– By Sanjaya Dhakal
A day after the central bank took over the management of the financially-troubled Nepal Bangladesh Bank (NBB), the nerves of panic-stricken depositors have started to soothe down.
After days of mad rush by depositors to withdraw their deposits from various branches of NBB across the country, on Monday there were reports that there were actually people who came back to deposit their money. This showed that people have full confidence that the central bank will be able to turn around the financial situation of NBB.
Depositors queuing up in front of Nepal Bangladesh (NB) Bank office in Bijuli Bazaar, Kathmandu, to withdraw their deposits following the intervention of the central bank, the Nepal Rastra Bank (NRB) save this commercial bank from bankruptcy on Sunday, Nov 12 06. Depositors queuing up in front of Nepal Bangladesh (NB) Bank office in Bijuli Bazaar, Kathmandu, to withdraw their deposits following the intervention of the central bank, the Nepal Rastra Bank (NRB) to save this commercial bank from bankruptcy on Sunday, Nov 12 06. nepalnews.com/rh
Depositors queuing up in front of Nepal Bangladesh (NB) Bank office in Bijuli Bazaar, …
But the challenges for Nepal Rastra Bank (NRB) have only just begun. And none else than its deputy governor accepts this fact. “We used to read in our text books forty years ago that a central bank is a lender of the last resort. And now, we are actually facing this situation,” said deputy governor Krishna Bahadur Manandhar, talking to Nepalnews.
Manandhar added that it was not only the test case for the central bank but also for the entire country.
The financial meltdown of NBB came to the forefront after media reported about its efforts to avert NRB action by knocking a court’s door. It did get a stay order from Patan Appellate Court effectively pre-empting the central bank’s planned move to seize its control.
However, that move (to get court order) by the NBB management boomeranged when herds of depositors lined up before the NBB branches across the country to withdraw their money. In a matter of few days, over Rs 2 billion were withdrawn causing the management to resign en masse, withdraw the court case and ask the NRB to officially take over their management.
On Sunday (November 12), the NRB officially took over the management of NBB. It appointed a four-member team led by its director Maha Prasad Adhikary to manage the troubled bank. Other members of the team include Bhishma Raj Dhungana, Keshab Bahadur KC and Sachin Jung Rayamajhi
“We want to assure depositors, shareholders and general public that we intend to protect their interests,” said Manandhar.
The decision by NRB to take over the management has been, by and large, welcomed by all. “We have taken this step as a positive one. By virtue of this step, the money of depositors will be guaranteed,” Radhesh Pant, president of Nepal Bankers’ Association, told Nepalnews.
Pant said that he is hopeful about NRB’s ability to steer the NBB out of its present crisis. “But we believe that the NRB should appoint a separate professional team and evolve a plan of action,” Pant added.
Adds industrialist Rajendra Khetan: “In fact, the NRB should have taken this step a bit earlier. This incident will help common people differentiate which banks are professionally-run and which are not. I think this will be a test case for the central bank as well as entire banking system of this country.”
Former governor of the central bank Dr. Tilak Rawal also believes that the NRB had to take this step. “I hope the NRB will be able to improve its financial situation like it did with Lumbini Bank a couple of years ago,” Dr. Rawal told Nepalnews.
There are around 17 commercial banks in the country including the Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB). The NBB is one of the largest private sector banks in the country. Its financial situation is said to have deteriorated due to irregularities and huge amount of bad loans. Reports say there were two major defaulters of the NBB – the NB group, which in fact is its largest shareholder also, and the Memento Apparels. The NB group (Nepal Credit and Commerce Bank and NBBL are members of the NB Group) had to pay back Rs 1.5 billion while the Memento Apparels – which is owned by Chandi Raj Dhakal, the president of Federation of Nepalese Chamber of Commerce and Industry (FNCCI) – had to pay back Rs 450 million to the NBB.
Asked if this incident could have any effect on the banking system of the country, Pant said, “This should teach lesson to other banks that mere increase in loan portfolio may not be a good idea. You have to properly measure the risks involved.”
Likewise, economist Dr. Bishwambher Pyakuryal, president of Nepal Economic Association (NEA), too, feels that this is not going to have a substantial impact on overall banking system and the economy. “However, this incident provides proof that our depositors have become quite sensitive and alert. If similar mass withdrawal were to take place in two or three banks at the same time, then the economy could face disaster. Even in this bank where there is involvement of properties worth Rs 12-13 billion, we could see elastic response to the threat from the depositors,” said Dr. Pyakuryal.
Dr. Pyakuryal added that the NBB episode should be a lesson to the banks as well as the NRB, whose job as watchdog is becoming more crucial.
The response by the depositors to the NBB’s troubles was, in fact, quite unexpected. A couple of years ago when an internationally reputed accounting organization KPMG published a report stating that NBL and RBB were on the verge of collapse, the people then did not respond in this manner. Perhaps, they had more trust in government-run banks.
As such, the NRB now will be watched by all the investors, depositors and general public. Its success or failure to manage NBB could have far-reaching implications for the country’s banking system.
“We are aware of this challenge. We are going to take immediate steps for reforms of NBB. We will soon start recovering the loans,” said Manandhar. Public hope he will able to walk the talk. nepalnews.com Nov 14 06