Despite big losses, Banijya Bank issuing bonus to staff

Published On: August 12, 2016 12:07 AM NPT By: Rudra Pangeni  | @rudrapang

KATHMANDU, Aug 12: Rastriya Banijya Bank has decided to distribute Rs 870 million in bonuses to its employees despite its accumulated losses amounting to Rs 4.12 billion. The bank's board meeting last week took a decision to this effect by way of implementation of a Supreme Court order last December to pay out bonuses from profits earned in the last seven years.  

The bank, which is 100 percent government-owned, is distributing bonus from the profits of the last seven years although it has yet to make up for losses amounting to approximately Rs 20 billion, which were mainly accumulated in the fiscal years 2000/01 to 2003/04. The bank has been in profit in the following years.

Despite the huge accumulated losses, the bank was distributing bonus until fiscal year of 2006/7. But the Commission for Investigation of Abuse of Authority (CIAA) intervened the following year, asking the bank to stop paying bonuses.

The Supreme Court, in response to a case filed by the bank employees union, issued an order in December asking the bank to distribute the bonuses.

The bank was at first reluctant to implement the order but complied after repeated follow up by the SC's Judgment Execution Directorate. Talking to Republica, bank CEO Kiran Kumar Shrestha said, "We have decided to implement the court order after repeated follow up by the directorate."

Alhough the government has not received any profit for at least 18 years as the Banks and Financial Institutions Act bars distributing dividends to investors, the bank is distributing bonus to employees on the basis of year to year profits as per the Bonus Act. Under this act, it can distribute 8 percent bonus on profits to its own employees.

The government has invested Rs 8.58 billion in the bank.

The bank's accumulated loss was Rs 6.25 billion as of fiscal year 2014/15 and this will be down to about Rs 4.12 billion in the last fiscal year, as per preliminary calculations. But Shrestha argued that taking its various reserves into account, the bank has in fact cleared its accumulated losses and has a surplus of Rs 730 million from last fiscal year. Preliminary estimates put the bank's profits at about Rs 2.65 billion for the last fiscal year ending July 15.

According to calculations, an employee of the bank  will receive about Rs 353,000 on average as the total number of employees is 2,462 at present.

The bank was close to collapse in the years it posted huge losses, which were mainly due to borrowers with political patronage not repaying loans,  the waiving of interest and overstaffing. Its non-performing loans were up to 60 percent of total lending, which has now been reduced to 3 percent. The bank was rescued through the Financial Sector Reform Program started with the support of the World Bank.

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