Merger, acquisition wipes out 52 BFIs from banking industry

Kathmandu January 20- Due to the merger and acquisition (M&A) activities, a total of 52 bank and financial institutions has disappeared from the banking industry in the last four years.

According to Nepal Rastra Bank (NRB), 83 BFIs have merged to become 31 BFIs in the last four years after the central bank encouraged merger and acquisition by introducing Bank  and Financial  Institutions  Merger  By-law,  2011.

“The number of BFIs opting for merger has been increasing after the introduction of merger policy aimed at strengthening financial stability,” reads a periodic report of NRB entitled 'Current Macroeconomic and Financial Situation of Nepal (Based on Five Months' Data of 2015/16'.

Two finance companies have been acquired by a commercial bank, while a development bank acquired another development bank during the review period.

NRB's decision to raise paid-up capital of BFIs by around four times has given further momentum to the M&A spree in the banking industry.

“BFIs that find it difficult to meet the new paid-up capital requirement have an option to raise paid-up capital through M&A. As this option is viable, it is likely to decrease the number of BFIs further in the years to come,” Trilochan Pangeni, spokesperson of NRB, said.

The central bank had also conducted a study to find out the status and effectiveness of the merged institution last year. Rising in economies of scale, growing public confidence, upgradation in technology and, expansion of new services are the positive results of the merger, according to the findings of the study. The study also found that the non-performing loans of the institutions pursuing merger went up in the first two years but fell in the third year of merger. Net profit ratio, return on equity, and credit deposit ratio have been found increased in the third year of merger, according to the report.

According to NRB statistics, the number of BFIs came down to 190 in mid-December last year compared to 197 in mid-December 2013. However, BFIs added 197 branch offices during the review period. The number of branch offices of BFIs reached 3,984 in mid-December 2015 compared to 3,694 a year ago.

“Expansion in branch network of BFIs has widened people's access to finance,” the report added.

Similarly, BFIs added 863,208 deposit accounts while 77,313 new loan accounts were created in the review period. The number of deposit accounts and loan account as of mid-December last year stands at 15.28 million and 1.03 million, respectively.

BFIs have floated a total of 4.29 million of debit cards and 45,554 credit cards as of mid-December 2015. Source: Republica