Problem BFIs lack cash to repay depositors

Kathmandu February 1- Nepal Rastra Bank (NRB) said most crisis-ridden banks and financial institutions (BFIs) are low on cash, and they have been having a hard time returning the savings of their depositors.

According to Annual Report of Problem Bank Resolution Division 2014-15, the 13 crisis-ridden financial institutions have just 19 percent liquidity against their deposit liability. “So they have to depend on recovering bad loans to return the deposits,” said the report.

Gurkha Development Bank, Narayani Development Bank, Corporate Development Bank, Nepal Share Market and Finance, Capital Merchant Banking and Finance, Crystal Finance, Kuber Merchant Finance, Himalaya Finance, World Merchant Banking and Finance, General Finance, Nepal Finance, Arun Finance and Lalitpur Finance arethe financial institutions that have been declared crisis-ridden. Most of them are in their present mess due to bad governance by their promoters and directors. The central bank report said that these institutions had returned most individual deposits, but they have not returned institutional deposits. “A few of them have failed to return even individual deposits,” NRB said.

According to the report, the problem banks have returned deposits totaling Rs9.36 billion as of the end of the last fiscal year. Their deposits liability amounted to Rs15.9 billion at the time they were declared crisis-ridden, and it has now come down to Rs6.54 billion. They returned most of the deposits by recovering bad loans. “But as the ratio of bad debts currently stands at 88 percent, it is very challenging to repay the remaining depositors,” said the NRB report.

Recovering the remaining bad loans has become a tough task for the problem banks. Difficulties in selling off collateral, strong pressure from borrowers to waive interest, lack of capacity among staff to run financial institutions professionally and the extension of loans without following due legal procedures have made it difficult for them to recover the loans. The board of directors of most crisis-ridden financial institutions are passive, and they have a tendency of giving each other a hard time which has affected the recovery of bad loans, the central bank said.

Meanwhile, the central bank has registered an application with the Appellate Court to liquidate Himalaya Finance and Crystal Finance as these problem companies have not been able to improve their financial indicators. In the case of Himalaya Finance, its immediate past general manager Sisham Malla had hidden details about the company’s deposits and loans, and a due diligence audit (DDA) revealed that it hadn’t kept accounts of all the deposits besides showing a higher interest amount.

Malla falsified the records of deposits which resulted in a difference between the actual deposits and the figure shown in the balance sheet. As company officials embezzled money from it, its deposit liability is higher by Rs280 million than its assets. The institution is not in a position to operate since its assets cannot cover its liabilities, and this forced the central bank to liquidate it, NRB said.

With regard to Crystal Finance, it too lacks adequate assets to cover its financial liabilities. The institution has failed to recover loans totalling Rs410 million issued to its promoter Divya Kumar Shrestha. NRB said that Crystal had to be liquidated because it had become unviable as its shareholders had not been able to collect money and it had failed to bring a strategic partner. Source: TKP