NRB okays Rs 500m rescue package for Vibor

KATHMANDU, JUN 10 -

Nepal Rastra Bank (NRB) on Thursday decided to provide up to Rs 500 million to Vibor Bikas Bank to rescue it from an acute liquidity crunch under the Lender of Last Resort Policy 2011, which was introduced recently. Vibor said it received the first instalment of the amount (Rs 100 million) from the central bank on Thursday.

Following Vibor’s request to the NRB for help in tackling the liquidity crunch that had arisen due to massive withdrawals by the public and institutional depositors, an emergency meeting of the central bank’s board decided to provide the money to Vibor through this policy. The central bank will issue credit against its good loans as collateral. It will charge an interest of 7 percent on the loan.

As per this policy, the central bank injects liquidity into banks and financial institutions (BFIs) facing a shortage of cash as a result of a huge amount of deposits being withdrawn. The measure is taken to restore public confidence in the banking system that has been shaken by the failure of BFIs.

This is the second instance of the central bank injecting liquidity under this policy after Nepal Bangladesh Bank was bailed out in 2006 when it faced a similar problem due to huge withdrawals. The central bank has also told Vibor to submit a strategic plan within two weeks regarding how it will rescue itself from the current mess after getting funds from the NRB.

Vibor CEO Ajay Ghimire on Thursday said the bank’s assets are higher than its liability. “Our case is of liquidity crunch, not insolvency,” Ghimire told a press meet. He said there was no need for depositors to worry as the bank was in a comfortable position. “Depositors should not worry, I can guarantee that,” said Ghimire.

After Vibor ran out of money following frenzied withdrawals by institutional depositors, it first asked the Nepal Bankers Association for inter-bank loans on Wednesday. The bankers refused to provide cash and instead suggested that it ask the central bank to take over its management. Vibor then appealed to the NRB to rescue it either by taking over the management or by injecting liquidity.

Vibor said that after the central bank withdrew its fixed deposits of Rs 260 million and the Nepal Army of its Rs 50 million, it suffered an acute liquidity shortage. The Nepal Army had taken loans of about Rs 50 million against its deposits in the bank.

According to Ghimire, the bank has been in touch with the central bank for a few weeks for liquidity management. “Anticipating a liquidity crunch, following the Gurkha Development Bank and Nepal Share Market Finance episodes, we had been in touch with the central bank,” said Ghimire. “We had asked the central bank to help us out.”

According to the NRB, its asset quality is not so bad. “As Vibor’s problem is liquidity and not related to governance, we sought to rescue it with liquidity support,” said NRB spokesperson Bhaskarmani Gyawali.

Despite the very good credit to deposit (C/D) ratio of 58.09 percent, the bank has suffered an acute liquidity problem. “The management lent to long-term projects although its deposits were of a short-term nature,” said a senior NRB official. “The timing of cash flow with the sale of apartments and housing projects and the maturity dates of the deposits of institutional depositors mismatched leading to the liquidity problem at Vibor.”

While providing refinancing facility, the central bank has asked Vibor’s management to opt for a merger within three months. “The central bank has asked Vibor to come up with MoU for merger within three months,” said a senior NRB official.

According to Ghimire, the bank has planned to explore a merger after July, but with the central bank asking them, they will explore the possibility immediately. “We’re open for a merger if it creates value to our shareholders,” said Ghimire. “We’re thinking of going for a merger or a joint venture.” The bank has also said it will now go for retail deposits to reduce its dependency on institutional depositors.

Responding to the central bank request on cost cutting, Ghimire announced that he will not take his salary and allowances until the bank receives support from the central bank.

Vibor had admitted in its third quarterly report that it had to incur a loss due to recovery problems on some loans--especially slow recovery from the realty and housing sector. The bank has incurred a net loss of Rs 88.44 million as per its third quarterly report. Its non-performing loans rose to 8.42 percent in the first nine months of the current fiscal year from 0.42 percent during the same period last year. However, its capital adequacy ratio is at a comfortable level of 12.79 percent against the required level of 11 percent for development banks.



CEO not to take salary, allowances

Bank to explore merger immediately

To reduce dependency on institutional depositors

Posted on: 2011-06-10 08:28

PRITHVI MAN SHRESTHA, http://www.ekantipur.com/2011/06/10/top-story/nrb-okays-rs-500m-rescue-package-for-vibor/335455.html