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Kathmandu Monday June 18, 2001 Ashadh 04, 2058.
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RBB, NBL management handover may be delayed
By Bhaskar Sharma
KATHMANDU, June 17 – The World Bank has raised serious objections over
the preliminary selection procedures of the aspirant companies vying for the management
contracts of one of the two largest commercial banks in Nepal citing faulty technical
evaluation.
Four companies competing for the management of Nepal Bank Ltd. (NBL), cleared
by a committee formed by the Nepal Rastra Bank (NRB) to carry out technical assessment,
was termed unfit by the World Bank. All the four companies had actually failed to score
enough for qualifying through the initial Request for Proposal (RFP).
All four companies, including Development Partnership - UK, ICC Bank - UK,
Ernst and Young, and PriceWaterHouseCoopers, had scored below 70 per cent as required by
the RFP. The highest that any company could score was 67.
The World Bank has alleged that the companies were cleared during the
preliminary technical evaluation without a firm basis. According to sources, the World
Bank now is preparing to propose the NRB to re-evaluate the technical aspects of the
companies.
Sources at the World Bank, however, informed that there arises no doubt over
the capacity and ability of the vying companies to successfully run the ailing banks.
Despite their failure to obtain the minimum score, the initial proposals placed in by the
companies are better than what the NRB had initially expected.
Sources informed that such technical fault took place due to differences
between the two of the NRB’s committee members, also representing the Board of
Directors of NBL. One of the committee members had even tendered his resignation recently
following the differences.
The committee almost two months back had submitted a list of four potential
companies each for the management handover of NBL and Rastriya Banijya Bank (RBB). Though
no problem has risen in the case of RBB, where one company managed to obtain the minimum
said score, the overall handover is likely to be delayed by three months, which should
have been completed within this month. However, following the latest skirmish, the
handover is likely to be delayed by three months, according to Bank sources.
The dilly-dallying in the handover process is likely to affect loan flow from
the World Bank, including the Poverty Reduction Growth Facility (PRGF) under the
International Monetary Fund (IMF). While the World Bank has declared to freeze new loans
flow until the management of the two banks is handed over to consultants, the IMF has
adamantly said that it would not reach any agreement on PRGF until the contracts are
handed.
The management contract is being awarded under Nepal Financial Sector Reform
Project supported by International Development Association, the World Bank. About 50
consultant and management groups, some among the world class, had applied for the
management contract of NBL, the oldest bank of the kingdom and RBB, the only state-owned
bank.
The management contract of the bank will be initially for two years. The
management team will be responsible for; taking complete control of day to day running of
the banks, providing immediate help to stabilize the banks operations and restore their
financial health to an acceptable level, working in close cooperation with a locally
recruited accountancy team (recruited as part of these management contracts) to develop
and strengthen the accounting capacity of the banks, developing a comprehensive human
resource policy for the banks and designing and implementing an information technology
plan for the banks.
Nepal Rastra Bank had published a notice in The Economist on 30 September for
management contract of these banks. The government decided to hand-over the management of
these banks following an investigation by KPMG Barnet Group, an international audit firm,
which declared two banks as "technically insolvent," - bankrupt, to use a more
common terminology.
The investigation report submitted to the government during the third week of
May last year had said, "The banks’ lending process, loan files and the loan
portfolio itself are deeply flawed and the banks are technically insolvent."
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 combine losses of the two banks represent 4.5 to 8.5 percent of
GDP and 24 to 45 percent of budget in 1999 - an amount enough to trigger a financial
melt-down elsewhere under a prudent banking system.
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