NRB has relaxed KYC provisions for small depositors

KATHMANDU,NEPAL

 The Know Your Client (KYC) provision for banks and financial institutions has been relaxed for small depositors with bank accounts of up to Rs 500,000.

The banks and financial institutions had been urging the Nepal Rastra Bank (NRB) to think on the issue stating that it is creating problems in opening new accounts and updating the existing ones. But those with deposits of over Rs 500,000 will have to provide citizenship certificate number of three generations, profession, estimated annual income and other information while opening a bank account or have to update their existing accounts by mid-June. The central bank, however, has stated that the banks and financial institutions can also seek information from small depositors if deemed necessary.

The bankers claimed that the NRB’s definition of small depositors is not practical and argued that this alternative is not suitable as even the small depositors will have to fulfill the KYC provision if they come with big deposits. “These provisions are impractical when the banks and financial institutions are already informing NRB about suspicious transactions,” a banker told Karobar. But NRB Spokesperson Bhaskar Mani Gyawali stated that the banks and financial institutions will not have any problem to expand their client base when it has already exempted the deposits of up to Rs 500,000.

The banks and financial institutions had been claiming that they were facing problems in making clients in newly opened branches due to the KYC provision. NRB had issued the KYC directive to the banks and financial institutions to discourage money laundering and financial investment in terrorism.

NRB had issued the circular as per the clause 79 of the NRB Act, 2002 which provides all regulatory authority to the central bank. NRB has also allowed Nepali commercial banks to open their branch abroad. The banks that have maintained paid-up capital as fixed by the central bank and for the past one year also maintained a buffer capital of additional one percent can open contact office abroad.

Source: Karobar Daily, April 6th 2013

You may also like:
Jewellers claim 85 percent of Gold from Black Market 

Read More

Commercial Banks in Nepal facing tighter liquidity situation

KATHMANDU-
Although the banking system usually sees higher liquidity during the last quarter of the fiscal year, commercial banks are facing liquidity tightness in recent days.

Generally, banks reduce lending, while deposit collection grows due to increased government spending in the last quarter of the fiscal year. But the government’s failure to expedite spending this year has resulted in liquidity tightness, according to bankers.

As of mid-April, Rs 57 billion has been stuck in the government’s treasury, which is Rs 16 billion higher than that as of mid-March, according to the Nepal Rastra Bank (NRB).

The banking system is facing tighter liquidity situation this fiscal after a year’s gap. After an acute liquidity crunch in 2010-11, banks enjoyed excess liquidity in 2011-12.

Besides government’s failure to spend, other factors responsible for the liquidity tightens are tax payment by banks and financial institutions and other taxpayers who withdraw deposits from BFIs and increased bank lending compared to deposit growth.

According to the NRB, bank lending grew by 16, percent while deposit growth remained at 6 percent as of mid-April. Total deposit collection of banks reached Rs 927 billion, while lending stood at Rs 723 billion. “Aggressive lending compared to deposits also brought the tightness in liquidity,” said an NRB official.

The tightening liquidity situation has also forced BFIs to increase interest rates on deposits, particularly on fixed deposits. According to bankers and depositors, interest rate on fixed deposits has crossed 10 percent.

The tightness in liquidity is also evident with the fact that the inter-bank lending rate reached as high as 7 percent last week, but has come down below 6 percent this week. An NRB official said about half dozen banks ’ credit-to-deposit ratio is above 80 percent in recent days, which also reflects the tightness in liquidity.

Banks have particularly increased interest rates for institutional fixed depositors. According to Rishi Ram Gautam, executive director of Citizen Investment Trust (CIT), one of the big institutional depositors, the CIT has been receiving three percent higher interest rate now compared to three months ago. “We received interest rate as high as 10.6 percent — up from 7.5 percent three months ago,” he said.

Bankers said they were forced to increase the interest rate on deposits in the wake of slow deposit growth and the government’s failure to spend despite huge revenue collection.

“We have increased the interest rate on fixed deposit to 9 percent,” said Sashin Joshi, chief executive officer of NIC Bank. “As the government delayed releasing the budget for completed work, it resulted in liquidity tightness.”

NMB Bank has increased interest on fixed deposit to 8.5 percent from earlier 7 percent. NMB Bank CEO Upendra Poudel said the current tightness in liquidity is momentary and a majority of banks have increased the interest rate on deposits on short-term deposits.

Laxmi Bank is also planning to increase its interest rate for individual fixed depositors.  “We are increasing the interest rate for retail fixed depositors to 9 percent. We have offered as much as 9.5 percent to institutional depositors,” said Laxmi CEO Suman Joshi.

He said it is necessary to bring individual depositors to the banking system as they were diverted to the share market and other sectors after the interest rate decreased. “With individual depositors moving away from banks , institutional depositors have been assertive to claim higher interest rates,” he said.

Given the banks ’ boards seeking higher returns at the end of the fiscal, banks have increased lending aggressively while deposit growth has remained sluggish.

Source: ekantipur.com, 7th May 2013

You may also like:
Real Estate Expo in Kathmandu attracts huge crowd

Read More

Rastriya Banijya Bank to hire young employees

KATHMANDU: Rastriya Banijya Bank is looking forward to hiring more young employees in order to transform the bank into a more competitive and modern structure.

“At present, the average employee age of the bank is 49, and the bank is planning to bring new and young manpower that will bring down the average employee age to 37 within three years,” said CEO of Rastriya Banijya Bank (RBB) Krishna Prasad Sharma during a training programme for the bank staff.

“We have to emerge as a strong and modern bank in terms of technology, financial resources and manpower,” he said.

RBB had recently hired five financial analysts, 15 deputy financial analysts, agriculture officers and

legal officers through open competition.

“When other banks are suffering from high credit to deposit ratio, ours stands at around 50 per cent,” pointed out Sharma.

“We have enough disposable financial resources to expand credit, and due to low cost of fund we can offer credit at competitive rates as well,” said Sharma, informing that RBB will

focus on quality and productive projects to finance.

RBB — a wholly government owned bank — had undergone a decade-long financial restructuring programme for being on the verge of a meltdown. The bank’ non-performing assets, which was higher than 60 per cent a decade back, has finally come down to six per cent and its net worth has become positive.

The bank, which has 141 branches, has collected

deposits worth Rs 85 billion and floated loans worth

Rs 43 billion along with

investments of Rs 24 billion till first quarter end.

Source: The Himalayan Times, 3rd May 2013

You may also like:
Everest Bank Slashes interest rate on Home Loans

Read More

Everest Bank slashes interest rate on Home Loans

KATHMANDU, MAY 03 -
Everest Bank is providing home loans at a minimum interest rate of 10 percent to customers planning to buy homes at the NLHDA Kantipur Real Estate Expo which started in Kathmandu on Thursday. The Nepal Land and Housing Developers' Association (NLHDA) and Kantipur Publications are  the organisers of the event.

The bank's usual interest rate for home loans is 10.5 percent. The bank said it would provide loans at 10 percent interest for up to five years, 10.5 percent from five to 10 years and 11 percent from 10-15 years. Similarly, Standard Chartered Bank Nepal is providing home loans at 9.49 percent interest during the expo with a 0.5 percent concession on the service charge.

Banks and financial institutions (BFIs) which are still reluctant to lend to real estate developers are increasing their lending to end users. Laxmi Bank, NIC Bank and Himalayan Bank, among others, all have brought down the interest rate to 10-12 percent. Under home loans, they offer credit to purchase land, construct homes or buy apartments.

"As home loans are provided based on the income assessment of an individual, there is no risk at all as long as the assessment is good," said Diwakar Poudel, corporate affairs chief at Standard Chartered. "The home loan portfolio is exciting, attractive and inspiring. We see a good future in this sector," he added. Standard Chartered currently has a 25 percent exposure to home loans.
Likewise, Everest Bank's chief executive officer PK Mohapatra said his bank had given high priority to home loans. During last Dashain, the bank provided home loans at a fixed interest rate of 9.99 percent for three years.

However, BFIs have been reluctant to lend to developers despite continued lobbying by them citing risks highlighted by the crisis in the sector in the last four years. "We are much conservative in providing loans to the real estate sector," said Mohapatra whose bank's lending to the pure real estate sector amounts to Rs 2 billion.

However, developers say that despite reluctance on the part of banks to lend to developers, home loans have helped them too. "Those wishing to buy apartments are getting loans which has helped to clear stocks of unsold apartments," said Min Man Shrestha, general secretary of the Nepal Land and Housing Developers' Association. He added that banks would have to lend to developers after all the apartments and housing units currently under construction are sold.

With the central bank increasing the threshold of realty loans to Rs 10 million, a majority of apartment projects could be sold with bank financing, according to developers. Shrestha said a majority of apartments available have price tags of below Rs 10 million which can be sold.
According to the NLHDA, from April 2005 to March 2013, around 65 apartment projects having 6,330 apartment units were implemented. Of the total, 12 apartment projects have acquired completion certificates, making 870 units of apartments ready to move in for buyers, according to realty developers. There are around 1,200 stand-alone housing projects going on currently, according to realty developers. Since the central bank capped realty lending at 25 percent, BFIs have been reducing their exposure to the realty sector.

BFIs have lent Rs 88.19 billion to the realty sector as of mid-February, down from Rs 98.81 billion one and a half years ago, according to Nepal Rastra bank (NRB). This is close to 10 percent of the total loan portfolio of BFIs. As of mid-February this year, BFIs had lent a total of Rs 882.31 billion.
Commercial banks have the highest lending to the realty sector with Rs 65.63 billion, followed by development banks with Rs 12.29 billion and finance companies with Rs 10.27 billion. "Lending to the realty sector came down due to both recovery of loans and NRB's increasing the threshold of real estate loans," said NRB spokesperson Bhaskarmani Gnawali.

Many financial institutions that landed in trouble in recent years had a history of overexposure to the realty sector besides bad corporate governance. However, Gnawali said that the situation had improved much in recent days. "The current situation of the realty sector is satisfactory. Houses and apartments are being sold after developers reduced prices," he added.

 Meanwhile, Sashin Joshi, chief executive officer of NIC Bank, said that there was no panic situation in the sector like until last year. "Borrowers have been repaying their loans by selling their other properties," he said.

Developers said that there was growing demand for low-cost apartments, and that banks' increased interest in lending to end users was helping the sector to recover. They added that they had been selling apartments with fewer facilities but at affordable prices for this reason.

"We ran after various facilities in the past which increased the cost of the apartments," said Shrestha. "Now we have realised that we should focus on affordability."

The central bank, however, had long been asking developers to slash prices so that apartments could be sold. "Apartments in the price range of Rs 1.5 million to Rs 5 million are affordable for Nepalis," said Gnawali. "The housing expo's focus on affordability is praiseworthy."

Source: ekantipur.com, 3rd May 2013

You may also like:
Merger not really a solution for all financial problems

Read More

Merger not really a solution for all financial problems

KATHMANDU: Despite being touted as a miracle cure for all ailments troubling financial institutions, mergers have failed to improve the performance of almost a dozen financial institutions.

Among the 12 sets of mergers completed in the domestic financial sector within the last two years, only four have so far succeeded in registering profits. Likewise, share prices of half of the listed merged entities are also below face value at Nepal Stock Exchange.

“A merger does not translate to miraculous profits immediately. It takes time for the merged entity to become profitable as they have to deal with additional issues such as effectively managing human resources along with its operations,” said chief executive of Synergy Finance Rajendra Man Shakya.

Synergy Finance that was formed in November 2012 following a merger between Alpic Everest Finance, Butwal Finance and CMB Finance, has recorded a net loss of Rs 35.65 million in the second quarter of the current fiscal year.

“Problems such as low rate of loan recovery and absence of proper projects to finance remain the same even after a merger as it used to be with the concerned individual institutions before the merger,” said Shakya, who is also president of Nepal Finance Companies’ Association. “We have observed that merged companies need to be given time to recover and become profitable.”

However, Narayani National Finance, which was formed after a merger between Narayani Finance and National Finance in November, 2010, has fared well. It has earned Rs 25.74 million in the second quarter. Moreover, the company was able to earn 33 per cent more operational profit even before first year of merger was over.

But at the other end is H&B Development Bank that was formed following a merger between Himchuli Bikas Bank and Birgunj Finance in 2011. The class ‘B’ bank that was performing fairly is now in trouble due to the large scale fraud committed with the involvement of its employees.

Investors are also apprehensive about investing in shares of merged entities and their prices have taken a plunge of late. Among 10 listed merged financial institutions, share prices of only six firms are above Rs 100 — the face value.

“If the merged financial institutions are good then they will perform better and investors will also be willing to bid a higher price,” said acting president of Nepal Investors’ Forum Raj Kumar Timilsina.

Global IME Bank that was formed after merger between Global Bank, IME Financial Institution and Lord Buddha Finance, and Machhapuchchhre Bank following its merger with Standard Finance have been able to increase their profit and subsequently their share prices have also almost doubled in the past six months.

“In most cases, mergers have been taking place just to avoid the regulator’s action when the particular company’s financial health is deteriorating due to which the merger becomes forced and creates more problems,” pointed out Timilsina, adding that investors look forward to mergers between promising companies such as the ongoing merger process between NIC Bank and Bank of Asia Nepal.

According to central bank, 28 financial institutions have already got approval to merge into 13 institutions, and 24 financial institutions have received Letter of Intent (LoI) to merge into 10 institutions.

Source: The Himalayan Times,  2nd May 2013

You may also like:
Nepal Rastra Bank Governor discourages Bank Directors from dual role

Read More