Two of Nepal's largest banks have been on the verge of collapse ("What if" NT#26). And the worrying thing is that there has been no progress whatsoever towards possibly bailing them out. The central bank decided on the consultants who would take over the management of the Rastriya Banijya Bank (RBB) about two months ago, but the actual handing over was held up because the same process has not been completed for the Nepal Bank Limited (NBL). Now its no longer hush-hush: 10 central bank evaluators, including a representative from the NBL, have decided that all four companies that had been short-listed for the assignment have been disqualified. So, expect more delays.
Last month, Nepal Rastra Bank (NRB) faxed the evaluation committee scorecard to the World Bank that is to give $25 million (CHK) to the project. All four companies-Price Waterhouse Cooper, Ernst and Young, ICC Bank-UK and Development Partnership-Ireland -scored lower than the threshold 70 points in the evaluation. Or they were not good enough. The World Bank is said to have done its own evaluation of the four companies and concluded that all four that failed are capable of fulfilling the tasks laid out in the Request for Proposal. "The committee's decision to disqualify all four companies that were short-listed earlier is suspect," a source told us.
The World Bank is seeking a re-evaluation of the short-listed companies-which would entail forming a new evaluation committee because the one that rejected them is likely to do the same again. With NBL's consultants not finalised it's now almost certain that the bank reform project cannot be initiated in September-the fourth of such extended deadlines, which could even be the final extension, as our World Bank source says.
A central bank official was defensive: "We're ready to go ahead with the RBB's reforms, we're committed to address the NBL's problems too, but there are some technicalities we've not been able to get over yet." These technicalities are said to include handling the unions, getting the support of political parties and the bank's shareholders. Private investors control a majority of NBL shares. "We've been slow, but sometimes donors tend to want everything to happen their way," the source added.
The two banks-the RBB and the NBL-have a total negative net worth anywhere in the range of Rs 20-25 billion, depending on who is counting. The RBB has been crippled by political loans, and the reasons for the NBL's ills are insider lending, over-concentration on certain sectors and business houses. Sources told us that part of the problem with the NBL is its ownership-the government is a minority shareholder. Some even suspect that its private owners are uninterested to have reforms because many of them are also borrowoers and would not like external consultants breathing down their necks.
One reason none were selected was because most of the 41 compnies shortlisted after responding to NRB's Special Procurement Notice were auditors. "We are looking for managers and bankers, the companies we were to choose from the list were did not have much experience in those areas," said a source in the NRB evaluation team. "We don't know what's wrong with going with the one with the highest score and start looking at the financial proposals." That is easier said than done, because as we have learnt, of four companies screened for managing RBB two have scores above the 70 percent threshold, and had been evaluated by almost the same evaluation committee.
There is still another roadblock. In an earlier communication the NRB has told the NBL that it would have the "final word" in the selection of the consultants, even though it would not have to pay consultant fees. This means any selection for the management of Nepal Bank Limited by the NRB's evaluation committee would have to be approved by NBL.
Very few now doubt that the two banks are sinking, when they do they will take the economy down with them. Worse still all donors are watching how the bank reforms are moving, and could begin to tighten the purse. We already know that reforming RBB and NBL is a condition for Nepal to be able to borrow from IMF's Poverty Reduction and Growth Fund.
Given the opposition political parties still against banking reform-- not to talk about dissenters even within the ruling party--unions are against it and so are defaulting businesses and other interests that have pushed the banks to bankruptcy. NRB sources say the best way to begin would be to start with the RBB and gradually rope in the NBL. The World Bank does not like this idea and with the September deadline approaching, someone has to decide, and fast
