NRB looks options for NBL and RBB

KATHMANDU, Aug 11: Nepal Rastra Bank has floated a number of options, with ultimate goal of privatization, to deal with chronic financial problems of two state-owned banks -- Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB).
The three options, which were presented at a meeting of high-level committee for financial and economic reforms chaired by Finance Minister Surendra Pandey on Tuesday, has proposed to divest the equities of NBL and RBB, owned by the government, to private parties through a competitive bidding process, albeit gradually.
"This will slowly lay ground to lower the ownership of the government on the banks, thus ultimately helping to completely divest state ownership in the long-run," said an official, who was present in the meeting.
However, shareholders will have to inject additional investments to eliminate existing negative net worth of both the banks. Though no detail discussions on the proposal was made, the proposal aims to eliminate existing negative net worth of the banks so that they can be sold in a competitive bidding, said the official.
Currently, NBL has a negative net worth of Rs 5.18 billion, whereas such negative net worth of RBB is Rs 14.6 billion, according to central bank statistics. If the plan is implemented, the government will have to invest around Rs 17 billion -- Rs 14.6 billion for RBB, since it is completely owned by the state and Rs 2 billion in the NBL where it owns 40 percent stake.
The government has to urgently find solutions for both banks since both of them have the negative primary capitals and financial and technical cooperation that they are receiving under Financial Sector Technical Assistance Project (FSTAP) which will end on December 2011, stated a paper presented at the meeting.
The $10.12 million FASTAP was initiated in August 2008 and was jointly financed by loan assistance worth $ 3.8 million from International Development Assistance of the World Bank and $6.34 million from Britain´s DFID.
The official also said the ministry had shown interest toward the proposal of gradual divesting state´s share in NBL and RBB by inviting a strategic investor. However, the problem with NBL is that potential strategic investor will like to have majority share, whereas the government has only 40 percent stake in the bank to sell, said the official.
Allowing the RBB to liquidate its equities at a number of profit making banks, like Nepal Investment Bank, will be a viable option to increase its capital base, the official said, adding, that the upcoming meeting will take a concrete decision on whole range of matters. - REPUBLICA