Govt gears up to recapitalize NBL, RBB

The government has started mulling over different options to make the net worth difference between total assets and liabilities of state and semi-state owned banks, Rastriya Banijya Bank (RBB) and Nepal bank Limited (NBL) positive. A senior official at the Ministry of Finance informed Republica that the existing negative net worth of the two largest banks of the country totaling around Rs 20 billion was a major setback preventing Nepal´s financial sector reform to move in a positive direction.
"The government has reached the conclusion that the reform initiatives can´t move ahead as long as the net-worth of the two banks remain negative," said the official, adding that government is looking into all possible options to inject additional capital to end their long-running negative net-worth," said the official. According to latest figure released by Nepal Rastra Bank, the NBL where the state maintains a 39 percent equity percent, had a retained loss of Rs 6.38 billion by the end of last fiscal whereas the state-owned RBB had a whopping retained loss of Rs 14.6 billion during the same period.

The Ministry of Finance is thinking over two separate plans of action for the two ailing banks to raise their capital base, according to the official. "For the NBL, revaluation of assets that it owns across the country can significantly reduce the existing level of negative net-worth of the bank," he said, adding that the total valuation of assets owned by the bank might have been doubled if they are revalued at the current market price. "Since the state owns 39 percent of the total share of the bank and the remaining 61 percent by private sector, sharing the cost of reforms and recapitalization has been a major issue that the government will have sort out before implementing a major recapitalization plan," he added. However, injecting additional capital at the RBB would be less complicated compared to that of NBL given the fact the government completely owns it. For RBB, two options are on the table, said the official and added that the government might sell out 15 percent of the shares of Nepal Investment Bank, largest private bank in terms of deposit mobilization that the RBB owns.

Similarly, the government is also planning to issue long-term bonds to the public as well as financial institutions. "We hope that the state-guaranteed-bond to recapitalize the ailing RBB would be an effective means to mobilize required fund," said the official. According to the NRB figures, despite its ailing financial condition, the RBB is the largest bank of the country in terms of deposits and lending volume. The RBB has mobilized Rs 68.97 billion in deposits whereas NBL, which ranks in second position, has mobilized Rs 44.34 billion worth of deposits by the end of last fiscal.