ADB-N's financial cracks another time bomb: Governor

ADB-N's financial cracks another time bomb: Governor
eKantipur.com, 29-May-2007

Nepal Rastra Bank Governor Bijaya Nath Bhattrai has said that deep-rooted financial disorder of state-owned Agriculture Development Bank-Nepal (ADB-N) is a ticking time bomb and has urged the government to take the issue seriously before an eventual accident.

"High Non Performing Assets (NPAs) of 28 percent, heavily scattered loan portfolio and poor loan recovery are some of the major problems that have posed a serious challenge to future financial stability of the country," Governor Bhattarai said. He was speaking at a discussion program organized by parliamentary finance committee over the policies and programs for the upcoming fiscal year.

Bhattarai also informed the gathering that following the success of the private management in bringing down NPAs level to around 14 percent, the troubled Nepal Bank Limited (NBL) is now ready for strategic privatization. However, he stressed upon the need to re-inject capital to adjust negative net worth, amounting Rs 6 billion before initiating privatization.

In addition, the government should also pay attention to raise its equity share to more than 50 percent, as aspirant strategic investors would be least interested in purchasing minority equity, he said.

Governor Bhattarai also urged the government to make its vision clear on what is wants to do once the ongoing management contracts of Nepal Bank Limited and Rastriya Banijya Bank expire.

Despite the 14.5 percent nominal appreciation of Nepalese currency against the US dollar during the current fiscal year, Governor Bhattarai ruled out immediate possibility of revising fixed exchange rate set with the Indian currency.

He also disclosed that the recent stringent actions against leading 80 willful defaulters have put a positive impact on commercial bank's drive to recover overdue loans. Some of the defaulters including the largest defaulter Fulbari Hotel have started negotiations with the lending banks in order to find an amicable way out. Participating on the discussion, parliamentarian Dr Dilli Raj Khanal said the high difference on interest rate on deposits between Nepal and India is encouraging cross border capital flight and urged the central bank to immediately correct the problem.

Despite the growing number of financial institutions, the real access of official credit to poor has declined over the years and it is a most serious issue, as it has been contributing to widening inequality.

Bimal Wagle, joint secretary at the Ministry of Finance said that since privatization is a politically sensitive matter, there is a need of political consensus while deciding the future course of NBL and RBB.