis on goods featured in Nepal Trade Integration Strategy (NTIS),” he said, adding that all the 19 goods and services should add to over Rs one billion.

NTIS has identified seven agricultural, five industrial, and seven service sector goods as export potential, though the government’s repeated promises of boosting their exports has fallen flat due to the energy crisis and labour troubles that have arisen due to political backing.

“The government is ready to facilitate the export process by simplifying cash incentive, unhindered transportation facility for containers, and attracting investments in the production sector,” he said, adding that the agricultural sector has a huge potential for export.

The country has exported ginger worth Rs 280 million, handmade paper (Rs 450 million), honey (Rs 700 million) and herbs (Rs 1.54 billion).

“The government has been trying to improve the quality of items exported to the European and American markets,” said secretary at the Ministry of Commerce and Supplies Lalmani Joshi.

“We are working on to register the trademark of Nepal Tea in the international market,” he said, adding that work on eliminating pesticide residue in honey is also ongoing.

The country has to simplify duty draw back facility to promote industrial goods, Joshi pointed out.

Last year, industrial production — iron and steel — worth Rs 10 billion was exported from the country. Similarly, around Rs four billion worth of pashmina was exported, following the registration of the ‘Chyangra Pashmina’ trademark in 40 countries. “We will soon add seven countries,” he said. The country has also exported musuro pulse worth Rs 3.34 billion, and large cardamom worth Rs 2.21 billion. However, production of cardamom has decreased due to the Chirkephurke disease since a few years back.

Despite the government’s repeated efforts, exports have not picked up but at the same time, imports are increasing significantly, widening the trade deficit.

The country witnessed merchandise exports of Rs 20.73 billion in the first three months of the current fiscal year, whereas in the same period, the country has imported merchandise worth Rs 136.48 billion resulting in a trade deficit of Rs 115.75 billion.

Source: THT

Dozen sick firms set to receive facility

KATHMANDU, DEC 1, 2012

The technical committee, formed under the Industrial Promotion Division, has finally recommended the names of 12 industries for sick industry facility.

“We have submitted the final reports of 12 industries that had sought the sick industry facility from the government,” said under secretary at the Industrial Promotion Division (IPD) and coordinator of the technical committee Surya Kant Jha. “We expect the recommended industries to receive the facility by January 2013,” he said.

The reports of the 12 industries were based on their documents and observations made by representatives of the committee after field visits to the industries, interaction with stakeholders, and their bank transaction report. “After the recommendation is approved by our main committee, the final nod will be given by the cabinet,” he said.

The recommended industries include, wood and wire industries, floriculture industry, Nepal Board, Birat Shoes, Bishesh Textile, leather industry, Sumi Pharma, Fleur Himalayan, Kailali Chinimill, and Sirish Herbal.

According to the technical committee, there still are some more industries from the previous application and some new applicants who will also be observed following the same procedure. The committee goes for field visits, and evaluates and classifies the industries accordingly.

The committee is also preparing for an observation tour of industries within Kathmandu valley that have applied for the sick industry facility. The division has received 30 applications claiming the facility.

The division has received another six new applicants that have claimed for the sick industry facility. IPD has already received one-third budget, that is Rs 0.85 million for the sick industry selection and recommendation procedure.

“We are waiting for the remaining budget to execute the remaining programme,” said Jha. The government has allotted a budget of Rs 2.7 million for the process to classify and recommend the names of the sick industries.

The expert committee, formed under the coordination of the Industrial Promotion Division, this time is quite convinced about completing the recommendation process on time, though earlier taskforces and committees had failed.

Officials at the division said that the unclear industrial policy has delayed the rehabilitation of sick industries. However, with a more liberal industrial policy, IPD is convinced about forwarding the recommendation on time and timely approval by the government.

Source: THT

StanChart bags The Banker Bank of the Year

KATHMANDU, DEC 01 - 2012

Standard Chartered Bank Nepal (SCBN) has been awarded ‘The Banker’s Bank of the Year Award 2012’ by the Banker Magazine of Britain.

This is the second time that the bank has received the award. It had won the award for the first time in 2009.

‘The Banker’s Bank of the Year Award’ is regarded as the industry standard for banking excellence. The winners are judged on the basis of their ability to deliver returns to shareholders and gain strategic advantage, bank’s financial performance, shareholders’ value and customers’ initiative, among others. SCBN CEO Joseph Silvanus received the award on November 28 in London.

Source: The Kathmandu Post

CDSC provision hits brokers

KATHMANDU, NOV 30. 2012

Stock brokers are facing a trading block due to complications of CDS and Clearing Ltd (CDSC)’s clearing and settlement system that has caused a delay in settling transactions.

“From the beginning of this week, Nepse started blocking the trading of brokers who have failed to settle transactions on time, and almost half the brokers are unable to place orders,” said president of Stock Brokers Association of Nepal Anjan Raj Paudyal.

CDSC’s new operation mode requires both the selling and buying brokers to present documents simultaneously, which has delayed the whole settlement process. According to this operation mode, documentation will not move forward if any one of the buying or selling broker fails to submit the required documents simultaneously.

A buyer may have already deposited the amount and the broker may have the voucher which needs to be submitted for clearance, but if the selling broker delays submitting the documents for share transfer, then CDSC does not accept any document from the buying broker.

“Even brokers who are ready to submit documents on time are suffering from trading block because of counter brokers as the system is impractical and cannot detect which broker is causing the delay,” said Paudyal.

Nepse’s clearing and settlement bylaws allows Nepse to penalise and suspend the trading of any broker who causes a delay in settlement for not submitting documents or money on time.

Due to trading block of brokers, transaction volume today declined by 20 per cent in comparison to yesterday. Likewise, number of transactions came down to about 1100 from 1300 yesterday, and number of shares traded dropped to around 200,000 from more than 242,000 units yesterday.

“We have already made the Nepse board and CDSC aware that the system is delaying the settlement procedure instead of speeding it, and though they have said that they are ready to bring in necessary changes nothing has been done so far,” said Paudyal.

CDSC started the manual settlement of share transactions from October 30 of shares traded since October 17 –– just before the Dashain vacation.

The job was transferred to CDSC from Nepse to make settlement and clearing services faster for investors.

Source: THT

NRB to look for alternative to bonds

KATHMANDU, NOV 30, 2012

The washed out performance of government debt instruments among the general public, despite attractive yields and low risk, has compelled the central bank to look for alternatives.

In the last four fiscal years, only about one-tenth of the total issue of public oriented bonds were subscribed.

From fiscal year 2008-09 till 2011-12, Nepal Rastra Bank (NRB) has issued Citizens Saving Bonds and Foreign Employment Bonds worth Rs 19.6 billion, of which bonds worth only Rs 2.75 million were subscribed.

“Since most people are unaware about the benefits of buying bonds, they are not inclined towards purchasing government securities as a form of investment, that is why the bond market in Nepal is almost non-existent,” said director of Public Debt Management Department of Nepal Rastra Bank Dr Gopal Bhatta.

“Only a small group of investors buy these bonds. Those that have realised the value of bonds are repeat purchasers and hold on to it,” Bhatta added. Bonds are fixed income

securities that are considered relatively risk free as people are lending to the government that rarely goes bankrupt. When banks have reduced the deposit interest rate to six per cent, bonds are still being offered at higher than nine per cent coupon rate for a tenure of four years or more.

Bonds worth only Rs 126.6 million were subscribed of the latest batch of Citizens Savings Bond worth Rs 1.41 billion issued this May. Likewise, another bond meant solely for the public — Foreign Employment Bond — also got scantily subscribed in the last three years.

This year too, of the issues worth Rs one billion, only Rs 8.6 million worth of bonds were subscribed.

Nepal Rastra Bank had even allowed Non Resident Nepalis to purchase the bonds with the hope of expanding participation which was in vain.

Such a pathetic subscription rate has made Nepal Rastra Bank consider about introducing a Primary Dealership System for the bonds that it issues.

In primary dealership, government securities are directly sold to entities known as primary dealers that buy bonds directly from the central bank to resell them, thus acting as a market maker of government securities.

These primary dealers bid for government bonds competitively and then redistribute them to their clients, creating the initial market in the process.

Nepal Rastra Bank is conducting a study regarding eligible institutions, their roles and responsibilities and privileges they will get.

“The primary dealership system is supposed to stimulate the bonds market and entry of more players in dealing with bonds will increase the participation of general investors in government securities,” pointed out Dr Bhatta.

“Bond yield calculation is slightly more complex than that of equities, hence bonds seem to be complicated for investors, but brokers can come to the aid of the investors on the matter,” said Dr Bhatta.

According to the president of Stock Brokers Association of Nepal (SBAN) Anjan Raj Paudyal, there are no takers for bonds in the secondary market.

There are 16 different development bonds worth Rs 22.4 billion listed at Nepal Stock Exchange which has never been traded.

“Though government securities provide good returns on investment, the general public has not shown an interest in the bonds due to the lack of awareness regarding the issuance of bonds,” Paudyal said.

Source: THT

Nepal 2nd largest receiver among LDCs

KATHMANDU, NOV 30 - 2012

Nepal is among the top three least developed countries ( LDCs ) in terms of remittance inflows.

Nepal, Bangladesh and Sudan accounted for 66 percent of the total remittance ($27 billion) flowing into 48 LDCs from 2009 to 2011, according to the Least Developed Countries Report 2012 released by the United Nations Conference on Trade and Development (UNCTAD) on Thursday. Their share was 44 percent in 2001.

Bangladesh topped the charts, receiving 44 percent of the total remittance, followed by Nepal and Sudan. The report says from 2009 through 2011, Nepal received more foreign exchange from remittances than from exports. Also, Nepal is among the nine LDCs where remittance inflows exceeded receipts of both foreign direct investment (FDI) and official development assistance (ODA) from 2008 to 2010.

Remittance has played a key role in reducing poverty in LDCs over the years, but has ambiguous effects on inequality, according to the report. “Before remitting, one needs to migrate and migration has costs. Therefore, only moderately poor citizens of LDC can migrate, whereas the poorest of the poor cannot migrate,” says the report. “It contributes to the inequality.”

According to the report, it takes around $1,200 for a Nepali labour to migrate to Qatar—one of the major destinations of Nepali migrant workers—and it takes around seven months for the migrant to earn that money back. Nepal Rastra Bank Governor Yuvraj Khatiwada, unveiling the report here on Thursday, said the aforementioned amount was beyond the paying capacity of the poor Nepali and that the government must find a way to facilitate them by providing foreign employment loans.

Another vice of remittance for LDCs has been brain drain, with some 2 million highly educated citizens from LDCs living abroad. Nevertheless, in case of Nepal, it has not been an issue because study shows most of the Nepali migrant workers are unskilled. However, remittance, of late, has spurred demand for education in Nepal and in the near future, it will contribute to the supply of skilled labour.

Despite contributing around 22 percent to the GDP, remittance has not been utilised for the country’s development. With 80 percent of total remittance being spent for consumption, it has not contributed to capital formation—a much needed requirement to increase investment and attain economic growth.

“Of the total remittance, a meagre 2 percent is being utilised for capital formation in Nepal,” said Basudeb Guha Khasnobis, senior economist at UNDP. However, with a huge chunk of remittance entering the country through formal financial channels, it has provided enough liquidity to banks and financial institutions. “At present, around three-fourth of the total remittance comes from formal channels,” said Khatiwada.

The governor said the country should not solely rely on remittance and should think about alternatives to finance imports. “We successfully withstood the global crisis in 2009, but a similar crisis might not be of the same nature in future,” he said.

Source: The Kathmandu Post