An IMF mission led by Gerard J Almekinders for the 2015 Article IV Consultation in Nepal has recommended the NRB to make such follow-up on a regular basis to make sure that the BFIs move as per their capital raising plan.The consultations of the IMF staff mission as required by Article IV of the IMF's Articles of Agreement to assess economic and financial developments and discuss the country's economic and financial policies is known as the 'Article IV Consultation'.
The mission holds consultation with government and central bank officials and often with parliamentarians and representatives of business, labor unions, and civil society.
"We have recommended the central bank to monitor, on quarter to quarter basis, the steps that the banks are taking, and whether these are good or incredible steps to have a good addition to their capital. If there are good concerted efforts from both BFIs and NRB, we think that it can be done," Almekinders told a press meet at NRB on Thursday.
"We should not wait till the last quarter or one and half years and later rush for mergers to technically meet this new capital requirement," Almekinders, who is also the Deputy Division Chief at Asia and Pacific Department of IMF, said.
Through the Monetary Policy for Fiscal Year 2015/16, NRB raised minimum paid-up capital for the BFIs by as much as four times. As per the new capital plan, 'A' class commercial banks are required to raise their paid-up capital to Rs 8 billion from current Rs 2 billion within two years."
"Number of banks increased rapidly couple of years ago. Because of the complexity of financial operation and banking operation, it is important that NRB has a good grip on the operations of BFIs and knows what they are doing," said Almekinders. "I think they want to focus on their efforts on fewer, bigger, stronger and better banks. If Nepal has that, they can also work on upgrading the capacity of banks' supervisor to be able to supervise the more complex operation of the banks."
Commenting on concerns raised by BFIs regarding short deadline to meet the new capital requirement, he said that though the deadline was short it can be done if the capital plan is monitored by the central bank closely. "This is what we have recommended. We found that the central bank has also planned to do the same," he added.
The IMF Mission visited Nepal from September 20 to October 1 and held discussions with Minister for Finance, NRB Governor and high-level government officials, representatives of private sector, labor union and the donor community, according to a statement issued by the mission.
Also speaking at the press meet, Thomas J Richardson, IMF's senior resident representative in Nepal and India, said IMF has supported NRB's move to increase the capital floor of BFIs. "There is an effort to increase the capital adequacy of banks in countries all around the world. As all countries move to put their banking system on a more sound footing, Nepal also has to keep up with the rest of the global financial system," he added.
Meanwhile, the IMF Mission has also warned of downward risks to growth due to recent development in the country. "Continuation of the recent disruptions to economic activity and transportation and trade routes in certain parts of the country could severely affect growth and inflation in this fiscal year," said the statement. "Also important downside risk relates to the government's capacity to boost capital spending. Owing also to the delays in setting up the National Reconstruction Authority, the increase in expenditure may be more limited than expected," it cautioned the government.
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