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Kathmandu Thursday January 18, 2001 Magh 05, 2057.
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‘Reform
needed to prevent financial crisis’
Post Report
KATHMANDU, Jan, 17 - Deependra Purush Dhakal,
Governor of Nepal Rastra Bank (NRB), has said that the decision of the government to
handover the management of Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB) is
purely an attempt to revive their ailing financial position.
Addressing an interaction program on Financial
Sector Reform, organized by Society of Economic Journalists - Nepal here today, he said
that financial sector reform is the need of the hour to safeguard the domestic economy
from the crises similar to that seen in East Asian economy in 1997. The two banks, which
captures more that 60 percent of the total domestic transaction, are in deep financial
problem. "The main reason why we started with the management handover is to prevent
an uncontrollable financial crises in future," he said.
He said that banking reform scheme is only a
part of total financial sector reform announced in the fiscal budget for 2000/01 with an
aim to address worsening financial situation of the country. "This is the right time
to initiate such reforms since all macro economic variables are showing healthy
signs," he said.
He further reiterated that the government would
not take any decision against the interest of employees and depositors, well as creditors,
and assured that no employees would be removed and no existing branches of the banks would
be closed or withdrawn.
Speaking on the occasion, Dr Bimal Koirala,
Secretary at the Ministry of Finance, said that serious institutional and policy failures
necessitated speeding up the financial sector reform. Apart from the handover of the two
largest commercial banks, establishment of Credit Rating Agency and Assets Restructuring
Company are other two major steps to be materialized soon. He said that NRB Act would also
be amended to enhance monitoring capability of the central bank to cope with mounting
problems in the liberalized banking system.
Justifying the reforms initiated by the central
bank, he said that the present reform is undertaken to overcome three main problems:
saving interests of small depositors, squeezing cost of capital to control lending rate;
and maintaining the pace of economic growth.
Jagdish Agrawal, Chairman of Revenue Committee
of FNCCI, said that private sector broadly welcome the proposed management handover of
banks to private parties and blamed weak financial discipline of the banks as the root
cause for such poor performance. He also expressed deep concern over the existing
collateral oriented lending system of the banks and urged upon the need to promote both
individual and project oriented financing in a balanced way to insulate themselves from
such chronic financial problems in days to come.
He also opined that the two years period is too
small to produce well trained Nepali manpower and to develop the desired professionalism
in the unhealthy banking system.
Basu Dev Giri, President of Federation of Small
and Cottage Entrepreneurs, said that as long as exiting investment policy of the
government is not revised, the economy would not be able to achieve the desired goals. He
also expressed the view that Nepali professionals are also equally capable of handing
financial institutions. "Bank of Kathmandu was facing loss under the Thai management.
But the bank started earning profits soon after it was taken over by Nepali
professionals," he reminded.
The management contract of the two banks is
being carried out under the Nepal Financial Sector Reform Project, financed by World
Bank’s International Development Association, which was initiated soon after KPMG
Barnet Group, an international auditing firm, declared the two banks as "technically
insolvent."
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