April 28: Experts and stakeholders have backed the concept of Nepal Rastra Bank (NRB) to reduce the number of banks and financial institutions, suggesting that the existing number of commercial banks have to be reduced by half.

In the survey conducted by the central bank, the participants remarked that the number of banks in Nepal is high based on the size of economy, per capita income and the population and suggested that the number should be reduced.

The NRB conducted the study for the first time after a decade of introduction its merger and acquisition policy. Suggestions for the study were collected through questionnaires from 140 people associated with banks and financial institutions including the chief executive officers (CEO), assistant chief executive officers, acting chief executive officers, chairmen, directors, senior staff and 90 experts and 230 people.

Fifty percent of the respondents suggested that the number of commercial banks should be between 11 to 15. Similarly, 20 percent suggested 5 to 10 banks, 15 percent suggested 16 to 20 banks and the remaining 15 percent suggested 20 to 25 banks were appropriate. Currently, 27 commercial banks are in operation in Nepal

NRB spokesperson Gunakar Bhatta said that the study has shown the market's view on the number of banks.  “It does not mean that the number of banks must be limited to 15,” he said.

Although the number of development banks and finance companies have declined significantly after the NRB introduced merger and acquisition policy, the number of commercial banks declined minimally. According to the NRB, so far 239 banks and financial institutions participated in the merger and acquisition process and then got limited to 62. A total of 177 licenses were revoked. However, out of 32 commercial banks licensed by NRB, only five merged. Recently, an agreement was reached for the merger of Himalayan and Nepal Investment Bank. The merger process of Nabil and Nepal Bangladesh Bank is also underway.

Eighty-four percent of participants from banks and financial institutions and 78 percent from experts suggested reducing the number only by giving discounts and facilities for mergers. According to the report, 57 percent of the participants suggested that the number of banks could be reduced through incentives, 20 percent through forced merger and 17 percent through voluntary capital increase. Similarly, 61 percent of the participants said that the merger would be effective if the policy of merging the weak with the strong organization was adopted.

Through the merger policy, NRB has been providing policy concessions to the merging banks and financial institutions including cooling off period, priority sector loans, and CCD. Similarly, the government has also been giving income tax exemption.

Most of the respondents said that the merger policy taken by NRB has had a positive impact on banks and financial institutions. Seventy nine percent respondents said the merger increased the bank's risk-bearing capacity, 67 percent said it increased their investment capacity and 52 percent said it increased their operating capacity.

Majority of the participants in the study suggested removing the existing classification of banks and financial institutions and moving to universal banking. Of those surveyed, 34 percent suggested moving to universal banking, 31 percent maintaining the current system and 27 percent moving to a specialized banking system.