New directive will erode financial institutions’ profit’

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KATHMANDU, Aug 13 Financial institutions have lambasted the new directive issued by Nepal Rastra Bank (NRB) which has asked them to provision for losses on non-banking assets. They claimed that the new provision would have adverse impacts on their transactions.

The directive that came into effect last week has asked the financial institutions to provision 100 percent on collateral that the banks accept themselves after they fail to auction. As per the directive, the banks cannot place such assets in their income account until such collateral is converted into cash.

Prior to the directive, banks used to provision for losses on non-banking assets only if amount recovered form auctioning of collator is not enough to cover the principal and interest. Nepal Bank Limited and Rastriya Banijya Bank, two largest government-involved banks, will be badly affected by the new arrangement followed by joint-venture banks and finance companies.

Concerned bank officials said that the latest directive would hit the profit of the banks. "Its impact on the secondary market too would be negative since the new arrangement would erode the profit making potentiality of banks," said Sudhir Khatri, CEO of Development Credit Bank.

Irked by the new provision, a delegation of Nepal Finance Companies’ Association met with the high-ranking officials of NRB and lodged their serious objection.

"Senior central bank officials seem positive towards the problems raised by the association and have assured us of taking necessary measures to mitigate possible impacts," said one of the members of the delegation.

Similarly, Nepal Bankers’ Association is also planning to hold a meeting on Thursday to discuss on possible impacts of the new arrangement on banking sector.

Some of the leading bankers were of the opinion that the previous arrangement was far better than the new system and claimed that the new directive can be misused.

"Bank management guided by bad intention can misuse the non-banking assets after earmarking cent percent provisioning. No bank wants to hold the non-banking assets for a long time since it directly affects the capital adequacy, Khatri said.

Banking officials are also of the view that the new arrangement is clear about the way to write-off the loan after making a cent percent provisioning. They also said that the new directive is not in line with the underlying objectives of the establishment of Asset Management Company, which is expected to come into operation soon.

ADB to lend $321m to Nepal

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KATHMANDU, Aug 13 The Asian Development Bank (ADB) has planned to extend US$ 321 million loans to Nepal over the next three years. A news release of the ADB states that most of the loans would be directed at poverty reduction programmes.

Such plan is mentioned in the Country Strategy and Program (CSP) update for 2004-2006 endorsed by ADB’s Board of Directors recently. The planned program consists of 14 loans, 93 percent of which are for poverty reduction projects.

The lending program will be supported by technical assistance grants totaling $12 million for 29 projects over the three-year period. They will focus on institutional strengthening and capacity building needed to develop more effective sector institutions and project preparation.

"The annual lending over the period, to average $107 million per annum, will focus on sustainable poverty reduction, broad-based economic growth, social development, and good governance," says the ADB release quoting the CSP Update.

"Priority will be given to assisting the government’s reconciliation and reconstruction efforts, through developing rural areas, improving basic social services and infrastructure, enabling private sector development, among others," the ADB release says quoting Richard Vokes, Director of ADB’s Operations Coordination Division for South Asia as saying.

Lending, which supports the sustainable social and economic development of the poor countries in the Asian and Pacific region, would however depend on the country’s performance and ADF availability.

As of end-2002, the ADB had approved a total of 99 loans for Nepal amounting to $2.0 billion.

CSPs define the ADB’s medium-term development strategy as agreed with the country, determining the ADB’s country-specific poverty reduction, thematic, and sector priorities. A CSP update is prepared every year taking into account the continued relevance of the CSP, its implementation, and the ADB’s operational program for the next three years.

Laxmi Bank’s shares oversubscribed

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KATHMANDU, Aug 13 The ordinary shares floated by Laxmi Bank Limited (LBL) on August 4 for the general public has been oversubscribed by almost two times.

The bank has said that the demand for its share with 100-rupee face value units was 3.8 million as against the call for 1.925 million.

According to Citizen Investment Trust (CIT), issue manager, more than 18,000 people applied for the purchase of LBL shares till today.

The total value of shares demanded by the public is Rs 380 million.

However, as the paid up value of each share units of the Bank was Rs 50, the total collection valued at Rs 19 million only.

The bank officials said that the share trading in the primary market would continue till Thursday evening.

"The demand for shares is higher than the value of issuance, and thus we are closing the share trading from Thursday evening," said Suman Joshi, Chief Executive Officer of LBL.

Despite that one full day is still there for share trading, it is likely that the share would be allotted to all applicants.

However, each applicants would receive less than what they have demanded for.

Furthermore, it is likely that the share allotment would be done within 60 days of the last trading day.

The bank that is in operation since March 2002 has authorised capital of Rs 1 billion. The issued capita and the paid up capital of the bank are Rs 550 million and Rs 302.5 million respectively.

While the promoters have 55 per cent share, the public will hold, 35 percent share. The CIT would invest in the remaining 10 percent shares.

According to the prospectus of the bank, it has signed a Technical Service Agreement with Hatton National Bank, Sri Lanka for five-year term.

As per the agreement, the LBL would use the correspondence networking and training facilities of the Sri Lankan bank.

ADB to strengthen private sector’s access to global market

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KATHMANDU, Aug 13 The Asian Development Bank (ADB) is preparing a program to give Nepal’s private sector better access to world markets and improve productivity through a technical
assistance grant of US$ 400,000.

According to a news release of the ADB, the Government of Japan provides the grant through the Japan Special Fund.

The technical assistance (TA) and planned loan will build on the experience of previous ADB assistance to Nepal’s private sector, including an Industrial Sector Program in 1993 and a Corporate and Financial Governance Project in 2000.

"The TA will identify the policy, legal, and institutional constraints that prevent the private sector from responding effectively to market opportunities, and analyze recent developments in the competitiveness of Nepal’s industry and services sectors," the release reads.

"Nepal could potentially reap large economic and social benefits from increased private sector competitiveness," reads the new release quoting Hans-Peter Brunner, an ADB Senior Financial Economist as saying.

"But the channeling of resources toward most productive uses has been slow to take hold and is unlikely to do so
unless the hurdles to market access and productivity growth are addressed," the release adds.

NTC says it can meet 80pc demand of Kathmandu

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KATHMANDU, Aug 13 Nepal Telecommunications Corporation (NTC), the state-controlled sole telecom operator, has claimed that it is in a position of providing fixed telephone connection on demand in over 80 percent areas of the Kathmandu valley.

According to the Regional Directorate of NTC, Kathmandu, except for Chabahil, Patan and Chhauni exchanges, basic telephones have almost been distributed as per the demand.

Although the people in the waiting list of the NTC for years are not ready to buy the statement, Shakti Man Singh, Director at Sundhara Regional Directorate, Kathmandu said that demand for basic phone has gone down following the capacity enhancement of the existing exchanges.

Singh said that there is no demand for basic telephone in Ghattekulo and Babar Mahal areas and phones can be distributed on demand in Kamaladi, Naxal, Durbarmarg and Maharajgunj.

"Some exchanges of Kathmandu invite 600 to 700 applicants for phone distribution and only 40 to 50 aspirant subscribers approach the corporation", he said buttressing his argument.

He also said that the corporation has invited aspirant subscribers who applied even this year for some of the exchanges of the valley. Majority of the people in waiting list does not contact the NTC and the number of applicants has also gone down recently.

According to Singh, there is highest demand for basic telephone in Koteshoer, Meen Bhavan, New Baneshwor, Old Baneshwor, Gaushala, Chabahil and Kapan areas and of the total capacity of 33,894 lines, 31,884 phone connections have already been distributed from the Chabahil exchange.

There are 28,800 applicants in the waiting list of this exchange and the delay in completing the construction of exchanges in Koteshwor, Meen Bhavan and Kapan has created difficulty in distributing phones in the respective areas, he further said.

Similarly, the demand for fixed telephone in Patan and Chhauni are also high. Delay in constructing exchanges in Gwarko and Bhainsepati has affected the distribution process. Of the total capacity of 34,000 lines in Patan almost 32,000 connections have been distributed and there are over 18,000 applicants in waiting list.

We have not been able to meet the demand of the Chhauni exchange due to growing settlement in Sitapaila area. Of the total capacity of 18,000 lines, over 17,500 connections have been distributed and 16,000 plus are waiting, he added.

Singh said that the corporation has distributed telephone by more than 615 percent of its target in Kathmandu through Kirtipur exchange. The accelerated distribution has helped in reducing the demand for basic telephony in the valley.

Though the target was set as per the capacity, we could not distribute telephone as targeted due to low demand, he said. He also said that the directorate is actively involved in expanding the capacity of the exchanges to meet the demand.

He directorate began installing 21 new exchanges two years ago. It has completed construction of one exchange each in Babar Mahal and Ghattekulo. Some others will be completed within a week, Singh added.

Of the total phone connections distributed so far, 63 percent is old applicants, 12 percent prioritised, 24 percent emergency and one percent to others, he said.

Take India as an opportunity, not threat: Saran

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KATHMANDU, Aug 13 Indian Ambassador to Nepal, Shyam Saran today said that Nepal should see India as a big opportunity and not threat, as the latter has developed itself as a rapidly growing economy.

"Nepal has immense potential to explore the huge and dynamic Indian market.

It just needs to overcome some of political as well as psychological barriers," said Ambassador Saran at a programme held by the Indian Embassy in the capital today.

Ambassador Saran said that Nepal could lose the advantages that India offers if it does not recognize the right opportunity at right time.

"We do have problems in between. But that alone does not mean, we always should confront each other in every issues," he added.

Saran also highlighted the Indian contribution to Nepal’s development and stated that India is willing to help further if Nepal requests.

"We have a major project in the offing," informed Saran indicating the East-West optical fiber network.

"Nepal’s telecommunication sector could be greatly benefited from this project," he added.

The programme attended by various business personalities focussed on the five decades long economic co-operations between Nepal and India.

The programme also highlighted the educational opportunities that India has been offering to Nepali students and informed that India is planning to expand the educational scholarship offer.

Agriculture products exports come to a halt

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DAMAK, Aug 13 The export of agro-products through Mechi Customs Office (MCO) has come to a standstill for one and a half months
after India introduced quarantine check of Nepali agro-products.

There is no laboratory near the MCO so the goods should be sent to Calcutta for the check and it takes very long time to get the test report from there, said Keshab Raj Pandey, acting president of Mechi Chambers of Commerce and Industry (MCCI).

He said that the agro-products decay by the time the reports come and the transportation cost also surges, which weakens competitiveness of the products.

Therefore, they are not exported now, he added. Following the introduction of the test, export of vegetables, ginger, and beatle nut has been completely stopped while tea is being exported in small quantities.

Besides other vegetables, 15 trucks of cabbage used to be exported through the customs monthly.