Stock investors submit 17-point reform plan

KATHMANDU, JULY 6, 2012

Nepal Investors Forum — an umbrella organisation of capital market investors — has submitted a 17-point long-term reform plan to the government to boost the stock market.

“We have submitted a reform plan to caretaker finance minister Barshaman Pun that complements the short-term reforms,” said president of the forum Sitaram Thapaliya. “Implementation of the plan will definitely boost the capital market as short-term measures have been showing positive results,” he said.

The government, investors and secondary market authorities had agreed to implement reform plan on May 31 when stock market had gone through a bearish trend. The pact had opened margin lending for investors.

Investors have suggested the government to reduce the face value of shares from Rs 100 each to Rs 10 while implementing the central depository system. Similarly, the forum has asked the government to provide a facility of self-declaration of clean money for investments of more than Rs one million.

“We have also urged for the establishment of a market rescue fund worth Rs 10 billion,” said Thapaliya, adding that the fund will stabilise the secondary market in times of crisis.

Source: THT

Anyone has the link to the 17 points reform plans, please provide it in the comment box below. Thank you in advance.

Nepal attracts more foreign investment

KATHMANDU, JULY 7, 2012

Nepal succeeded in attracting foreign direct investment inflow worth $95.49 million in 2011, which is $8.75 million more than the $86.74 million it was able to attract a year ago, according to a global report.

With more foreign direct investment inflow, the country has also improved its ranking in UNCTAD’s World Investment Report 2012 — published today — as the report has ranked Nepal at 175th in foreign direct investment (FDI) Attraction Index 2011 from the 178th ranking a year back among 182 economies.

The inward FDI Attraction Index ranking is based on the average of a country’s percentile rankings in FDI inflows and in FDI inflows as a share of gross domestic product.

Similarly, the country ranked 150th in FDI Potential Index out of the 182 economies. The Inward FDI Potential Index ranking is based on the simple average of a country's percentile rank in each of the economic determinants areas. A country's ranking within each group of determinants is based on the simple average of the country's percentile rank of each variable included in the group.

However, Nepal ranked at the bottom among the South Asian countries.

Nepal had managed to receive a decent amount of foreign investment after economic reforms were initiated in 1991-92, but it became erratic during a decade of armed conflict that ended in 2006.

Since 2006-07, the FDI figures have exhibited robust growth barring 2008-09, during which it was affected by the global financial crisis.

Foreign direct investment inflows to South Asia rose by 23 per cent to $39 billion in 2011, following declines in 2009 and 2010, the report revealed.

According to the report, subtitled 'Towards a New Generation of Investment Policies', India has witnessed the highest inflow of FDI that stood at $31.6 billion in 2011, whereas it had witnessed FDI inflow of $24.2 billion in 2010. The recovery in South Asia took place mainly as a result of the good performance of India that is the largest FDI recipient in South Asia and it accounts for more than four-fifths of total FDI inflow to the region.

The FDI outflow from India stood at $14.8 billion in 2011, whereas a year back, the outflow stood at $13.2 billion.

FDI inflows to Pakistan, the second largest FDI recipient country, amounted to $1.3 billion. Bangladesh has also emerged as a major recipient, with FDI inflows increasing to a record high of $1.1 billion.

Similarly, FDI outflows from South Asia rose by 12 per cent to $15.2 billion, it said, adding that outflows from India, the region’s dominant source of FDI, is the highest.

Countries in the region face different challenges like political risks and obstacles to FDI, which need to be tackled to build an attractive investment climate, the report suggested.

Nevertheless, recent developments have highlighted new opportunities. Due to the improving political relationship between India and Pakistan, the two major economies in the subcontinent have been moving towards greater engagement.

In Afghanistan, significant FDI has been flowing into extractive industries, despite the country’s continuing internal conflict.

In 2011, about 145 cross-border mergers and acquisitions (M&As) and 1,045 greenfield FDI projects — that is, ground-up investments in new ventures — by foreign firms were recorded in South Asia.

Cross-border M&As rose by 131 per cent in value, and the total reached $13 billion in 2011, surpassing the previous record set in 2008. The significant increase was driven mainly by large transactions in extractive industries.

After a decline for three years, outbound FDI from the region recovered as well.

Though cross-border M&As slid across all three sectors –– extractive industries, manufacturing and services –– the drop was compensated largely by a rise in overseas greenfield projects, particularly in extractive industries, metal and metal products, and business services. "FDI growth seems to be keeping its momentum in 2012," the UNCTAD report projected.

Source: THT

Delayed beginning of HydroProject results in license scarp

KATHMANDU, JULY 6, 2012

The Department of Electricity Development has scrapped the licenses of different hydropower projects for their failure to proceed with the construction works of the projects in the slated time.

According to the Department, the total capacity of such projects is 558 megawatts.

Director General of the Department Dilli Bahadur Singh said the licenses of the projects were cancelled as per the government decision. The government has made a policy to scrap the licenses of the hydel projects that fail to begin the construction works at a fixed time after bagging the licenses.

Licenses of Sani Bheri Hydropower Project (30 MW), Budhigandaki Hydropower Project (96 MW) and Lower Balephi (4.99 MW), among others, were scrapped by the Department.

Singh said the licenses of the Projects were scrapped due to various reasons including the promoters' failure to come into contact with the officials and the delay in project's beginning, among others.

He said licenses of the small and medium size projects were cancelled in the initial stage as part of warning them while licenses of the big projects would be scrapped soon for their failure to begin the projects on time.

 

Source: THT

Govt still receives over 100 applications a day for politically motivated programs

KATHMANDU, July 6, 2012

Though the Ministry of Finance has already closed budget negotiations with different ministries, the Ministry of Physical Planning, Works and Transport Management (MoPPWTM) and the Department of Roads (DoR) are still receiving at least a hundred applications every day from political leaders and locals demanding budget for roads and bridges to be implemented at the local level.

“We have received at least 15,000 applications since December last year demanding budget mainly for roads and bridges in the coming fiscal. More than 14,000 of those applications are for local roads,” Tulasi Prasad Sitaula, secretary at MoPPWTM, told Republica on Thursday.

According to Sitaula, for the past couple of weeks MoPPWTM has been dealing with at least 100 applications a day demanding that their programs be forwarded to the National Planning Commission (NPC) -- the apex policy-making body of the government -- for implementation through district development committees (DDCs). Normally, DDCs formulate budget and prioritize the programs, including roads and bridges, at the local level.

Though the applications for budget for local programs started arriving in December last year, the number has been increasing as the budget announcement draws closer.

“As most of the people coming to us want to avoid the DDC´s process of implementing programs, they are frequenting MoPPWTM directly to put their programs under NPC,” said Sitaula. He said more than 80 percent of the applications are registered by people with political affiliations who are putting pressure on the government to implement the programs that serve their political interests rather than the people´s needs.

Last year also, 15,000 applications were registered at the ministry. Of them, 4,000 applications for construction of roads and bridges were approved and allocated Rs 500 million. However, only 2,500 programs had achieved their targeted implementation. “As implementation of the programs is not satisfactory, we are not recommending any such programs for the coming fiscal year,” said Sitaula.

Source: Republica

Insurance for poor in offing

KATHMANDU, July 5, 2012

The poor populace will soon have better access to affordable insurance policies as the insurance regulatory authority has prepared the groundwork for micro-insurance schemes meant for the poverty ridden population.

“The final regulation meant for insurance companies regarding micro-insurance schemes is finally ready and needs to be approved by the Finance Ministry, then we will be ready to launch the programme,” informed chairman of Insurance Board Prof Dr Fatta Bahadur KC.

The board had received the final version of the regulation on Monday from the designated subcommittee. The regulation is supposed to make micro-insurance mandatory for insurance companies to expand access of insurance to the less privileged. The need for micro-insurance has been felt not only for its obvious benefits of compensating the beneficiary in case of a mishap through insurance companies but also to attract finance to agriculture and animal husbandry.

Financial access for the agriculture sector is very poor despite it engaging 66 per cent of the population and contributing to 36 per cent of GDP. Less than five per cent of the total lending portfolio of banks includes agro loans. Since the agro sector is full of unmitigated risks, it discourages financial institutions to finance agriculture and the introduction of insurance schemes such as harvest and livestock insurance will come in handy.

Nepal Rastra Bank has been encouraging insurance to garner the trust of financial institutions to finance agro loans. Since the announcement of budget 2011-12, the government and the board have been trying to introduce micro-insurance policies for the poor population, especially targeting the rural populace. Micro-insurance refers to the relatively short-term insurance meant for health, accident, crop and livestock policies. The board will direct the insurance companies to launch micro-insurance of up to Rs 100,000 to cover a majority of the population –– especially residing in rural areas and who are in urgent need of it.

Along with agro insurance, regulator is also encouraging insurance companies to insure micro enterprises such as water mills, tea shops, and rickshaws to cover the urban poor as well. “We are aiming to cover as much of the population who live below the poverty line as possible –– in rural and urban areas,” said KC.

The legal framework is almost ready but we need to prepare supporting infrastructure such as hospitals to tie up with health insurance programmes, and veterinary clinics for cattle along with developing the capacity of the insurance companies in the long run, pointed out the board’s chairman.

Board pleadsfor subsidy

 Insurance Board has requested Finance Ministry to provide subsidy for micro-insurance premium in order to make these policies cheaper for poor population in the coming budget. “We have requested the ministry to subsidise certain portions of the premium that insurers have to pay to encourage micro-insurance in poor communities,” said chairman of the board Prof Dr Fatta Bahadur KC. Private insurance companies will be stepping into micro insurance apprehensively fearing loss as it means more work and less profit. The budget for 2011-12 had also depicted arrangement of providing 50 per cent subsidy on premium of crops and livestock insurance will be done.

Source: THT

NRB mulls interest rate corridor

KATHMANDU, July 4, 2012

The formulation of an interest rate corridor by the central bank is expected to do away with the bipolar spikes in the short-term interest rate.

The central bank is preparing a mechanism to formulate an interest rate corridor from the coming fiscal year as an additional monetary instrument of the monetary policy in order to handle short-term interest rate volatility.

“Nepal Rastra Bank (NRB) is working on preparing the mechanism for interest rate corridor which will symbolically determine the ceiling and floor for the interest rate,” according to the spokesperson for the central bank Bhaskar Mani Gyanwali.

In recent times, the domestic financial market has witnessed short-term interest rate skimming to an all time low following liquidity flush after going through a period of high interest rate.

The interest rate of treasury bills, being used as repo instrument and inter-bank lending rate indicate the movement of short-term rates. A 91-day treasury bill that was traded at 9.6 per cent in early 2010 has reached 0.9 per cent.

Likewise, inter-bank rate which had reached 14 per cent in 2010, has slipped below one per cent since December 2011 and rarely rose above the level. “Formulating an interest rate corridor is expected to counter such volatility and help form a tentative interest band that will more or less guide the interest rate movement of the money market,” added NRB spokesperson Gyanwali.

The central bank will indicate the interest band by determining the maximum rate at which the central bank will sell securities and minimum rate at which it will purchase securities. The movement of the short-term interest rate will take place between the two extremes.

At present, the central bank does not directly dictate the interest rate in the money market but uses its repo and reverse repo rate to guide the interest rate which now seems to be ineffective as interest rate for lending is still higher than 15 per cent in spite of treasury bills being traded at less than one per cent.”

There are not enough instruments to invest surplus funds amounting up to 25 per cent of the deposits, while the yield of government securities such as treasury bills is almost non-existent, that is why banks are unable to reduce lending rates,” said vice president of Nepal Bankers’ Association Upendra Paudyal, who is also the chief executive of NMB Bank.

Banks are compensating their cost of deposit collection by continuing with higher lending rate due to painfully low inter-bank and treasury bills rate. Both higher and lower short-term interest victimises the borrowers alike.

“If the central bank formulates an interest rate corridor, banks will be guaranteed a certain level of yield on securities, and both depositors and borrowers will get a better rate that is why we have been advocating for an interest rate corridor,” added Paudyal.

The profits of the banks have shrunk due to increased interest cost and the absence of projects to finance, and limited and low yielding avenues for alternative investment.


Source: THT

IPO allotment of Tourism Development Bank and Share

Tourism Development Bank Ltd. has allotted its ordinary share on 1 July , 2012 and distributing share slip and returning money to non allotted investors from 6 July, 2012 (22 Ashar, 2069).

The underwriters of the company shares were


NCM Merchant Bank
and
Nagarik Lagani Kosh

28pc fall in banks' credit flow to private sector

KATHMANDU, JUL 01, 2012

Power crisis, protracted political stalemate and a slowdown in trading business have hit banks and financial institutions’ (BFIs) lending to the private sector.

The growth rate of banks’ credit flow to the private sector has declined by almost 28 percent, according to the latest macro-economic report of the Nepal Rastra Bank. As of the first 10 months of this fiscal year, BFIs’ credit flow to the private sector increased by Rs 64.24 billion, compared to the rise of Rs 81.84 billion during the same period last year.

Liquidity-rich BFIs also acknowledge that the demand for loans from corporate clients have slowed down considerably. “NRB statistics show the current misery of BFIs — struggle for lending. It is a credit crunch,” said Anal Raj Bhattarai, chief executive officer of Nepal Commerz and Trust Bank. “There has been little demand for loans from both industrial and trading sector this year.”

Bankers say credit demand from industries like cement, iron and steel, which require more energy, has slowed down due to power crisis. These industries are one of biggest clients of banks. “Due to power shortage, these industries are not running in their full capacity,” said Upendra Poudel, CEO of NMB Bank. “On the other hand, sales of consumer goods have not grown, affecting credit demand from trading sector as well.” Importers of electronics, automobile and readymade garment products have been complaining about low sales in recent days. Given these importers are major clients of BFIs, poor sales also resulted in low credit demand from importers, bankers say.

Bankers say continued depreciation of the Nepali rupee against the US dollar is another factor affecting credit flow, especially to the trading business. Importers are in wait and see mode as an appreciating dollar has made them rethink their plans to open letters of credit for fresh imports.

Bankers also attribute low credit demand to weak business confidence in the country. “Despite decreasing interest rates, banks are finding it hard to lend,” said Bhattarai, adding that interest rates on prime loans has come down to 10 percent from 13 percent. “I don’t think a further decrease on lending rates is the solution to the problem.” Bankers do not see the situation improving anytime soon. “People will rethink their investment plans as the country headed towards political uncertainty following the dissolution of the Constituent Assembly,” said Poudel.

The recession in lending will also affect profits of BFIs this year as lending is their biggest profit maker. Banks are also not willing to invest in NRB’s treasury bills due low returns — below 1 percent. “This means, banks’ profits will be severely affected this year,” said Poudel.

Source: The Kathmandu Post