IMPACT OF MERGER AND ACQUISITION IN NEPALESE FINANCIAL SECTOR FOR A BANK SURVIVAL
INTERNATIONAL AMERICAN UNIVERSITY
KING’S COLLEGE, KATHMANDU NEPAL
INTERNATIONAL AMERICAN UNIVERCITY
May 9, 2012
Title of the study:
"IMPACT OF MERGER AND ACQUISITION IN NEPALESE FINANCIAL SECTOR FOR A BANK SURVIVAL ".
Commercial banks have an essential role in the economy. One of their main duties is to collect funds from excess fund sectors and lend to customers with insufficient funds. From these financial intermediary activities, they have an important role in determining the amount and distribution of credit in the economy. Since an increase in bank credit leads to increased investment and in turn to increased employment levels, changes in bank lending behaviour have a marked impact on the economic development of the country. Banks change their lending decisions in response to changes in the structure of the banking market. One of the issues arising in this context is bank mergers and acquisition (M&As). Since market structures can change as a result of mergers, bank mergers can have a significant impact on changes in bank lending behavior. Bank consolidation in the form of merger become one of the regulations initiated by the Nepal Rastra bank in order to improve banking system’s capacity to provide financial intermediation between savers and borrowers and restore public confidence. As merger activities around the world have the same purpose, the most common purpose for merger is to increase efficiency and reduce costs.
STATEMENT OF PROBLEM:
At the time when the Nepalese banking sector is going through torment and really tough phase NRB has brought a new merger bylaw believing that it will as a panacea of the entire burning problem and stated it as the need of the hour. This bylaw has been brought into effect by NRB to improve and develop the weak and problematic financial sector. Most of the experts and analysts believe that the Nepalese financial sector are overcrowded with so many players for the small size market and if not acted on time these problems will worsen. Previously, NRB had adopted the liberal licensing policy as the consequence there was a tremendous surge in the number of BFIs and now the overcrowding is hurting the financial sector. Virtually, with its new merger bylaw NRB is trying to correct its previous decision of adopting liberal licensing policy. The overwhelming outgrowth and the rapid surge of BFIs has not only led to the malpractice of banking norms and unfair competition but also has created such situation where it is difficult for NRB itself to grab the situation by the scruff of the neck, manage it and control it. So, NRB has introduced Merger Bylaw 2068 in order to manage and control the existing BFIs effectively and efficiently. Considering these facts and the situation, the proposed thesis tries to evaluate the merger bylaw of NRB and will try to present and conclude whether the merger bylaw will act as a base to cure all the problems surrounding the Nepalese financial sector.
Structure of literature review:
NRB has tried to cover all the three aspects of effective and prudential regulation of Effective Licensing, Regulatory Norms and Effective Supervision with its dynamic directives and guidelines. The licensing policy deals with provisions regarding the paid-up capital for all the four classes of BFIs, minimum investment requirement from promoters, general public, foreign investors and employees, procedure and time period to submit application, fees and partial deposit of capital, registration provisions ,qualification of promoters, expansion of working territory and minimum capital requirement. NRB had adopted the liberal licensing policy as the consequence there was a tremendous surge in the number of BFIs from 2004...