June 17: Due to the competition in market and central bank’s policy, a wave of mergers has started among commercial banks.

Less than a week after the merger agreement was signed between Nepal Investment Bank and Mega Bank, a preliminary agreement has been reached between Global IME Bank and Bank of Kathmandu. Nabil Bank has reached the final stage of acquiring Nepal Bangladesh Bank.

Although half a dozen commercial banks have formally entered into the merger process, all other commercial banks except government-owned Agriculture Development, Rastriya Banijya and Nepal Bank have intensified informal discussions with each other for merger.

In a meeting with the chairmen and directors of the banks three weeks ago, Nepal Rastra Bank’s Governor Maha Prasad Adhikari had hinted that the merger policy is about to change and that the discounts and other facilities being provided for at present will not be available from the next fiscal year. Less than two weeks after the governor gave such information, four banks have reached understanding for merger.

"Following the market conditions and the governor's directive, all banks are under pressure to merge," said Bhoj Bahadur Shah, chairman of Mega Bank and senior vice-chairman of the Confederation of Banks and Financial Institutions of Nepal.

Similarly, high-ranking officials including the Deputy Governor of NRB had informed in a meeting with the Chief Executive Officers (CEOs) of the commercial banks on Tuesday that only the banks that sign the agreement within this month will get facilities.  The government has also removed the provision of tax waiver for the merger of banks and financial institutions in next year's budget.  Banks are under pressure to merge after the central bank of Nepal said that the discounts and concessions will not be continued in the upcoming monetary policy.

Banks are under pressure as they have not been able to meet even the CD ratio set by the central bank due to lack of liquidity since the beginning of the current financial year. Banks are also under pressure to merge as returns from investment are declining due to intense competition.

In order to reduce the number of banks and financial institutions, NRB had issued regulations regarding merger of banks and financial institutions in 2068 BS.  Since then, 241 banks and financial institutions have joined the merger / acquisition process, 177 licenses have been revoked and the number of BFIs has dropped to 64.

After increasing the paid-up capital of banks and financial institutions by 4 times in 2072 BS, the number of development banks and finance companies decreased but the number of commercial banks did not decrease. Additionally, stakeholders had suggested in a recent study conducted by NRB that it would be appropriate to reduce the number of commercial banks to 15.

The government and NRB have been giving tax concessions to the merging banks, cooling off period, investment in the priority sector and so on.