Bankers on Sunday expressed their willingness to follow the government’s plan for mega merger provided the government introduces proper incentives via the budget to financial institutions that are thinking about a merger.

Recently, the government has considered facilitating mega merger among commercial banks to reduce the number of ‘A’ class financial institutions. So far, commercial banks doing good business have shown little to no interest in merging.

Targeting to enhance financial inclusion through liberal licensing policy adopted by Nepal Rastra Bank, there was a tremendous surge in the number of banks and financial institutions (BFIs) from 2004 to 2009.

Eventually, the central bank stopped issuing licence to new banks in 2010 as many banks suffered from financial crisis due to the unhealthy growth in the number of BFIs.

In the following year, the central bank enforced the merger bylaws for banks and financial institutions.

Likewise, the central bank even attempted to raise the capital requirement of the banks and financial institutions to reduce the number further. Although the policy had a notable impact on development banks and finance companies, commercial banks remain relatively unaffected.

Speaking at a programme on Sunday, the bankers, however, underlined the positive effects of a merger such as the reduction in overhead cost, consolidation of business, capacity to offer more loan and reduction in non-performing assets following the merger.

 Presenting a paper, Sanima Bank’s Chief Executive Officer Bhuwan Dahal said with the central bank’s policy, the number of commercial banks came down to 28 from 32 during 2012 and 2018. Likewise, the number of development banks was also reduced to 33 from 88 while finance companies have come down to 25 from 69 over the period.

Dahal said the strength of overall banking business has also improved due to the reductions. “Despite failing to achieve a reduction in the number of commercial banks, there was a notable improvement in the indicators such as the volume of deposit, loan amount, liquidity ratio along with the number of branches,” said Dahal.

According to him, the shares of deposit of commercial banks increased to 87 percent from 81 percent while the number of outlets increased to 3,305 from 1,425 and capital adequacy ratio also improved to 14.6 percent from 14.2 percent between 2012 and 2018.

Bankers pointed out a number of problems for low synergy effect of the merging of the banks and financial institutions.

“Dispute in swap ratio, human resource adjustment, issues of payment differences and cultural adjustment are among the major problems that cropped up during the transition period,” said Dahal.

According to the bankers, issue of public and promoter shares, lack of clarity while signing the memorandum of understanding, a large number of turnover of the staffs after signing the MoU and a large number of duplication of the clients in the microfinance companies are also the underlying problems during the merging process.

Ichchha Raj Tamang, chairman of Civil Bank, said the government should come up with a clear policy regarding the mega merger process.

Anal Kumar Bhattarai, coordinator of Banking Committee of the Confederation of Nepalese Industries, said the central bank should not only focus on raising the capital requirement for effective implementation of the merger policy. According to him, of the total business held by the commercial banks, 70 percent is concentrated in 15 banks while the remaining 13 banks handle the small volume of business. “The merger policy should focus on how to uplift these banks having a low volume of business,” Bhattarai said.

Narayan Paudel, executive director of Nepal Rastra Bank, said the central bank has adopted a policy of facilitating the banks for voluntary merger instead of making them merge forcibly. According to him, a large number of microfinance companies have applied to the central bank seeking their merger.

 Finance Minister Yubaraj Khatiwada said the government has considered the concern over capitalisation of the banks. “Rather than just increasing their capital base, the government has targeted to achieve financial sector stability through merger,” Khatiwada said.