NRB gets bids worth Rs 50bn

KATHMANDU:

The cash-flush financial institutions offered almost Rs 50 billion to the central bank during the eighth round of the reverse repo.

Financial institutions bid for securities worth Rs 48.49 billion during Nepal Rastra Bank (NRB)’s latest bout of reverse repo held today. NRB issued reverse repo worth Rs 19.5 billion today to mop up excess liquidity from the financial system.

NRB cancels 9% bonus shares pledged by Prabhu; AGM on Jan 11

Kathmandu, Dec 22

Nepal Rastra Bank has rejected 9 percent bonus shares proposed by Prabhu Bikas Bank Limited. 

According to the officials with the development bank, the central bank has asked them to set aside the entire amount pledged as the dividend under ‘provisioning’.

“Hence, we will not be in a position to give any dividend to our shareholders from the profit we posted in the last fiscal year,” said a highly placed source in the bank.

Meanwhile, the officials informed that they will hold the AGM on January 11.

Kist Bank’s share trading most likely to resume from tomorrow

Kathmandu

After a hiatus of nine months, share trading of Kist Bank Limited is most likely to resume from tomorrow, according to the top official of the commercial bank.

“The board of directors has today written to Nepal Rastra Bank for the resumption of the trading,” highly placed source at Kist Bank told ShareSansar today. “If the central bank corresponds to NEPSE today itself then the trading will start tomorrow, or else it should start from day after tomorrow.”

This has come as a huge respite to hundreds of share traders who have invested in Kist Bank’s shares.

Trading of the shares of Kist Bank was suspended by the NEPSE after Kist signed a Memorandum of Understanding with Vibor Bikas Bank for the merger of the two BFIs back on March 21, 2013.

However, seven months after the MoU, both the BFIs decided to pull out of the merger process due to some internal reasons, particularly the resignation of Kamal Gyawali, the then Managing Director of Kist Bank, owing to some loan scam related to his spouse.

Kist Bank, meanwhile, has been facing mounting pressure from the shareholders to resume the share trading. 

Investment pledges swell despite fewer ventures

KATHMANDU, NOV 29 - 2013

Planned investments in new industries have increased in the last quarter even though fewer medium and large enterprises were registered at the Department of Industry (DoI).

The number of factories registered during the period stood at 97, down from 131 year on year. However, their proposed outlays jumped to Rs 163.55 billion from Rs 20.59 billion. According to the DoI, registrations of large hydropower projects led to the higher figure. The registration of ventures related to energy, manufacturing, services and tourism all fell during the first three months of the fiscal year. The sole sector that saw a growth was agriculture. Meanwhile, industries related to energy and agriculture are the only ones planning to increase their outlay. Investments in other sectors have fallen.

Proposed investments in the energy sector soared to Rs 159.65 billion from Rs 11.68 billion in the corresponding period last year. Planned outlays in farm-based enterprises also surged to Rs 649 million from Rs 362.68 million.

Non-economic factors pushing inflation up

KATHMANDU, APR 11, 2013

Non-economic factors are contributing to the rising inflation, according to a senior central bank official.

“Non-economic factors, coupled with supply side constraints have increased pressure on inflation,” said deputy governor of Nepal Rastra Bank (NRB) Maha Prasad Adhikari, here, today.

The fiscal policy, as well as the monetary policy, had a target to contain inflation to a single digit at 7.5 per cent.

However, inflation, according to the central bank figure for the first seven months, stood at 10.1 per cent, inviting criticism of the government and central bank for failing to crack a whip on inflation.

“Economic factors are still at manageable levels,” he said, adding that Nepal imports inflation also from India, where inflation is looking up.

Despite low money supply, inflation has not been under the control of the central bank and the government, also due to the government’s lack of market monitoring.

“Broad money supply (M2) increased by 4.6 per cent in the first seven months of the current fiscal year 2012-13, as compared to an increase of 11.6 per cent in the same period last fiscal year,” according to the central bank that has, however, revealed that the year-on-year Consumer Price Index (CPI) inflation increased by 10.1 per cent in mid-February as compared to seven per cent a year ago.

Though the budget for the current fiscal year promised to monitor the market, it has always remained under question due to lack of results.

“The government will maintain smooth supply of food items, essential goods, chemical fertilisers and petroleum products,” promised finance minister Shankar Koirala today too. However, the technically bankrupt Nepal Oil Corporation, despite being a state oil monopoly has been unable to supply petroleum products that are being sold at a profit.

Except for liquefied petroleum gas (LPG), NOC has been selling all petroleum products at a profit but has been unable to maintain smooth supply. Likewise, it hiked the price of petroleum products repeatedly last year, putting additional pressure on inflation.

The budget has also focused on import substitution by promoting domestic production, the minister said, citing the example of cement in which the country has the potential to manufacture in the country itself instead of importing, if the government can build basic infrastructure.

However, the budget has focused mainly on the Constituent Assembly (CA) election and sustainable development along with economic growth and economic stability, he added.

“Export-friendly policy will be adopted to minimise the export-import gap, apart from developing, expanding, diversifying and marketing goods that have comparative and competitive advantages.

Finance secretary Shanta Raj Subedi and member of National Planning Commission Janak Raj Shah also spoke at the post-budget interaction.

Source: THT

Non-economic factors pushing inflation up

KATHMANDU, APR 11, 2013
Non-economic factors are contributing to the rising inflation, according to a senior central bank official.

“Non-economic factors, coupled with supply side constraints have increased pressure on inflation,” said deputy governor of Nepal Rastra Bank (NRB) Maha Prasad Adhikari, here, today.

The fiscal policy, as well as the monetary policy, had a target to contain inflation to a single digit at 7.5 per cent.

However, inflation, according to the central bank figure for the first seven months, stood at 10.1 per cent, inviting criticism of the government and central bank for failing to crack a whip on inflation.

“Economic factors are still at manageable levels,” he said, adding that Nepal imports inflation also from India, where inflation is looking up.

Despite low money supply, inflation has not been under the control of the central bank and the government, also due to the government’s lack of market monitoring.

“Broad money supply (M2) increased by 4.6 per cent in the first seven months of the current fiscal year 2012-13, as compared to an increase of 11.6 per cent in the same period last fiscal year,” according

to the central bank that has, however, revealed that the year-on-year Consumer Price Index (CPI) inflation increased by 10.1 per cent in mid-February as compared to seven per cent a year ago.

Though the budget for the current fiscal year promised to monitor the market, it has always remained under question due to lack of results.

“The government will maintain smooth supply of food items, essential goods, chemical fertilisers and petroleum products,” promised finance minister Shankar Koirala today too. However, the technically bankrupt Nepal Oil Corporation, despite being a state oil monopoly has been unable to supply petroleum products that are being sold at a profit.

Except for liquefied petroleum gas (LPG), NOC has been selling all petroleum products at a profit but has been unable to maintain smooth supply. Likewise, it hiked the price of petroleum products repeatedly last year, putting additional pressure on inflation.

The budget has also focused on import substitution by promoting domestic production, the minister said, citing the example of cement in which the country has the potential to manufacture in the country itself instead of importing, if the government can build basic infrastructure.

However, the budget has focused mainly on the Constituent Assembly (CA) election and sustainable development along with economic growth and economic stability, he added.

“Export-friendly policy will be adopted to minimise the export-import gap, apart from developing, expanding, diversifying and marketing goods that have comparative and competitive advantages.

Finance secretary Shanta Raj Subedi and member of National Planning Commission Janak Raj Shah also spoke at the post-budget interaction.

Source: THT

NRB guideline on BFI staff salary on cards

KATHMADU, APR 05 - 2013

Staffers of banks and financial institutions will not take home salaries less than that of government employees in the same position, if the Nepal Rastra Bank’s ( NRB ) new guideline is put in place.

Once the salary guideline comes into effect, the lowest-ranked BFI staffer will get a monthly remuneration of at least Rs 10,320 — an amount equivalent to what the lowest-ranked civil service employee gets as per the government-set salary scale for civil servants last year.

The central bank is coming up with the new guideline amid complaints about a huge gap between the salaries of the top-level executive (CEO) and junior staff. Particularly, there are complaints that the junior staff are not being paid “justifiably”.

The guideline also seeks to maintain the gap between the salaries of top- and junior-level staff at a “justified level”, according to NRB sources. “The main objective of this plan is to reduce the gap between the salaries of the chief executive officer and other employees,” said a senior NRB official. “The plan is likely to come next week.”

The central bank had planned to introduce the BFI staff salary guideline when it introduced another guideline on BFI CEOs’ remunerations three years ago. But the plan was aborted due to divergent views within the central bank. “It has been a long since we started working on the guideline, and now we have reached the final stage,” said another NRB official.

The Insurance Board’s (IB) recent move to set the criteria on the difference between the salaries of the CEO and junior staff at insurance companies also encouraged the central bank to act fast on the matter. “The IB’s guideline, of course, pressed us to introduce this plan soon,” said the NRB official.

Introducing a directive on good governance, the IB has provisioned that the salary of the chief executive should not be more than 15 times the salary of the junior-most staff.

The central bank plans to implement the guideline in commercial banks, development banks and finance companies, while leaving micro-finance institutions. “Being small entities with limited transactions, implementing the plan in micro-finance institutions may not be practical,” said the second NRB official.

Amid global concerns about high executive compensation after the 2008-09 financial crisis, the NRB had fixed the salary scale for BFI CEOs in 2010. As per the remuneration guidelines, a commercial bank CEO’s annual compensation should be 5 percent of the total average expenses for all employees in the last three years or 0.025 percent of total assets of the bank maintained in the previous year, whichever is lower.

As for the remuneration of CEOs of B, C and D class financial institutions, the central bank has been flexible. The salaries of B, C and D class FIs’ CEOs should be fixed based on the financial status of FIs in the last three years, also taking into consideration components such as return on equity, size of business, operating profit, future outlook, existing risks in FIs and academic qualification, experiences and leadership quality.

Source: The Kathmandu Post

Nepali rupee to be traded on Thomson Reuters platform

KATHMANDU, MAR 25 - 2013

The Nepali rupee is set to be traded for the first time alongside other international currencies, with Thomson Reuters providing its platform for the same.

This means Nepali currency’s exchange rate against foreign currencies will appear on Thomson Reuters Dealing platform, which has clients from all over the world.

Twenty-one Nepali banks and the Nepal Rastra Bank have joined Thomson Reuters for the service. The service will enable the banks know how international currencies are being traded in real time. It will also help know how the Nepali banks are buying/selling foreign currencies, which is expected to ensure transparency in the domestic foreign exchange market. The banks are expected to use the service shortly after a few more banks join platform, according to Thomson Reuters.

Nepal Rastra Bank Governor Yubaraj Khatiwada inaugurated the platform on Sunday. Khatiwada said the platform will help Nepali banks get multiple counterparts at the same time, which will help them grab the opportunities arising from changes in the international financial market. “It will increase efficiency of those who are working in foreign exchange reserve management,” he said.

Bijaya Bahadur Shrestha, president of the Foreign Exchange Dealers’ Association of Nepal, said forex dealers will now be able to find all information about foreign exchange trade on their computer screens. “This will bring transparency in the foreign exchange market which will help in banks’ decision making,” he said.

Banks have to pay a charge of $1,200 per month for using the service.

A banker said as the platform also shows how domestic banks are trading foreign exchange, it will help the banks make right decisions while trading foreign currencies even in the domestic market.

Users of the platform can quickly and efficiently contact their trading counterparties across a highly secure and reliable network, find liquidity in instruments they are trading in and get a clear view of where the foreign exchange markets are heading, according to Thomson Reuters.

“Thomson Reuters Dealing serves the world’s largest processional trading community and we are delighted to welcome 21 Nepalese banks into the community,” said Sriram Ramnarayan, vice-president, financial and risk South Asia at Thomson Reuters.

“The availability of real time pricing information and automated trading processes

will open up new opportunities for Nepal’s banks and enable them to tap into global financial markets.”

According to Thomson Reuters, more than 18,000 trading professionals and over 5,000 organisations use the platform across 120 countries.

Source: The Kathmandu Post

State-owned BFIs struggling to recover old loans

KATHMANDU, NOV 20 - 2012

Major state-owned banks and financial institutions ( BFIs ) are having a hard time recovering old loans even though they have been restructured.

The loan given to Pokhara-based Fulbari Hotel by a consortium led by Nepal Bank has remained unpaid for the last one year although it has been restructured and the consortium partners had been assured that it would be repaid under the revised repayment schedule.

A consortium led by Nepal Bank had extended credit worth Rs 1.28 billion to Fulbari to construct a five-star hotel in Pokhara, and the flow of loans had started from October 1994 with a repayment period of seven years. Other members of the consortium are Rastriya Banijya Bank (RBB), Employees Provident Fund (EPF) and NIDC Development Bank.

“Initially, the borrower Amatya Group had been making repayments as per the schedule,” said Kiran Kumar Shrestha, acting general manager of Nepal Bank. “However, it has not done so since the last one year.” He added that the consortium partners were discussing how to move ahead. The Fulbari loan is the largest loan for the consortium partners.

Meanwhile, another loan issued to Mount Everest Brewery promoted by the same group has also remained unpaid for the last six months. The consortium had extended a sum of over Rs 300 million to the company. Various companies including Mount Everest Brewery promoted by the group besides the individual promoters have been put in the Credit Information Bureau’s blacklist.

Similarly, another consortium loan that went to Mahalaxmi Sugar Mill is not being recovered smoothly. “After restructuring the loan two years ago, the loanee Birendra Kanaudiya has been making repayments, but they have been lower than what had been promised,” said Krishna Prasad Sharma, chief executive officer of Rastriya Banijya Bank, the lead bank in the consortium.

The group has provided over Rs 330 million to the sugar mill. Kanaudiya was removed from the blacklist after he agreed to repay the loan.

He had initially paid Rs 100 million to be removed from the blacklist.

Another big defaulter is Arun Chand of Basuling Sugar Mill. He had taken loans worth Rs 580 million from a consortium consisting of the Agricultural Development Bank Limited (ADBL), Nepal Bank, RBB, NIDC and the EPF.  There has not been any payment from Chand although the principal and the interest accumulated have crossed Rs 1.5 billion. Chand is a son of former prime minister Lokendra Bahadur Chand.

Troubled public enterprises (PEs) have also defaulted loans. “We are yet to get repayment of loans that went to Himal Cement Factory and Janakpur Cigarette Factory both of which are currently closed,” said Shrestha of Nepal Bank.

According to him, the cigarette factory which has been closed for the last one and a half years stopped making repayments nine months ago. Nepal Bank has lent around Rs 300 million to the state-owned factory. The loan issued to Himal Cement was extended by a consortium led by NIDC Development Bank.

Source: The Kathmandu Post

NRB interest free loan for 17 districts only

KATHMANDU, OCT 15, 2012

Due to the increased outreach of financial institutions in the designated remote districts, the central bank will now provide interest free loans to set up branches in only 17 districts instead of 30.

Issuing a circular, Nepal Rastra Bank (NRB) has announced that banks and financial institutions opting to open branches in Bhojpur, Khotang, Okhaldhunga, Rasuwa, Manang, Rolpa, Rukum, Salyan, Jumla, Mugu, Humla, Kalikot, Dolpa, Jajarkot, Bajhang and Darchula districts only will be eligible for interest free loans from the central bank.

“The number of districts with a minimal existence of financial institutions has gone down in the last couple of years, as financial access in the 13 districts that have been left out is satisfactory following the interest free loan provision,” said spokesperson for NRB Bhaskar Mani Gyanwali.

NRB had, in December 2010, decided to extend interest free loans to commercial and development banks to encourage them to venture into remote areas to improve financial accessibility. The financial institutions could avail interest free loans for up to Rs five million to open branches in the 30 designated districts.

If banks opt to open branches outside the district headquarters they are entitled for loans of up to Rs 10 million. Under this provision, Rs 60.65 million has been provided to financial institutions, comprising of Rs 40 million to five commercial banks for their seven newly opened branches, Rs 2.5 million to two development banks for their three branches, and Rs 1.5 million to one microfinance development bank for a new branch, in the last fiscal year.

In fiscal year 2010-11, Rs 150 million was loaned to six commercial banks and five development banks. A provision of interest free loan was made to enhance financial inclusion through expansion of financial institutions in areas with limited access to organised finance.

According to Nepal Living Standard Survey-III, 39.9 per cent households have access to a commercial bank’s branch within 30 minutes walk radius at present, whereas 15 years back, only 20.7 per cent households had access to banks within the radius. According to International Monetary Fund’s Financial Access survey, there are two branches of commercial banks per 100,000 adults in Nepal.

The same circular has also forbidden financial institutions from opening microfinance institutions providing subsidy headquartered outside nine districts that are devoid of banking facility only.

Such microfinance institutions can start operations only in Manang, Humla, Dolpa, Kalikot, Mugu, Jajarkot, Bajhang, Bajura and Darchula districts. Likewise, microfinance institutions operating in those nine districts only can collect deposits that are five times their primary capital.

New cheque standards

Nepal Rastra Bank (NRB) has introduced Cheque Standards and Specifications guidelines to bring uniformity in cheques issued by financial institutions. “For electronic cheque clearance system to work effectively, cheques issued by different financial institutions need to be uniform, so NRB has amended the cheque specifications to suit electronic clearance,” said spokesperson for NRB Bhaskar Mani Gyanwali. Nepal Clearing House started operations from February 2012, providing automated cheque clearing service which used to earlier be performed manually at NRB. “Moreover, these specifications will also strengthen the security features of the cheques to avoid any instances of fraud,” added Gyanwali.

Source: THT

NRB circulates Rs 1.5b worth of new notes in east

BIRATNAGAR, OCT 1: 

Keeping in view the demand for new notes during the upcoming Dashain festival, the Biratnagar-based Eastern Regional Office of Nepal Rastra Bank (NRB) circulated new bank notes worth Rs 1.5 billion through different banks and financial institutions on Sunday alone.

Officials of the regional office said the new notes circulated on Sunday were of Rs 5, Rs 10, Rs 20, Rs 50 and Rs 100 denominations. They told Republica that the central bank was preparing to send another Rs 500 million worth of new bank notes to the eastern regional office.

Nara Bahadur Thapa, chief manager of NRB´s Eastern Regional Office, said bank notes of Rs 5 denomination worth Rs 9.25 million, Rs 10 denomination worth Rs 105 million and Rs 20 denomination notes worth Rs 183 million were circulated through different banks and financial institutions on Sunday. Similarly, the office also brought bank notes of Rs 50 domination amounting to Rs 295.5 million and Rs 100 denomination worth Rs 418.5 million into circulation on the day.

“We will circulate new bank notes for the Tarai region until Tuesday,” Thapa said, adding, “We will start issuing fresh notes for hilly districts in the eastern region only from Wednesday.”

Thapa also said the central bank would necessary arrangement so that people can exchange new banknotes banks and financial institutions without any trouble.

NRB is planning to circulate new notes through 87 banks and financial institutions in the eastern region. Last year, it had circulated Rs 1.4 billion worth of new notes in eastern Nepal during Dashain.

Meanwhile, the regional office has set up a separate counter in its premises for the convenience of general public.
“We hope people won´t have to face any inconvenience this year,” said Thapa.

Source: Republica

NRB to expand scope of merger bylaws

KATHMANDU, SEP 14 - 2012

Nepal Rastra Bank (NRB) is preparing to allow mergers between banks and financial institutions (BFIs) that have gone public and those that are yet to make an initial public offering (IPO). The central bank plans to expand the scope of the merger bylaws to allow such unions.

Two pairs of financial institutions, each with one partner yet to IPO, have applied to the central bank to combine. The first pair consists of Corporate Development Bank and Social Development Bank. The former has made an IPO but the latter is yet to issue ordinary shares. Likewise, Araniko Development Bank, which has IPOed, is planning to merge with Surya Development Bank which is yet to go public.

“After we insert a provision in the bylaws allowing such mergers, the door will be opened for other BFIs in a similar condition,” said an NRB official.

The central bank has sought the opinion of the Securities Board of Nepal (Sebon) and the Company Registrar’s Office regarding the matter. NRB officials said that both have given the green signal to such mergers.

“The stock market regulator has given a positive opinion for such a merger suggesting that it should be allowed after making sure that the public will have 30 percent of the shares in the merged BFI,” said an NRB official.

If a financial institution that has issued 30 percent of its shares to the public is merging with one that has not done so, the public’s share in the merged company will be less than 30 percent. “In such a situation, the public’s 30 percent stake can be maintained by issuing more shares,” said the NRB source.

Meanwhile, there is also nothing in the bylaws about cases in which neither of the potential merger partners has IPOed. “Yes, this can also be an issue for discussion as there is no provision for a merger of such BFIs,” said another NRB official.

Another provision the central bank is seeking to insert in the merger bylaws is that it would give recognition to the due diligent audit (DDA) conducted before the central bank has given a letter of intent (LoI) to the merging BFIs.

As per the current bylaws, BFIs going for a merger will have to conduct a DDA after getting an LoI from the central bank. BFIs have been demanding that the DDA conducted before the LoI is received be recognized by the central bank.

“A DDA before the merger process starts helps in building confidence among BFIs going for a merger as they can negotiate based on the findings of the DDA,” said the NRB official.

Keeping tabs on merged BFIs

Nepal Rastra Bank (NRB) is planning to set up a separate unit under the supervision department to look after the status of BFIs after their merger. Currently, there is a unit under the regulation department at NRB. The central bank is also planning to study the status of the BFIs that have merged so that appropriate measures can be taken considering their post-merger status.

Source: The Kathmandu Post

IB, insurers at odds over new regulation

KATHMANDU, SEP 13 - 2012

Insurance Board (IB) and insurers are at odds over Corporate Governance Regulation 2012 aimed at depriving board directors from doing business with their own company and controlling the salary structure of chief executives.

Although such provision has already been introduced by the Nepal Rastra Bank (NRB) in the banking sector, it is new to the insurance sector.

Promoters of insurance companies argue the IB’s latest move will hit the entire business as the regulation was brought without prior consultation with them. After the IB prevented Khetan Group-promoted Everest Insurance from covering fire insurance, the highest premium earning sector in non-life business, it has stopped issuing new polices in all areas and limited its operation to just settlement of claims starting from Tuesday.

The IB had taken action against company, slapping its CEO Kewal Krishna Shrestha a fine of Rs 10,000 for making payment “illegally” to claims of Himalayan Snax, the manufacturer of Mayos noodles. The regulation prohibits insurers from giving coverage to the companies promoted by the same group.  The insurers, however, maintain that Everest’s action is a manifestation of the reservations the insurers have to the recent decisions of the board.

A member of Nepal Insurers Association (NIA) said that the insurers have raised serious reservation over some of the provisions of the regulation while supporting the Everest Insurance’s move. “Some clauses of the regulation conflict with the Insurance Act. The rift will grow further if they are not amended,” said an insurer, adding that more companies might follow the Everest suit—not to issue new policy.

According to them, one of the provisions that contradicts with the Act is the one that prohibits doing business with companies related to the directors of the insurance companies. Clause 15 of the Act says, “If the Insurer has made any dealing regarding the Insurance Business with its Director or his/her family or any corporate body where he/she is a Managing Agent or partner he/she shall provide a notice to the Board within thirty-five days.” Their claim the regulation cannot negate the provision of the Act. However, an IB official said that the regulator has the authority to impose such regulation under Clause 8 of the Act, which entitles the board to bring out policies to regulate the companies.

Insurance companies have also complained that regulation was brought without consulting the insurance companies. “The IB took decision on such an important issue without even a single consultation with us,” said a CEO of an insurance company, arguing that “the central bank had consulted with the bankers before bringing such regulation.”

The IB, however dismissed argument that they needed to consult with the insurers before introducing the regulation. “The regulation was not brought on ad hoc basis. We brought those policies only after adequate research and homework,” he said.    

Likewise, the insurance companies have reservation over the provision whereby the family member of board members or one having financial interest with the company is not allowed to be employed. The board, however, said that such provision was brought to avoid conflict of interest. “In order to ensure corporate governance, ownership and management of the company must be segregated,” said the IB source.

The insurance companies are also against the provision of limiting the salary and perks of CEO to 15 times the salary and perk of the employee at the bottom of the company hierarchy. “This provision will force some companies to cut the salary and benefit of their CEOs,” argued a member of NIA.

Also, the regulation has mentioned about the minimum academic qualification of the employees at different positions. “Making such provision falls under the jurisdiction of the company registrar office,” said a CEO of an insurance company.

Source: The Kathmandu Post

NRB may reject proposal to stop auctioning of six ailing firms

KATHMANDU, Aug 19, 2012

The Nepal Rastra Bank (NRB), central monetary authority, can reject a proposal from the Ministry of Industry (MoI) to stop bank and financial institutions (BFIs) from auctioning the properties of six ailing industries that have long been defaulting loan.

The central bank source clarified that it was not in a position to prevent banks and financial institutions (BFIs) from auctioning the assets of the industries that have failed to make timely repayment of loan and stated that it would be against the existing laws.

NRB source stated that existing Bank and Financial Institution Act (BAFIA) doesn´t allow the monetary regulator to stop BFIs from auctioning the properties of those ailing industries until the government take decision for the special treatment of those industries regarding loan payment.

“NRB can´t direct any BFIs not to go ahead with auctioning the properties of debtors industries that have long been defaulting loan. Protection of industries from getting their properties auctioned is not possible unless government make special arrangement for those industries for their relief,” NRB source told Republica.

TheThe Ministry of Industry (MoI) had recently written to the NRB requesting to protect six struggling industries- Birat Leather Industries, Birat Shoes Company, Everest Floriculture, Nepal Boards- producers of wooden goods, Siris Herbal Company and Dolphin Manor Wildlife Resort. The letter had requested NRB to stop the auctioning of the assets of six industries for the next six months.

“NRB can prevent the auctioning of their properties only in the case if the government issues gazette provisioning that sick industries get such privilege,” the source added.

The government had formed a 8-member Sick-Industries Rehabilitation High-Level Task Force (SIRHLTF) led by Dipendra Bahadur Kshetry, vice-chairman of National Planning Commission (NPC) in a bid to seek measures to the ailing industries. However, the ministry, which has been assigned to identify actual sick industries in the country, has just started the study.

The government has already formed around a dozen committees over a decade to study the situation of the ailing industries and recommend measures to rejuvenate them. Though each of the panel suggested different measures, they never came up with a specific criteria to define sick industries.

Source: Republica

NRB brings in IT Guidelines for banks

KATHMANDU, Aug 17, 2012

Nepal Rastra Bank, the central bank, has come up with Information Technology (IT) Guidelines, which among others, make it mandatory for all commercial banks operating in the country to formulate IT security policy, legalize parking of data in foreign land by resorting to cloud computing and compel banks to have disaster recovery plan in place so that customers do not have to suffer in case of unforeseen events like earthquake.

“The banks should compulsorily comply with the guidelines within two years from the date of issue,” say the guidelines made public on Thursday. “But an action plan for the implementation of the guidelines should be developed and provided to the Bank Supervision Department of Nepal Rastra Bank within six months of issuance.”

The guidelines come at a time when banks´ growing dependence on technology has, on the one hand, opened new avenues to cut costs and made services customer-friendly, while on the other, raised incidents of cyber crime, raising concerns for users of e-banking services and plastic money.

The guidelines call on all category ´A´ financial institutions to formulate IT-related strategy and policy containing detailed operational procedure and to manage all IT operations. Banks should also formulate information security policy to address threats likely to hit electronic delivery channels and payment system, and ensure security of data stored or transmitted electronically.

“These policies should be approved by the board of directors and reviewed periodically,” the guidelines say. “To enforce these policies, banks should also designate an information security officer.”

The guidelines acknowledge that emerging technologies like virtualization, data center hosting, disaster recovery site hosting, and applications as a service and cloud computing have no clear legal jurisdiction for data and cross border regulations. “Banks, therefore, should clarify the jurisdiction of their data and applicable regulations at the beginning of an outsourcing or offshoring arrangement,” say the guidelines. And banks that are storing or processing data abroad should have suitable controls, like data segregation, in place.

The guidelines also say banks should have business continuity plan in place to minimize financial, operational, legal, reputational and other risks in case of disasters like earthquake. Such plan should also include policies, standards and procedures to ensure continuity, resumption and recovery of business processes and minimize the impact of disasters on financial institutions.

“Besides, business continuity plan should specify amount of data, measured in time, that can be lost from disaster and amount of time it takes to recover from a disaster event,” say the guidelines.

Among other things, the guidelines also call on banks to replace current magnetic stripe cards with chip-based cards, instantly alert clients about online payment and use more than one factor for authenticating critical activities like fund transfers through internet banking service.

The guidelines also call on banks to replace existing signature-based system in card-based transactions with PIN based authorization system. “Non-PIN based swipe machines should be withdrawn within certain period,” the guidelines says.

Besides, CCTV at each ATM location should be installed with adequate lighting inside ATM kiosks so as to capture clear picture of the person conducting transaction. However, the CCTV should not capture PIN being entered by the customer, say the guidelines.

Source: Republica

Credit to agriculture sector surges 60pc

Credit to agriculture sector surges 60pc

KATHMANDU, JUL 29 - 2012

After seeing virtually no growth in agriculture lending in previous five years, commercial banks’ credit to agriculture sector swelled in the last fiscal year 2011-12, a central bank data shows.

According to the Nepal Rastra Bank (NRB), commercial banks’ lending to the sector increased by 60 percent to Rs 22.70 billion over the first 11 months of the last fiscal year against the same period previous year. The size of the loan in the sector rose by Rs 10.66 billion during the period.

The central bank said that the positive outcome is being seen of the government’s policy to encourage banks and financial institutions (BFIs) to increase lending in the sector like agriculture and energy. The central bank have made the mandatory provision that the BFIs must lend 10 percent of the total lending to agriculture and energy sectors since last fiscal year.

NRB Deputy Governor Maha Prasad Adhikari claimed that it was the indication that the central bank’s policy started to deliver the result. “Increasing trend of commercial farming in the recent years, setback in real estate and shares, and tendency of people to take loans from BFIs are other reasons behind increased lending in the agriculture sector this year,” he said.

According NRB data, there was a growth of 122.5 percent in lending in forestry, fishery, farming and slaughter, while animal farming and services witnessed a growth of 17.1 percent in the first 11 months last year. Even the lending in agriculture related machineries which is not categorised as agriculture sector loan, also witnessed a staggering growth of 284 percent in the review period last fiscal year.

Bankers also admit that central bank’s policy encouraged investment in agriculture. “Although I am suspicious the data about the growth of lending it is really positive indicator,” said Sashin Joshi, chief executive officer of NIC Bank.

He said that there has been emergence of new types of commercial faming over the last 2-3 years, which also triggered increased demands for loans in the sector.

Rastriya Banijya Bank is now planning to a substantial increase agriculture loan this fiscal year after seeing rise in loan demands from the sector.

According to Krishna Prasad Sharma, CEO of the country’s largest bank, increased trend of commercial farming in both plants and livestock in the recent days triggered loan demands from the sector.

“That’s why, we have planned to increase lending in the sector by Rs 2 billion this year,” he said, adding that the bank would also invest in agriculture production and marketing.

Source: The Kathmandu Post

IFC and ADB propose Nepali rupee bonds

KATHMANDU, JULY 10, 2012

International Finance Corporation (IFC), the private sector lending arm of the World Bank Group, and Asian Development Bank have proposed to issue Nepali rupee bonds to raise funds and finance major infrastructure projects here.

Nepal Rastra Bank (NRB) Governor Yubaraj Khatiwada said the two lenders have proposed issuing Rs 20-billion Nepali rupee bonds—Rs 10 billion each.

Given the country in urgent need for resources to fund long-term infrastructure projects, Khat-iwada said the issuance of bonds would help generate the required funds. Funds raised from the bond issuance will be used in Nepal only, according to Nepali officials.

Nepali banks have long been resisting the temptation of investing in long-term infrastructure projects as the maturity period of their funds does not match with the time infrastructure projects take for generating revenues to repay loans.

Khatiwada said the central bank has ‘cleared the way’ for the bond issuance. He, however, said the Finance Ministry should settle the issue of taxation and issue manager of the bonds.

Both ADB and IFC have also talked to the ministry about the matter, submitting separate proposals. Although ADB made such a proposal a year ago, IFC made its proposal last week, according to the ministry. “We are holding discussions and they have so far been positive,” said Baikuntha Aryal, joint secretary at the ministry, adding he was yet to go through the details of the proposals.

In its proposal, ADB has asked the government to allow it to exchange the proceeds of the Nepali currency bonds for the currency of any another member of ADB without restriction and buy and sell the bonds in Nepal.

ADB has also sought exemption of taxes, including value added tax, transaction tax and stamp duties, among others.

Other conditions put forth by ADB are a confirmation that the tax exemption would apply to any amount payable by ADB or paid to ADB from transactions that may be undertaken in connection with the Nepali currency bonds; such bonds would not be subject to withholding, specifically allowing ADB and its agents to make interest payment to bondholders on gross basis without deduction for any withholding tax; ADB would not be required to disclose its financial transactions to any regulatory authority; and ADB would not require registering the bonds under any security laws and regulation of Nepal.

IFC has also talked with Nepali banks on the scope and the market for Nepali rupee bonds. NIC Bank chief executive Sashin Joshi said the international lender had consulted with them on interest rate and whether such bonds would be accepted here.

He said the move taken by IFC and ADB is positive for the banking industry as local banks could invest their surplus funds in the bonds.

Source: The Kathmandu Post

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

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