Market Watch

NRB to liquidate NDB finally

Published by Octron on June 23, 2009

Nepal Rastra Bank (NRB) has decided to move ahead with the liquidation of the troubled Nepal Development Bank (NDB). A meeting of board members of NRB decided to move Appellate Court, seeking its approval for the liquidation of the bank, after the board members concluded that the bank´s clarification were not convincing on Monday, when the fifteen days´ time given to the troubled bank management to clarify why the bank should not be liquidated ended. The NDB management, in response, had argued that it will recover non-banking assets within 3 months and recapitalize through rights issue.

However, a source said that the central bank board members did not buy those arguments because its management had consistently failed to recover assets since the past one-and-a half years and its rights issue was also undersubscribed.”We have decided to move ahead with the liquidation process, and will soon lodge application at the Appellate Court, as per the existing laws,” the source told Republica. The source elaborated that the court can explore the possibilities of the revival of the bank.

However, given the financial status and its failed revival efforts, the court will most likely endorse NRB decision. Monday´s board decision has made clear that shareholders and institutional depositors of NDB would most likely lose the money they put in the bank. Two institutional depositors-Employees Provident Fund (EPF) and Nepal Army Welfare Fund-have deposits of Rs 330 million and Rs 200 million, respectively, in NDB. Shareholders, who hold more than Rs 100 million worth of shares of the bank, too are exposed to risk of losing their money.

The central bank has said cash deposited by small depositors, however, will be recovered. It has also announced that shareholders will get money, totaling to some Rs 80 million, they put in recently for its rights shares. NRB on June 2 had decided to send the long-troubled Nepal Development Bank into liquidation after concluding that all its five-year effort to revive the bank failed owing to incompetent and defiant management. The central bank has frozen all the transactions of the bank, including accounts maintained by the NDB in other financial institutions until the appointment of a liquidator.

After conducting the investigation for more than a week, the central bank last week had once again concluded that there was no alternative to liquidating NDB. The conclusion was drawn after its investigation revealed that the troubled bank´s cumulative loss had amounted to Rs 690.2 million, as against Rs 640 million claimed by the management; and its non-performing loans stood at 55.09 percent of the loan portfolio.

The central bank also found that NDB was maintaining a negative capital adequacy of 48.31 percent as against 11 percent provisioned by NRB. The bank had deposits of more than Rs 720 million.

Source: myrepublica

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