January 10: The number of commercial banks in Nepal was 32 by mid-June 2012. According to Nepal Rastra Bank (NRB), that number dropped to 22 in the last ten years, ceasing the existence of 10 commercial banks. Two more banks are merging with each other in the February. According to the 'big merger' policy taken by NRB, some other banks are also taking initiatives to merge with each other.

In the beginning of the current fiscal year (FY), only eight banks went through the merger/acquisition process resulting in the establishment of four new entities. Kumari Bank and Nepal Credit & Commerce (NCC) Bank have merged with each other and are doing integrated business under the name of 'Kumari Bank Limited' since January 1. After the merger of Global IME Bank and Bank of Kathmandu, the integrated business is starting from January 9 under the name of Global IME Bank Limited.

Likewise, Prabhu Bank Limited acquired Century Commercial Bank and started integrated business under the name of 'Prabhu Bank Limited' from January 10. Mega Bank and Nepal Investment Bank have merged and will be doing integrated business under the name of 'Nepal Investment Mega Bank Limited' from January 11. Even though Himalayan Bank agreed to acquire Civil Bank Limited, the integrated business has not yet started. Both the banks have called the annual general meeting on January 12. They are ready to do integrated business within February.

Nabil Bank Limited has already started integrated business by acquiring Nepal Bangladesh Bank. Similarly, Global IME Bank merged with Commerce and Test Bank in March 2013 and Janata Bank in December 2019. In June 2013, NIC Bank and Bank of Asia merged to become NIC Asia Bank. Prabhu Bank merged with Kist Bank in August 2014 and Grand Bank in February 2015.

In April 2012, the number of banks and financial institutions in Nepal was as high as 220. At that time, 32 commercial banks, 88 development banks, 77 finance companies and 23 microfinance companies were operating. In recent years, NRB has adopted a policy of reducing the number of banks and financial institutions. The study report titled 'Optimum Number of Banks and Financial Intuition in Nepal' published by NRB in April 2022 showed that 11 to 15 commercial banks are suitable for Nepal.

There are three main objectives behind NRB’s policy of merging banks and financial institutions, said the spokesperson of NRB, Dr Gunakar Bhatta. First, by increasing the capital, the organization will be strengthened, secondly, the operating expenses will be reduced and thirdly, unhealthy competition will be reduced.

“By increasing the bank's paid-up capital and making it a strong institution, they can invest in big projects, instead of having separate board of directors or management in many banks. When there is a single bank, the number of such banks will decrease and the operating expenses will be reduced, the unhealthy competition will be reduced and the quality of the financial situation will improve,” said Bhatta.

NRB has been saying that the capital of banks and financial institutions should be increased to strengthen financial stability. Looking at the situation after the Asian economic crisis of 1997-98 and the global economic recession of 2007-2008, the debate about having a ‘few but strong' banks was started. According to NRB, the number of banks and financial institutions should be reduced by looking at various conditions including the use of technology.

Similarly, through the process of merger or acquisition, the capital base of banks and financial institutions will be expanded and the ability to bear risk will increase. The policy of NRB is to create a small number of strong and capable banks instead of a large number of institutions with a small capital base.

Former President of Nepal Bankers Association, Bhuwan Dahal says that NRB should focus on the regulatory role rather than providing incentives for mergers and acquisitions of banks and financial institutions. He said that in order to reduce the number of commercial banks in Nepal, their managerial aspects and institutional governance should be focused.