KATHMANDU, MAY 11, 2012
The Nepal Rastra Bank (NRB) has imposed prompt corrective action (PCA) to three finance companies—Himalaya Finance, Crystal Finance and Kuber Merchant Finance—as their capital adequacy ratio was below the regulatory requirement.
As per the NRB regulation, class ‘C’ financial institutions need to maintain a capital adequacy ratio of 11 percent. This ratio is a measure of the amount of a bank’s core capital expressed as a percentage of its risk-weighted asset. An NRB senior official said that the capital adequacy ratio of all three financial institutions was around eight percent—significantly less than the mandatory requirement.
Besides the lower capital adequacy ratio, central bank sources have also noted issues of bad corporate governance at these financial institutions, prompting the NRB to take strong action against them. “Of late, these financial institutions were even struggling to return deposits to the account holders,” said a central bank official.
According to the NRB’s PCA Bylaws 2008, if the capital adequacy ratio of financial institution fall by 2 to 4 percent, the central bank imposes restrictions like limiting lending and deposit collection, barring them from opening new branches as well as buying and leasing additional fixed assets. Likewise, they need a prior approval from the NRB before launching a new business line.
Meanwhile, the board meeting of NRB held on Thursday agreed in principle to two proposals on merger of banks and financial institutions. The central bank principally agreed over the application filed by Lord Buddha Finance to merge with Global Bank. Global Bank, which has already announced to merge with IME Financial Institution had extended hand to merge with Lord Buddha Finance. Lord Buddha’s merger plan with Global Bank comes in the wake of its failed bid with Pashupati Development Bank despite receiving letter of intent from the central bank. “We approved the de-merger request from Lord Buddha and allowed it to merge with Global,” said an official at NRB.
Similarly, Pashupati Development Bank and Udyam Development Bank also got the approval in principle from the central bank for merger.
Source: The Kathmandu Post
The Nepal Rastra Bank (NRB) has imposed prompt corrective action (PCA) to three finance companies—Himalaya Finance, Crystal Finance and Kuber Merchant Finance—as their capital adequacy ratio was below the regulatory requirement.
As per the NRB regulation, class ‘C’ financial institutions need to maintain a capital adequacy ratio of 11 percent. This ratio is a measure of the amount of a bank’s core capital expressed as a percentage of its risk-weighted asset. An NRB senior official said that the capital adequacy ratio of all three financial institutions was around eight percent—significantly less than the mandatory requirement.
Besides the lower capital adequacy ratio, central bank sources have also noted issues of bad corporate governance at these financial institutions, prompting the NRB to take strong action against them. “Of late, these financial institutions were even struggling to return deposits to the account holders,” said a central bank official.
According to the NRB’s PCA Bylaws 2008, if the capital adequacy ratio of financial institution fall by 2 to 4 percent, the central bank imposes restrictions like limiting lending and deposit collection, barring them from opening new branches as well as buying and leasing additional fixed assets. Likewise, they need a prior approval from the NRB before launching a new business line.
Meanwhile, the board meeting of NRB held on Thursday agreed in principle to two proposals on merger of banks and financial institutions. The central bank principally agreed over the application filed by Lord Buddha Finance to merge with Global Bank. Global Bank, which has already announced to merge with IME Financial Institution had extended hand to merge with Lord Buddha Finance. Lord Buddha’s merger plan with Global Bank comes in the wake of its failed bid with Pashupati Development Bank despite receiving letter of intent from the central bank. “We approved the de-merger request from Lord Buddha and allowed it to merge with Global,” said an official at NRB.
Similarly, Pashupati Development Bank and Udyam Development Bank also got the approval in principle from the central bank for merger.
Source: The Kathmandu Post
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