Govt mulling incentives to encourage BFI mergers

KATHMANDU, MAY 06 -

Finance Minister Bharat Mohan Adhikari has said that the government was mulling introducing a number of incentives through the upcoming budget to encourage banks and financial institutions (BFIs) to merge.

“Mergers and acquisitions have become essential to address the needs of the prevailing market situation and to strengthen the nation’s economy,” said Adhikari while addressing an interaction programme entitled “Merger in Nepalese Context Prospects and Challenges”.

Participants in the programme that included senior government officials and bankers all agreed that mergers were the need of the hour with the country’s financial system going through a liquidity crisis and experiencing increased cost of funds and stiff competition. Amid speculation whether the central bank would go for a forceful merger, most of the participants argued in favour of a voluntary mergers.

However, Nepal Rastra Bank (NRB) governor Yubaraj Khatiwada said that the central bank could bring a provision for a forceful merger if the BFIs failed to act. “The central bank is not trying to enforce forceful mergers,” said Khatiwada. “As a regulator, we are just trying to encourage BFIs to merge; but if they neglect the need of the time, we will be forced to bring a mandatory provision to safeguard the economy.”

According to Khatiwada, the process of drafting guidelines for mergers and acquisitions is at the final stage and they will be unveiled soon.

Umesh Singh Bhandari, chief executive officer of Narayani National Finance, highlighted the problems and challenges of mergers. Two finance companies, Narayani Finance and National Finance, came together last year to become Narayani National Finance. “Management of human resources is a major challenge while going for a merger,” said Bhandari. “It takes time for the staff of two different entities to accept the common goals and objectives of a merged organisation.” The issue of share ownership structure, asset valuation and variance in the products and services were also raised during the programme.

Of late, an increasing number of BFIs have been readying themselves to merge. They have all been waiting for the central bank’s announcement of merger incentives. NRB is currently at the final stage of drafting merger guidelines. A relaxation in the single obligor limit, ownership pattern of the merged bank, deprived sector lending and branch expansion are some of the enticements that NRB is planning to offer BFIs going for a merger. Bankers said that instead of policy relaxation, there should be incentives like tax exemption which would make them serious about merging.

Till now, there have been only four instances of mergers between BFIs in Nepal. In the first half of 2000, the Khetan Group’s Laxmi Bank acquired Hisef Finance Company, and NB Bank took over NB Finance Company. However, both were mergers between companies of the same group. The merger between Narayani Finance and National Finance was the first one between financial institutions promoted by different groups. Recently, Nepal Sri Lanka Merchant Bank Limited was merged with NB Bank.

Birgunj Finance of Birgunj and Himchuli Finance of Pokhara also recently signed an agreement for a merger. It is not that only private BFIs are interested in merging. The government is also planning to merge two state-owned financial institutions, Rastriya Banijya Bank and Nepal Industrial Development Corporation.

Posted on: 2011-05-06 08:35
http://www.ekantipur.com/2011/05/06/business/govt-mulling-incentives-to-encourage-bfi-mergers/333580.html