KATHMANDU, Jan 10: After the Nepal Rastra Bank (NRB) took a 'pressure policy' for the commercial banks to merge, the latter have gone/are going into mergers. Global IME Bank and Bank of Kathmandu merged and integrated business started from Sunday.
More than half a dozen other commercial banks are merging with each other this week. According to the policy put forward by the central bank, there has been a wave of mergers between big commercial banks. At one time, the number of commercial banks in Nepal had reached 32. After the NRB asked the banks to increase their paid-up capital, the number of commercial banks decreased to 27. After the recent and upcoming mergers, the number of commercial banks is likely to drop to 18.
Maha Prasad Adhikari, governor of NRB, said that by increasing the size of the capital, mergers were encouraged to create strong and capable banks. "A merger reduces the cost of financial intermediation. It helps to create a strong and capable organization," he said. He said that banks with large capitals are also needed to increase investment in large projects.
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According to international practice, the central bank has been encouraging mergers to create competitive and investment-capable banks. Due to the large number of banks in contrast to the size of the population and economy of the country, they are encouraged to merge. Mergers of banks and financial institutions have increased their paid-up capitals. This also has increased risk management capacity along with capital growth. Management costs are reduced as well.
Similarly, in the financial sector, this week is seen to be the week of bank mergers. Prabhu Bank Limited and Century Commercial Bank Limited are merging and starting integrated business from Tuesday. On Wednesday, Nepal Investment Bank and Mega Bank are also planning to merge and conduct integrated business. Himalayan and Civil Bank have also called for a general meeting for a merger between the two banks.
A preliminary agreement has been signed between Laksmi Bank and Sunrise Bank for a merger. Nabil and Nepal Bangladesh Bank, Kumari and Nepal Credit and Commerce (NCC) Bank are also merging. Some banks have merged and some are in the process of merger. NRB has requested Sanima Bank and Machhapuchhre Bank to go for a merger and is encouraging Siddhartha, Prime, Citizens and Everest etc. to go for a merger as well.
The former governor, Dr Chiranjeevi Nepal, in the last monetary policy of his tenure, promoted the 'Big Merger' with concessions. His successor, Maha Prasad Adhikari, also prioritized merger through monetary policy. The result is now visible.
Officials of NRB said that despite the reluctance of the banks’ owners to go ahead with the merger, the policy of merger has been advanced. "The directors of the banks did not accept the policy of merger," former governor Dr Chiranjeevi Nepal said, "We took a stand for the long-term interest of the country, stability, security of banks and depositors."
Similarly, Dr Nepal said that depending on the size of Nepal's economy, 12 to 15 commercial banks would be enough.
