KATHMANDU, June 10: Nepal Rastra Bank (NRB) on Thursday provided a short-term loan of Rs 500 million to liquidity-strapped Vibor Bikas Bank (VBB), in response to calls for urgent support from the central bank to avert a looming collapse.
An emergency board meeting held at NRB on Thursday decided to extend the conditional loan for a period of six months,under its ´lender of last resort´ policy. NRB took the extreme measure mainly because it feared that adversity at the national-level development bank could leave a systemic impact.
Two days after People´s Finance Limited shut down operations due to a liquidity crunch, top brass at Vibor, similarly bogged down by liquidity crunch, had requested NRB on Wednesday for a management takeover.
“The situation was pressing. Hence, we decided to swing into action immediately,” said a senior NRB official. “The bank needed cash, not a management takeover. So we chose to pledge it a loan instead of taking over its management,” he told Republica.
Along with agreeing to a set of tough conditions, the troubled VBB has pledged a number of collaterals for the loan, including good loans worth Rs 700 million and a plot of land worth Rs 350 million at Kamalpokhari.
That is not all. NRB has also instructed Vibor to take a number of corrective actions such as appointment of separate individuals as chairman and chief executive. Currently, the bank was operating with Ajaya Ghimire as chairman and CEO. The central bank also decided to send VBB into forced merger and asked it to sign a merger MOU with some other financial institution within the next three months.
“We have issued strongly worded instructions to Vibor to instantly find a partner and undergo merger,” said the source. The instructions were issued as per the recently enforced merger bylaw, which authorizes the central bank to force banks and financial institutions (BFIs) to merge in case their health deteriorates badly.
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The central bank has also sought a liquidity management plan, an asset disposal plan and cuts in staff expenses.
NRB officials agreed that Vibor plunged into a mess largely due to poor liquidity and risk management. “Its weakness was it had not worked out alternative plans to arrange funds despite knowing that large fixed deposits were maturing soon and might not be renewed,” said the source.
Officially, Vibor has blamed its crisis mainly on withdrawal of deposits worth Rs 270 million by NRB and Rs 50 million by the Nepal Army Welfare Fund about a week ago. “Records show the bank has suffered massive withdrawals of about Rs 500 million in around a month. Any bank will turn cash-strapped after such withdrawals,” said a banker.
Despite its troubles, officials said Vibor was still a solvent bank. Its deposits presently stand at around Rs 300 billion, whereas its loans and advances total Rs 2.30 billion. The bank has investments in about half a dozen assets-related projects.
“The health of the bank now depends on how fast it disposes of its assets and cuts expenses,” said NRB officials. The bank said it will recover in one-and-a-half months if everything goes well.
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