NRB intervenes in forex market

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KATHMANDU, Jan 12 - Propelled by slumping demand for US dollars, Nepal Rastra Bank (NRB) intervened and procured US $ 18 million (equivalent to Rs 1.33 billion) from the forex market today.

This is the second time within a month that NRB intervened in the market. The central bank on December 21 had secured US $ 23.5 million (Rs 1.74 billion).

The purchases were made at the rate of Rs 74.30 per US dollar, informed Foreign Exchange Dealers’ Association (FEDAN). However, commercial banks sell dollars to public at Rs 74.65, which at the same time is obtained at Rs 73.95 from the central bank.

According to an official at Forex Department of NRB, the central bank was compelled to intervene due to the excess liquidity existing in the market. The intervention was made only after FEDAN requested the central bank, according to the official.

FEDAN last Tuesday had requested NRB to absorb US 20 million from the market. "Declining demand for the greenback is the sole reason why FEDAN requested NRB to buy dollars," said Pramod Rizal, president of FEDAN.

Rizal said that stability of the Indian currency, which has a fixed exchange rate with Nepali rupee, against the dollar and declining interest rate in the US are other reasons behind adequate dollar holdings of commercial banks.

NRB concedes to NBL demands

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KATHMANDU, Jan 12 - Nepal Rastra Bank (NRB) has bowed to the demands put forward by Nepal Bank Ltd., which refused to hand over its management to foreign consultants recently. NBL had agreed only to accept technical assistance from the consultants at the government’s expense and had pushed to keep all decision-making powers within the existing Board of Directors (BoD).

The bank, with 59 per cent private equity, expressed its refusal to hand over its management to foreign consultants before the Public Accounts Committee (PAC) a few days ago. It even commented that only 20 defaulters are behind the bank’s downfall, against which even NRB could not initiate any action.

Governor of Nepal Rastra Bank, Deependra Purush Dhakal, at PAC today said that the central bank is ready to abide by the demands put forward by NBL and even bear full expenses that may be incurred for foreign consultants. The government earlier had said that the expenses should be borne by the bank itself. Governor Dhakal however did not comment on how the bank’s expenses would be met.

PAC had summoned the governor, Finance Secretary Bimal Koirala and directors of NBL and Rastriya Banijya Bank (RBB), the state owned bank soon to be handed over into foreign hands, to give further clarification on the management hand-over.

Despite objections from NBL over the management handover, Subh Sharan Kayastha, Chairman of NBL, said that there is not much difference between management contract and technical support. He added, "Until and unless NRB dissolves the BoD of NBl, the bank cannot be handed over to foreign consultants."

On the same occasion, former Finance Minister, Bharat Mohan Adhikari of CPN(UML), said that action must be initiated against businessmen who are responsible for the bank’s present condition. Similarly, economist and Member of Parliament Dilli Raj Khanal said that it was wrong to talk of a management handover before trying to recover the extended loans.

Similarly, other Parliamentarians including Gokarna Bista, N P Saud and Leela Mani Pokherel opposed the handover before initiating action against the defaulters.

However, Chairman of the state-owned RBB, Punya Prasad Dahal, welcomed the reform process initiated for the two ailing banks. Board members of NBL however objected to the reform program. Lok Bhakta Rana, Chairman of NBL, said political appointments and interventions are one of the major reasons for the deterioration of NBL. Another board member Rajendra Khetan said that NBL is presently at loss of Rs 1.11 billion. If bad debt of Rs 5 billion is somehow recovered, the bank can resume smooth operation.

Finance Secretary Bimal Koirala and Governor Dhakal however defended NRB’s decision to grant management contract. They reiterated that handing over the banks into foreign hands would ensure free, safe and equitable disbursement of loans.

Koirala further said, "During the Asian financial crisis of 1997, bad loans stood at 30 per cent. Presently bad loans of the two banks stand at 40 per cent. Hence the need for reforms."

The management contract is being awarded under Nepal Financial Sector Reform Project supported by International Development Association, the World Bank. The government decided to hand over the management of these banks following an investigation by KPMG Barnet Group, which declared the two banks as "technically insolvent," - bankrupt, to put it simply.

The report had pinned the net negative worth of NBL in the range of 6-10 billion rupees, while the figure for RBB was estimated in between 9-15 billion rupees. The combined losses of the two banks represent 4.5 to 8.5 percent of GDP and 24 to 45 per cent of the 1999 budget - an amount large enough to trigger a financial meltdown elsewhere under a prudent banking system.

Despite deep-rooted systemic flaws, the two banks are in a good liquidity position and control over 50 per cent of the banking system deposit and have over 400 branches spread throughout the kingdom.

NBL has a total deposit of 35.50 billion rupees and loans and advances of 23.40 billion rupees as of June 2000. Similarly, RBB has a total deposit of 37.19 billion rupees and loan and advances of 29.71 billion rupees.

State Minister lauds Butwal Power Co

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KATHMANDU, Jan 12 - Ram Bhahadur Gurung, State Minister of Water Resources has said that the Butwal Power Company (BPC) has set an example on how a company with majority government share can establish itself as one of the most successful companies and contribute in the development endeavour of the country.

Addressing the inaugurating session of the thirty-fifth anniversary celebration of the BPC here today, State Minister Gurung appreciated the role of BPC towards its contribution on the development of hydropower in the country. The company has managed to maintain a healthy financial condition, unlike many public enterprises established during the same period who are struggling for their existence today, he said.

He said that the government had decided to privatize BPC after being convinced that it needed no more government support as it had acquired enough technical strength to cope with the emerging challenges.

Referring to the emerging competition in the hydropower sector after government liberalized hydropower sector for domestic as well as foreign investment, he expressed the hope that, BPC would be able to withstand growing challenges and adapt with the new strategy in the line with globalization.

Stressing upon the importance of such a pioneering company in country like Nepal, which has tremendous potential in the hydropower sector, he was optimistic that the company would continue to play remarkable role in developing hydroelectric power. He also urged the company to come forward in transferring hydropower technology to other domestic hydropower companies, which are in their earlier stages of development.

Speaking on the same occasion, Biswo Nath Sapkota, Secretary at the Water Resources Ministry said, "BPC is one of the few public enterprises, which has gained international prestige. The recent interest shown by the major international power producers to purchase its share is a big indicator."

Appreciating the role BPC has played in the rural electrification in the western part of the country, Sapkota said that the expertise company has gained in last thirty five years is one of the its major contribution towards country’s development. He further said that the government policy to privatize the company would help strengthen its capacity and hoped that the new management would prepare necessary policies and programs in the same direction.

Kiran Malla, General Manager of the company, in his welcome speech, highlighted various activities of the company and said that company is moving ahead with the vision of developing more hydropower projects and playing important role in expanding rural electrification. In this regard, he said that more than 15,000 households in the Syanja district have been connected through rural electrification and informed the gathering that 3,000 more households of the same district would have electricity in near future. Presenting a brief financial position of the company, he said has earned profits of Rs 128.6, Rs 181.6 and 134.5 millions during the fiscal year 1995/96, 1996/97 and 1998/99 respectively. He also expressed dissatisfaction over the recent huge hike in the tax and the general effect of price rise and expressed the hope that the problem would be addressed effectively and solved soon.