August 10: Nepal Rastra Bank (NRB) has decided to implement the policy of merging commercial banks once the adverse situation created by coronavirus pandemic returns back to normal. The central bank is enforcing the merger of commercial banks, especially the ones that have cross holdings. NRB informed that it has started a study for big mergers.

The monetary policy requires merger or acquisition of banks and financial institutions that are promoted by the same person or group; or financial institutions that are directly or indirectly owned or controlled by a single family or a business group.

According to Dr Gunakar Bhatta, executive director of the Banks and Financial Institutions Regulation Department of NRB, the central bank has already collected the data about the ownership and the cross holdings of all financial institutions. He also informed that Nepal Rastra Bank will study the mergers and acquisitions on this basis. Commercial banks have not presented any propositions to the central bank regarding the mergers so far.

“The banks will have to merge anyway. Nepal Rastra Bank wants to reduce the number of private banks,” he told New Business Age, adding, “We are walking towards the direction of a liberal economy, that is why Nepal Rastra Bank is encouraging commercial banks to merge voluntarily instead of being forced into merger.”

It is believed that NRB is pressing for big mergers because a single bank is currently not capable of fully investing in infrastructure projects. NRB Governor Maha Prasad Adhikari said that the monetary policy of the fiscal year  2077/78 encourages mergers between commercial banks for strengthening the financial sector in Nepal. He further explained that the operator and the executives of commercial banks were notified about the mergers as soon as the monetary policy was made public. Governor Adhikari also informed that the commercial banks will be pressured to enter into a merger once the situation risen by coronavirus goes back to normal. He however admitted that the regulations for mergers and acquisitions require some amendment too.

Banking experts noted that private banks would start merging once the government banks merge first. Nepal Rastra Bank and Nepal Banijya Bank, both government-owned entities, have claimed that they are ready to merge if the government directs them to do so. Bankers believe that Nepal Rastra Bank does not want merger of government-owned banks as the current monetary policy envisages turning the government-owned Agricultural Development Bank Limited into an agricultural hub.

Global IME Bank, which was merged with Janata Bank due the pressure from former NRB Governor Dr Chiranjiwi Nepal, does not face any compulsion for new mergers now. Nepal Rastra Bank said that the rest of the 22 commercial banks are open to opt for a big merger. An emphasis is being given for mergers between a weaker and a stronger bank. Nepal Rastra Bank believes that more problems may arise if mergers happen between weaker banks. Everest Bank and Laxmi Bank had begun the procedure for a merger almost three years ago but the merger did not materialize as both the banks couldn’t reach an agreement even after the Due Diligence Audit (DDA) was completed. Keshav Poudel, the Public Relations Officer of Laxmi Bank, said that while the board has had some unofficial discussions, the bank still hasn’t officially prepared for entering into any merger so far.