‘Expedite reforms in financial sector’

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KATHMANDU, Jan 23 Banking and financial experts at an interaction programme have stressed that the present pace of financial sector reform must be accelerated to avoid a possible financial crisis in Nepal.

The interaction programme held today precedes the Nepal Development Forum (NDF) meet scheduled for February 4-7 in Kathmandu and Pokhara.

Experts pointed out that soaring Non Performing Assets (NPA) of the commercial banks might cause a meltdown in the banking system. They also flayed the central bank for not being able to take appropriate actions on time.

Presenting a paper on financial sector reform, Dr Tilak Rawal, Governor of Nepal Rastra Bank (NRB), poor financial condition of the two largest banks is the major problem of the Nepali financial system.

"The major cause of concern is the poor financial position of Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB), which contribute around 60 per cent to the national banking system," he said. However, he clarified that the overall economic condition has not become ungovernable.

Highlighting the various activities of the central bank, he said that various steps have been adopted to empower monitoring and supervision capability of the banks so that it may help in maintaining financial discipline.

Thakur Pant, a leading banker, warned that the banking sector would have to face more challenges in future due to sliding economic condition of the country. "The directives of the central bank is being implemented at a time when the whole economy is dwindling. And that has made operation more difficult for the banks," he said.

Professor Bishomwar Pyakhurel said that the government should be honest in fulfilling the commitments that it made during the last meeting of the Nepal Development Forum (NDF) in Paris.

"The government had committed to carry out more than 93 programmes related with reforms in 8 sectors during the last NDF meet. However, the overall performance of the government is less than expected," he said. The government has initiated on a little over 60 per cent of the commitments made in the financial sector reform during the Paris meet.

Narendra Bhattarai, president of Nepal Bankers Association (NBA), said that the NPAs of the commercial banks could go up if the economy is not revived soon. "Though the present NPAs of the private banks are within the international marks, it would not take a long time to surpass that mark if the current economic slowdown persists," he added.

He also stressed on the need of a banking training institute to generate trained banking manpower and urged the central bank to play a lead-role in that direction.

Lawrence De Milner, Resident Representative of the International Monetary Fund (IMF), said that weak supervisory and legal framework of the central bank is the prime cause of the present problems in the banking system. He also said the dual policy adopted by the central bank, one for the state-owned banks and other for the private banks, needs immediate correction.

Economist Minendra Rijal expressed concern over the sliding banking investment in the agriculture sector that provides livelihood for the major chunk of the population. "Banking investment in agriculture used to be 13 per cent of the total investment in 1990, which in 2001 declined to a mere 8.9 per cent," he said.

He said that stimulating financial reforms is important to safeguard the whole economy. He also stressed on the need for adequate preparations before enforcing new regulations.

Rajendra Kumar Khetan, a leading industrialist, on the occasion expressed dissatisfaction that despite numerous assurances, the government did not consult with the private sector before announcing a number of decisions relating to the financial sector.

Government to increase airfare 
No change in remote fares

By Satyendra Timilsina

KATHMANDU, Jan 23 Ministry of Culture, Tourism and Civil Aviation is preparing to increase the domestic airfare ranging from 10 to 40 per cent. However, the fares to the remote areas would be kept unchanged.

The government is also preparing to issue strict directives to private sector airlines to run air services to remote area at minimum fares.

A high level source at the ministry today informed The Kathmandu Post that the ministerial level decision has already been taken following the recommendation of a joint meeting of the Airlines Operators Association of Nepal, Civil Aviation Authority of Nepal and the ministry.

The decision has been forwarded to the Cabinet for final approval, said the source. He also informed that the government is mulling to provide subsidy in the airfare to remote areas.

Currently, there is a mandatory provision for the domestic airlines to run 40 per cent of their flights to non-tourist areas. However, the provision has been grossly violated.

The private domestic airlines have been pressing the government for an increment in the domestic fare claiming that it has not been revised for the last eight years. They argued that a considerable surge in the operating costs, and dwindling tourists, made it difficult for them to survive.

"The cost of aviation fuel alone has gone up two folds as in the past eight years," says Kishor Silwal, Deputy Managing Director at Shangrila Air. The depreciation of the Nepali currency, increase in parking, landing and hanger charges, imposition of higher rates of customs duties along with the inclusion of value added tax have cumulatively raised the operating costs, he added.

Irregularities take place in health project

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KATHMANDU, Jan. 23 Auditor General Bishnu Bahadur KC today disclosed that there were signs of financial irregularities in various projects, including the Livestock Health Promotion Project (LHPP) that is run with grants received from the European Union.

The Public Accounts Committee (PAC) suspecting financial irregularities in the livestock project had summoned the finance minister, the finance secretary and the Auditor General on Wednesday for questioning.

KC at the meeting of the PAC expressed his concerns over the government’s indifference over the reports presented by the Office of the Auditor General. He lamented that the government has not heeded to his warnings to stop irregularities in projects.

"I have been suggesting the government for more than three years to take initiatives to stop irregularities in the projects," he said. "But nothing has been done as of yet."

Furthermore he questioned, "Why is the government accepting grants, which are encouraging financial irregularities?" Finance Minister Dr Ram Sharan Mahat on the occasion said that the government was trying its best to bring all foreign assistance into a regulatory framework.

Dr Mahat assured that provision for the regulatory framework will be there in the upcoming budget. He also hoped that the recently endorsed Foreign Aid Policy would be taken positively at the pre-NDF (Nepal Development Forum) consultation meet on Thursday.

He also said that the government is making efforts to pursue the donors to agree on harmonising the accounts maintenance system. "We are trying to convince the donors to bring the grants under our national account system," he said at the PAC meeting.

Finance Secretary Dr Bimal Koirala said that the stance of donors is sometimes connected to their domestic laws, causing problems in the auditing system and the project in question was a part of that. 

However, both the high level officials agreed that around two-thirds of the assistance in such projects are often spent on salary and allowance to the experts, which ultimately returns to the donor country.

Dr Mahat and Dr Koirala also underlined the need for a policy, which fixes the ceiling on the salary and allowances of experts hired from the donor countries.