Nepal's license to the bank | Euromoney



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  Chiranjivi-Nepal-780
Chiranjivi Nepal, who took the lead of the government of Nepal Rastra Bank in 2015

For a poor country with a tiny economy, but it is measured, Nepal certainly has a lot According some estimates, there would be up to 250 financial institutions of any type, including remittance houses, licensed by the Rastra Central Bank of Nepal, Kathmandu.

In one of the poorest countries in Asia, over the last 15 years, prime ministers and six central bank governors have struggled to obtain adequate capacity in their official institutions, which means that the already well-developed central bank has 250 separate entities.

This year, Nepal Rastra Bank had authorized 28 so-called Cla ss a commercial bank to operate in the country.

Even that might seem more than enough for an economy that generated only $ 24 billion in gross domestic product last year. Zambia and Papua New Guinea, economies of similar size, are managing with only 19 and four licensed commercial banks. And middle-income Malaysia, with an economy almost ten times larger than Nepal's, has more realistic licensed commercial banks.

Many top Nepalese bankers admit that the country is overbanked

"There are too many banks here, unfortunately," said Anil Keshary Shah, chief executive officer of Nabil Bank. "The bank Rastra estimated:" No, the more we are crazy, because it will strengthen the competition. "

At Himalayan Bank, one of the largest private commercial banks in Nepal, in which HBL of Pakistan is a 20% shareholder, Ashoke Shumsher Rana general manager agrees.

" There are too many financial institutions, "he says." Even at the top 28 banks, there are too many. "According to Rana, 10 to 15 major banks would be ample for this market.

Yet This is not even half.The central bank has authorized 36 clbad B development banks to serve 30 million Nepalis – 60% of which are designated as unbanked – and 25 category C financing companies. In addition, there are 63 microfinance banks, and if it was not enough financial institutions, the central bank lists 14 other credit unions, 25 authorized non-governmental organizations and 10 companies that defy the bureaucratic description and which are grouped in a basket of other institutions, most of which appear to be hire-purchase providers.

This still does not include the 49 companies authorized by the central bank to operate in the remittance sector of about $ 7 billion a year in Nepal, the largest contributor to its GDP.

Consolidation

You would be forgiven for thinking that a thorough consolidation of the Nepalese banking and financial sector by the central bank has to be expected for a long time. After all, the World Bank and the IMF have repeatedly advised Nepal to reduce the number of banks and strengthen its financial licensing regime.

It's already happened, announced Nepal's Chiranjivi, who took over Nepal Rastra Bank in 2015.

"Many banks have merged," he told Asiamoney. "When I arrived here, there were nearly 300 banks and financial institutions."

According to his calculations, 158 banks and financial institutions were absorbed by other banks in the last three years. to eliminate the weak.

"I asked them to increase their paid-up capital in two years," he says, with obvious satisfaction, adding that there are 150 banks and financial institutions registered with his central bank, less than 201 than the own official bank

But is there no need for additional consolidation, or perhaps another capital increase to eliminate even more of ransom?

"No, this is not the moment". "It's very hard, you need the support of the government."

And with so many unbanked Nepalese, "we need banks in every corner of the country," he says. "You do not know the depth of the economy.It is a growing economy, our GDP is underestimated … it exceeds $ 30 billion."

We are concerned that s & # 39; There is a problem in a financial institution, people say, "Oh my god, I want to get my money out." Anil Keshary Shah, Nabil Bank

One of the reasons for the proliferation of financial houses in Nepal At the end of 2007, after a long civil war, Nepal abolished its monarchy to become a federal republic.The Communists, both Maoists and Marxist-Leninists in ideological orientation, led seven of the ten governments since then, including the current administration of Prime Minister Khadga Prasad Oli.They have divided the country into 753 local municipalities unmanageable, the new federal bureaucracy requiring a banking presence of some description in each of them. they, ostensibleme to help development.

"A bank must be opened (present) in 753 units, in every corner of the country," says Governor Nepal

. The result is a mantra often heard among Kathmandu bankers who complain of being forced to open and run unprofitable branches in remote locations.

to do it for the nation, "insists Governor Nepal. "As part of their social and corporate responsibility, they have to go (so) people can become more aware of the financial sector.It's an opportunity for them.I tell them you have to leave otherwise we will send you there. It is their national duty, of course. "

Asked about his independence, the governor laughs and points out that he currently serves in a government that had five prime ministers during his three years at the central bank. He says he has good relations with the Minister of Finance, "but that does not mean that I do everything he says."

Remittances

Nepal is one of the economies most dependent on remittances. Households receive nearly $ 7 billion a year from the Nepalese diaspora, working for example in the Gulf and Southeast Asia; This represents about a quarter of GDP

. Remittances are not only essential for keeping the economy afloat, but also for allowing the central bank to build up reserves. Governor Nepal says the bank has reserves of nearly $ 10 billion, which would cover imports for about 10 or 11 months, and $ 2 billion more than when he joined

 Nepal-rebates -780 "src =" http: / /www.euromoney.com/v-d3db2ce431a281361fcafac33f41649e/Media/images/euromoney/asiamoney/issue-2-2018-2/Nepal-remittances-780.jpg "style =" width: 100 %; He insists that the country's banking system is in good health and he boasts of a non-performing loan rate of less than 3% at the scale of the industry, which, He says He badured Asiamoney that he has enough qualified personnel to regulate Nepal's financial sector, detailing plans to add 300 additional staff to the existing Central Bank workforce of 1150. </p>
<p>  Shah was Nabil Bank agrees that the central bank has the capacity to properly regulate Nepal's leading banks and development banks, but is concerned about the "totally unregulated" layers of Nepal's financial system. </p>
<p>  "They do not have LBC (anti-money laundering) Clbad A banks are very strict on AML and KYC regulations, but the" playground is not up to par, "adds </p>
<p>  "Our fear is that if there is a problem in any financial institution, people will say," Oh my god! I want to get my money out, "says Shah. "Nepal saw an example of systemic choking in December when Axiata – the Malaysian government-controlled telecommunications operator that owns Ncell, Nepal's largest mobile operator – has received court approval. repatriate to Malaysia about 10% of the $ 660 million that he had accumulated in profits since 2013. </p>
<p>  As Axiata withdrew funds from accounts across a range of banks, Governor Nepal admits that "liquidity is has become a little tight for one or two banks … "</p>
<p>  Local newspaper articles describe a more pressing drama: banks were forced to increase fixed deposit rates from 8% to 13% to attract liquidity, at the risk of violating central bank capital adequacy levels 19659042] Nepal-bank-signpost-400 "src =" http://www.euromoney.com/v-0bda7dca39fb6b4ac8d32d672ab1b554/Media/ images / euromoney / asiamoney / issue-2-2018-2 / Nepal-bank-signpost-400.jpg "style =" width: 400px; A lot of banks need a lot of regulation </i></p>
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<p>  Rana at Himalayan Bank says that Nepal's liquidity shortages are partly the result of regulatory the central bank's strict handling of liquidity. Other bankers say that issues such as the December liquidity stranglehold reflect what they charitably call "policy misalignment" within the government, a banker described it as "The left hand not knowing what" </p>
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<p>  The Malaysian purchase of Ncell in $ 1.36 billion in 2015 was the biggest deal of Nepalese history: l \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\ " government eagerness – a banker has called it desperate – to attract foreign investment, to appease investors, without making the necessary reforms in an underdeveloped financial system. </p>
<p>  Governor Nepal admits equally, but points the finger The management of the anks. </p>
<p>  "When you apply for a foreign direct investment, the rules and regulations permit repatriation (for-profit) .But in Nepal, it's a little different, and that's the problem of the banking sector [local]"he says," When you start regulating them, give them new guidelines and new policies, they say, "Look, we are a less developed country, we can not do all these things, we do not can not go ahead like that, we can not these rules, GAFI (Financial Action Group), KYC, IFRS (International Financial Reporting Standards) … we have traditional ways, we can not do that, we need time "… it's the problem with these people. </p>
<p> " When you talk with them, (they have) very big talk, (but they are) always complain. Absolutely. They always blame us, we can not satisfy people, that's the situation. "</p>
<h3>  Earthquake </h3>
<p>  Like many Nepali government officials, Governor Nepal studied in India, obtaining a Ph.D. from Banaras Hindu University in Varanasi and studied for a while at the University. Charles Sturt in Wagga Wagga, Australia </p>
<p> He was a long-time advisor at Tribhuvan University in Kathmandu and an economic advisor to the Ministry of Finance, and in the mid-2000s he was chairman of the board. He explains that he has modernized the securities market in Nepal </p>
<p> A month after his election to power, the country was hit by an earthquake that has nearly 9,000 dead and 3.5 million homeless The tragedy, Nepal's worst natural disaster in 80 years, has given the governor his most memorable moment by leading the central bank. </p>
<p>  "The next day we asked the banks to open their accounts wherever they are," he recalls. What was remarkable, according to Governor Nepal, is that in the month following the earthquake, deposits in the banking system increased by about 460 million dollars. </p>
<p>  "Everywhere has been demolished but popular trust has increased. believes that security was an important factor, because after so many houses and buildings were demolished, people knew that their saved savings would be safer in a bank, away from looters. </p>
<p>  "We asked banks to open, if people wanted to take money or deposit money, that they do it," he says. "And all the banks were open – it usually takes months and years to open banks in other places (which have suffered disasters) .This was fantastic. other. "</p>
<h3>  Claw Problems </h3>
<p>  The governor had many other problems to deal with in his custody. </p>
<p>  Nepal is one of only two countries – the other is Bhutan currency at the rupee of India. </p>
<p>  Nepal Rastra Bank maintains an ankle of 160 Nepalese rupees at 100 rupees: this level has been in place since 1994 when it was adjusted from 145. India is Nepal's largest trading partner and its currency has been widely accepted in Nepal for many years, especially among traders along border areas. It has always been a stored value savings instrument for Nepalis. </p>
<p>  But this familiarity has led to problems between the two traditional allies with the demonetization by India of its 500 rupees and 1000 rupees in 2016. Thousands of Nepalese individuals and traders had accumulated stocks Indian rupees, which would have been worth about $ 150 million – but some estimates put up to $ 1 billion. </p>
<p>  Nepal's new finance minister, Dr. Yuba Raj Khatiwada, and the central bank governor embarked on negotiations with the Indian authorities to persuade Delhi to buy the Indian hangover tickets held by Nepalis. </p>
<p>  As for the Nepalese rupee, the governor says that he can see a moment when he can float freely, but only after the great trade of Kathmandu. the imbalance with India is corrected and diversified. </p>
<p>  But that can take time: Nepal has long endured a very large trade deficit with its neighboring regional superpower to the south, accounting for 66% of its international trade. </p>
<p>  Nepal's Official Trade and Export Promotion Center In the nine months to March 31 of this year, Nepal imported goods valued at $ 576 billion from India. rupees ($ 5.3 billion), while exporting 34.2 billion Indian rupees. </p>
<p>  Bankers say that a move that would strengthen the economy is the granting of a sovereign rating, which would increase Nepal's international profile, would help reduce costs. borrowing and make the market more efficient. </p>
<p>  Of the eight southern members Nepal is one of the three – and larger – member economies without sovereign rating (the other two are Afghanistan and Bhutan). </p>
<p>  Joseph Silvanus, General Manager of Standard Chartered Operation in Nepal "The Government of Nepal should study the emerging situation, badess the risks of the horizon and decide when and when to approach appropriate to begin the process of obtaining a sovereign credit rating. " </p>
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