KATHMANDU, May 1, 2012
The government has given green signal to state-controlled Nepal Bank Limited to start selling fixed assets to replenish its capital, while rejecting its proposal to waive off capital gains tax on sales of these assets.
The Ministry of Finance has said the technically bankrupt bank can sell fixed assets that are not in use in a phase wise manner and subsequently raise Rs 2 billion to fix its balance sheet which shows a negative net worth of Rs 4.5 billion.
However, it was asked to take into consideration the cabinet decision of June 2010 which does not allow public enterprises to sell fixed assets to the private sector.
“Because of this provision the entire process of selling fixed assets belonging to the bank has slowed down,” a person privy to the issue told Republica. “The issue has recently been settled as it has been acknowledged that the government is not a majority stakeholder in the bank and it should be exempt from the condition that solely applies to public enterprises, which according to the definition are companies in which the government is a majority shareholder.”
This has paved way for the bank to sell its fixed asset to the private sector as well.
Established in November 1937, Nepal Bank, a category ´A´ financial institution, is 40.19 percent owned by the government; public shareholders own 49.94-percent stake in it, and the rest is owned by banks, financial institutions and other institutions. Despite being a public entity, it failed to maintain good governance due to which its non-performing loan soared to 59 percent of the total credit portfolio by 2002. Since then it has undergone a reform program, which has bolstered its financial condition.
One of the indicators of its improved financial health is the proportion of bad debts, which stood at 5.17 percent of the total credit portfolio as of mid-January. But since it has a negative core capital of over Rs 4.5 billion it needs an injection of at least Rs 9.7 billion to do away with the negative net worth.
To replenish its capital, the bank is planning to raise Rs 4 billion through rights issue of which Rs 1.5 billion will come from the government. It is planning to raise another Rs 2 billion through sales of fixed assets.
Nepal Bank is estimated to have fixed assets worth around Rs 14 billion at current market price throughout the country. “The bank, however, has not finalized plots of land that would be put on sale, although it is looking at areas where real estate prices have not come down yet,” the source said.
As per the bank´s recapitalization plan, which has been approved by the central bank and the finance ministry, valuation and sales of land would be conducted in three phases.
So far, the bank has already conducted first phase of land valuation. The second and third phases of valuation works are scheduled to begin in mid-May and mid-July, respectively. Based on the valuation, the bank is planning to issue a tender notice within mid-May inviting interested parties to bid for land that it is planning to release under the first phase.
“But this process is likely to be delayed because of time taken to convince the government to let the private sector participate in the bidding,” the source said. This delay, in turn, is likely to affect the bank´s land sales plan under second and third phases which were supposed to begin in mid-June and mid-August, respectively.
Earlier, the bank had also requested the government to waive off capital gains tax on sales of these assets. But the finance ministry rejected the proposal. It has instead said the amount raised as tax would be invested in purchasing rights shares of the bank.
Source: Republica
The government has given green signal to state-controlled Nepal Bank Limited to start selling fixed assets to replenish its capital, while rejecting its proposal to waive off capital gains tax on sales of these assets.
The Ministry of Finance has said the technically bankrupt bank can sell fixed assets that are not in use in a phase wise manner and subsequently raise Rs 2 billion to fix its balance sheet which shows a negative net worth of Rs 4.5 billion.
However, it was asked to take into consideration the cabinet decision of June 2010 which does not allow public enterprises to sell fixed assets to the private sector.
“Because of this provision the entire process of selling fixed assets belonging to the bank has slowed down,” a person privy to the issue told Republica. “The issue has recently been settled as it has been acknowledged that the government is not a majority stakeholder in the bank and it should be exempt from the condition that solely applies to public enterprises, which according to the definition are companies in which the government is a majority shareholder.”
This has paved way for the bank to sell its fixed asset to the private sector as well.
Established in November 1937, Nepal Bank, a category ´A´ financial institution, is 40.19 percent owned by the government; public shareholders own 49.94-percent stake in it, and the rest is owned by banks, financial institutions and other institutions. Despite being a public entity, it failed to maintain good governance due to which its non-performing loan soared to 59 percent of the total credit portfolio by 2002. Since then it has undergone a reform program, which has bolstered its financial condition.
One of the indicators of its improved financial health is the proportion of bad debts, which stood at 5.17 percent of the total credit portfolio as of mid-January. But since it has a negative core capital of over Rs 4.5 billion it needs an injection of at least Rs 9.7 billion to do away with the negative net worth.
To replenish its capital, the bank is planning to raise Rs 4 billion through rights issue of which Rs 1.5 billion will come from the government. It is planning to raise another Rs 2 billion through sales of fixed assets.
Nepal Bank is estimated to have fixed assets worth around Rs 14 billion at current market price throughout the country. “The bank, however, has not finalized plots of land that would be put on sale, although it is looking at areas where real estate prices have not come down yet,” the source said.
As per the bank´s recapitalization plan, which has been approved by the central bank and the finance ministry, valuation and sales of land would be conducted in three phases.
So far, the bank has already conducted first phase of land valuation. The second and third phases of valuation works are scheduled to begin in mid-May and mid-July, respectively. Based on the valuation, the bank is planning to issue a tender notice within mid-May inviting interested parties to bid for land that it is planning to release under the first phase.
“But this process is likely to be delayed because of time taken to convince the government to let the private sector participate in the bidding,” the source said. This delay, in turn, is likely to affect the bank´s land sales plan under second and third phases which were supposed to begin in mid-June and mid-August, respectively.
Earlier, the bank had also requested the government to waive off capital gains tax on sales of these assets. But the finance ministry rejected the proposal. It has instead said the amount raised as tax would be invested in purchasing rights shares of the bank.
Source: Republica
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