Seven banks submit NRB written commitment for 'big' merger

Published On: July 5, 2019 04:00 AM NPT By: Sagar Ghimire  | @sagarghi

Merger breakthrough less likely before monetary policy

KATHMANDU, July 5: Seven commercial banks have submitted their written commitment to the Nepal Rastra Bank (NRB) for merger in line with recent instruction of Governor Chiranjibi Nepal.

According to an NRB source, those presenting their written commitment for 'big' merger include Nepal Investment Bank Ltd, Citizens Bank International Ltd, Sunrise Bank Ltd, Mega Bank Ltd, Sanima Bank Ltd, Laxmi Bank Ltd and Civil Bank Ltd.

Earlier on June 27, the NRB had summoned the chairmen and chief executives of all commercial banks for discussion. In the discussion, NRB Governor Nepal had instructed them to come up with merger commitment by July 4 and start looking for partner for amalgamation.

“Responding to the governor's instruction, seven commercial banks have come to the NRB with their written commitment for merger. We hope that all other commercial banks will follow the suit before the monetary policy for the upcoming fiscal year is released,” Laxmi Prapanna Niroula, an executive director of the NRB, told Republica.The central bank is scheduled to unveil its monetary policy for the upcoming fiscal year 2019/20 on July 12.

In line with the government's policy, the NRB has been prodding commercial banks to pursue merger. In his budget speech for the upcoming fiscal year 2019/20, Minister for Finance, Yuba Raj Khatiwada, said: “The policy to merge banks and financial institutions will be continued, while large banks and financial institutions will also be encouraged to undergo merger.”

While some banks have made written commitment for merger, 'big' merger as expected by the central bank is unlikely to move ahead immediately, observers say. However, most of the banks are charting out their initial strategies for possible merger as well as eyeing possible partners for the marriage.“It's not possible to tell the central bank right 'we are going for the merger with this bank' in seven days. Most of the banks have come up with their strategies. It will take at least three or four months to find the appropriate partner,” Gyanendra Dhungana, president of the Nepal Bankers' Association (NBA), told Republica.

The NRB is likely to bring provisions in the monetary policy to encourage as well as pressurize commercial banks to go for 'big' merger. However, many warn that the policy of 'forceful' merger of commercial banks, as indicated by some central bankers, could be 'counter-productive' for the banking sector.


At a time when internal discussions are going on in commercial banks regarding merger, banking executives have said that the central bank should come up with various facilities and policy relaxations to encourage merger of Class 'A' banking institutions.

“The central bank should see why the commercial banks did not go for merger earlier even when the policy was to encourage them for the marriage and bring facilities so that they are tempted to go for the amalgamation process,” Dhungana, who is also the CEO of Nepal Bangladesh Bank Ltd, said.

After the governor's diktat on merger came, the NBA held a meeting on Wednesday to discuss about the merger prospects. In the meeting, most of the members put their views in favor of merger incentives from the central bank, according to Dhungana. “Beside relaxations on prudential lending limits, ratios and directed sector lending requirement, the central bank should also become flexible in terms of composition of the board of directors of the merged entity as well as remove the cooling period for the CEOs,” he said, adding: “Many CEOs are going to be jobless due to the M&A activity.”.

The central bank has fixed a cooling period of six months, restricting CEOs from joining another bank before six months after leaving a bank.


However, joint venture banks with more than 50 percent foreign investment will be 'out of the bracket' of the governor's directive, according to the NRB official.“Joint venture banks with foreign ownership above 50 percent have to comply with the regulations of two countries,” Niroula, who is also the NRB spokesperson, said. “While they are out of the bracket of the governor's directive for now, they may provide the NRB their views on merger after consulting with their parent company.”

The statement of the NRB spokesperson indicates that the central bank will not be putting merger pressure on such joint venture banks.

Standard Chartered Bank Nepal Ltd and Nepal SBI Bank Ltd are the two joint venture banks with more than 50 percent foreign investments.

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