Print Edition - 2014-12-20 | MONEY
NRB declares Corporate Dev Bank crisis-ridden
Dec 19, 2014-
Nepal Rastra Bank (NRB) has declared Birgunj-based Corporate Development Bank as being crisis-ridden as of Friday after its financial health worsened. The central bank said in a press release that although it had implemented prompt corrective action (PCA) at the development bank since August 18, 2013, it showed no improvement.
Even when the bad debts recovered until mid-October was adjusted with the financial status of mid-August, the bank’s capital adequacy ratio (CAR) remained negative by 2.7 percent, said the central bank.
Analyzing the current situation of Corporate Development Bank, it has not operated in line with a normal banking situation, and without an improvement in its financial health, it is not in a position to operate normally, NRB said. So the bank had to be declared crisis-ridden to protect the interest of ordinary depositors and investors, added NRB.
NRB spokesperson Manamohan Kumar Shrestha said that Corporate Development Bank got into trouble due to the failure of its management to ensure that the projects to which it extended credit were viable.
Loans were also issued against undervalued collateral, he added. Shrestha said that NRB was investigating if money had been indirectly lent to the relatives of the bank’s executives.
The management of Corporate Development Bank is now required to improve its financial health within the next six months. The central bank has ordered it to maintain its CAR at the required 11 percent positive, not renew existing deposits, not accept additional deposits and not extend additional credit, not distribute dividends and obtain the central bank’s approval before repay deposits over Rs 200,000 per day.
The bank has also been told to bring down its non-performing loans to 5 percent and not increase facilities for its board members and employees.
According to NRB, since it initiated prompt corrective action in August last year, Corporate Development Bank’s financial health deteriorated in mid-January 2014 with CAR being negative by 2.86 percent.
NRB then gave it 35 days to explain why it should not be declared crisis-ridden. The bank produced financial results showing that its CAR had turned positive by 3.06 percent in mid-July and 4.75 percent in mid-August.
However, these rosy claims where found to be false after further investigation by the central bank. NRB’s probe revealed that Corporate Development Bank had not made provisioning for loans worth Rs 22.76 million, and that it had also not made provisioning for some non-banking assets (fixed assets seized from delinquent borrowers).
Published: 20-12-2014 09:36