Governor of Nepal Rastra Bank Yubaraj Khatiwada on Friday said the Financial Sector Reform Program(FSRP) initiated a decade ago was not a failure, although it failed to achieve the goals. “It is a mixed-case scenario in terms of success,” Khatiwada told a seminar on FRSP organized by Nepal Economic Association.
The main target of the FRSP was to turn the two largest banks—Rastriya Banijya Bank and Nepal Bank Limited—into healthy banks from their Rs 35 billion negative net worth status and reengineering of the Nepal Rastra Bank to strengthen its supervisory capacity.
It had also been planned that the RBB and the NBL would be privatized after their recovery. The privatization plan has, however, taken a back seat as of now. Both the RBB and the NBL are yet to recover their negative net worth with the former’s net worth still remaining negative by Rs 9.45 billion and the latter’s negative net worth at Rs 4.5 billion.
However, these banks were saved from being liquidated. The banks were computerized and the over-staffing problem solved with the introduction of the voluntary retirement and compulsory retirement schemes.
The non-performing loans (NPL) of the RBB and the NBL have come down to 11.9 percent and 4.87 percent as of mid-July 2010 from the 60.15 percent and 60.47 in mid-July 2003 respectively.
Khatiwada said the reason behind the mixed success was “half-hearted inception of the program with no confidence on the part of many NRB and government officials.” “The FSRP has been a success against the pessimism at the time of inception,” said Khatiwada.
The FSRP will expire in Dec. 2011. “The two banks now need a capital injection of just Rs 4-5 billion to recover their Rs 14 billion negative net worth. The resources to be generated with the sale of their physical assets can also be used to recover them,” Khatiwada said. The NBL has huge fixed property across the country.
Finance Secretary Rameshwor Khanal said the FSRP moved ahead slowly, although it did not achieve significant progress. “We can allow the NBL to trade its shares in the secondary market after its full recovery,” he said.
Presenting a paper on FSRP, Chief Executive Officer of Lumbini Bank Sobhan Dev Pant said the program failing to achieve its goals fully made this project a failure in the end.
He said the biggest setback to the project was the inability of the central bank to enhance its supervisory capacity. “After the then governor and executive director were charged of corruption, the whole process stalled,” said Pant, who played a key role in reviving the Lumbini Bank.