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1 NRB to banks: No dividend if CAR is below 11pc on 24th August 2012, 2:03 pm

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NRB to banks: No dividend if CAR is below 11pc
KATHMANDU, AUG 24 -

The Nepal Rastra Bank (NRB) has instucted commercial banks against distributing cash dividends to their shareholders if their capital adequacy ratio (CAR) is less than 11 percent. As per the existing central bank directive, the banks are required to maintain CAR at 10 percent.

CAR is the measure of the amount of a bank’s core capital (tier one and tier two) expressed as a percentage of its risk-weighted asset. In simple terms, it is bank’s capital cushion for the potential losses in order to protect the bank’s depositors.

“We have notified the banks to refrain from providing cash dividends if they don’t have capital adequacy ratio more than 11 percent,” said a senior official at NRB. “The move was taken to enhance lending capacity of banks and their risk absorbing capacity.”

With the central bank all set to implement some of the provisions of ‘Basel-III’ principle that talks about buffer capital, the move was intended at encouraging the banks to keep at least 1 percent buffer of capital adequacy. The central bank had recently held meeting with officials of the Nepal Bankers’ Association (NBA) on the matter. “The bankers were also supportive to our move,” said the NRB official.

Unaudited financial reports published recently by commercials banks showed that the CAR has remained more than 11 percent in all the banks except Nepal Bank Limited and Rastriya Banijya Bank. The CAR of these banks range from 11.08 percent to 24.39 percent. But there has been a trend where unaudited financial results are changed during the supervision by the regulator, according to an NRB official. Also, since the banks are subjected to take approval from the NRB before distributing dividend, there is high chance that it can bar them from distributing it.

Bankers gave mixed reaction to the issue as some welcomed the move whereas others complained that the NRB is into micro-management. “This is a welcome move by the regulator as it is very essential for the risk management,” said CEO of a leading commercial bank. “We are under severe pressure from our shareholders to declare highest possible dividend ignoring the financial health of the bank. NRB’s move will help us nullify such pressure.”

On the other hand, some bankers argued that the decision on dividend should be vested with the bank’s management. “Central bank cannot impose its informal decision on us. If we comply with the NRB’s existing regulation and maintain the CAR at 10 percent, it should not deprive us from declaring the dividend,” said a senior official of a commercial bank. He went on to add if the central bank is determined to go along with its new move, then it should come in the form of a directive.

Central bank seeks NBB explanation

The Nepal Rastra Bank (NRB) has sought explanation from board members of Nepal Bangladesh Bank (NBB) for their failure to recover the loans that went to promoter group.

The NBB board members will have to furnish their reply by this week. “If their reply is found unsatisfactory, the central can fine them,” said a senior NRB official. Each board member will be slapped with a fine of Rs 500,000 unless their explanation satisfies the central bank.

According to NRB officials, there has been hardly any recovery from the promoters who owe around Rs 1.25 billion to the NBB. When the central bank handed over the management of the NBB to its new board two and half years ago, there was just Rs 350 million remained to be recovered from the promoters.

Following the merger between NBB and troubled Nepal Sri Lanka Merchant Bank last year, size of loans owed by the promoters to the bank soared to over Rs 1 billion.

NBB CEO Gyanendra Prasad Dhungana, however, claimed that the bank has already recovered around Rs 200 million from the promoter group.

Meanwhile, the NBB board on Thursday appointed a former board member of NRB Shambhu Sharan Kayastha as chairman of NBB replacing Pusparaj Rajkarnikar.

According to Dhungana, Rajkarnikar and board member Laxmi Bahadur Shrestha resigned from their post on Thursday’s meeting.

Dhungana said that Shrestha’s resignation will pave the way for proposed sales of promoters’ shares to the Bangladeshi partner. But the proposed sales was in limbo with the law banning board directors from selling their shares when they are holding position.

Bangladeshi partner, International Finance Investment and Commerce (IFIC) Bank that has 10 percent stake in the bank, has sought to purchase about 26 percent of Nepali promoters’ stake and 15 percent stake of another Bangladeshi promoter Bank Asia. After the acquisition, the IFIC will have 51 percent stake in the bank.


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