Merger Policy and Its Impact on Nepalese Banks

Announcing: Ojha, Sushil and John Walsh, “Merger Policy and Its Impact on Nepalese Banks,” International Review of Management and Development Studies, Vol.1, No.2 (2017), available at: http://crcltd.org/images/Merger_Policy_and_Its_Impact_on_Nepalese_Banks.PDF.

Abstract:

The development of Nepalese financial system has three distinct phases which are determined by different milestones. The first phase corresponds with the initiation of formal domestic banking system with limited liabilities (Tejarath Adda, 1880) to the establishment of first bank of Nepal, Nepal Bank Limited, 1937. The second phase commences with the establishment of NRB in 1956 under the NRB Act 1955 which made easier for establishment of banks and financial institutions with the liberal economic policy and the third includes the modernization of Nepalese banks. Central bank of Nepal is known as Nepal Rastra Bank. Nepal Rasta Bank (NRB) has directed the Banking Institutions to follow the mergers and acquisitions policy as per the conditions included in Bank and Financial Institutions Act (BAFIA) section 10 subsection 68 and 69, so that the banking norms will help in maintenance of good corporate governance, free competition among the financial institutions and hedging the corporate risk. The Nepalese Banking Sector is facing a problem of liquidity, additional capital requirement as per NRB regulations and open financial market for the competition. So, in order to cope with this problem Nepal Rasta Bank (NRB) has directed the Banking Institutions to go in the process of mergers and acquisitions. Besides the number of Banking and Financial institutions in Nepal has increased previously but had created the low financial stability. Thus in order to attempt the promotion of financial stability NRB is effectively implementing the Merger and Acquisition of Banks and financial institutions. Merger and Acquisition of financial institutions in Nepal has been promoted in the recent years and is in increasing trend. It is because Merger in the recent years has helped most of the financial institutions to increase the capital as well as help them to become more competitive with maintenance of good corporate governance. However the most important consequences in Nepal after merger is the improvement in financial ratios which also proves a good maintenance of adequate capital in order to protect the consumer right and minimize the risk likely to be under critical scenario. Keywords: Nepal Rastra Bank, Merger and Acquisition Policy, BAFIA

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