KATHMANDU, June 9: In yet another spate of financial turmoil, Vibor Bikas Bank (VBB) -- a national level development bank -- has become the latest financial institution to seek emergency management takeover by the central bank, Nepal Rastra Bank (NRB) to avert a looming financial meltdown.
A delegation of Nepal Bankers Association and Vibor Bank´s CEO Ajaya Ghimire formally approached two Deputy Governors of NRB Gopal Kafle and Maha Prasad Adhikari on Wednesday and requested for management takeover.
Refusing to take over the troubled bank, the NRB suggested to the members of the NBA to help Vibor by resuming stalled inter-bank lending.
The bankers refused to buy the idea. “The bank is seriously in crisis. Who will risk themselves by providing loans to it against land or house, which are not selling these days?” said a banker.
The bankers had left the NRB after the central bank officials assured them of taking concrete decision on Vibor on Thursday.
Earlier on Tuesday, the Vibor officials had approached the NBA, of which it is a member, requesting support for a bail out. During the emergency board meeting of NBA yesterday, central bank officials had suggested the association to take steps to rescue the bank.
However, bankers refused and argued that there was only one solution for Vibor: to ask the NRB to take over its management.
The trouble
Though the development bank has attributed its trouble to worsening liquidity crunch, sources closely watching the affairs in the bank said it has deeper problems related to corporate governance, mainly imprudent real estate investment decisions.
Officially, Vibor has blamed the crisis to withdrawal of deposits worth Rs 270 million by NRB and Rs 50 million by Nepal Army Welfare Fund about a week ago.
“Sudden siphoning out of Rs 320 million from the bank pushed it to an illiquid situation, whereby it now has no cash to pay money back to its depositors,” said an official at the bank.
But this is not all the trouble confronting the bank. It is facing problems in recovering loans, a major chunk of which has gone into the real estate business. “And it has no room for re-injecting liquidity through refinancing because it had taken 180 million from the central bank about 10 days ago,” said a member of Nepal Bankers Association (NBA).
The development bank was relying heavily on inter-bank lending to fulfill its obligations for the last one week. However, over the last few days, the banks too refused to lend to it, precipitating immediate crisis.
Latest financial situation
The latest financials of the bank shows that its deposits stand at Rs 3.57 billion as at mid-April 2011. Its loans and advances stand at Rs 2.30 billion.
Of the total loans, Vibor has Rs 522.44 million (about 23 percent of total loans) exposed in the real estate sector, including business complex and residential apartment loans (Rs 72.19 million), income generating commercial complex loan (Rs 109.95 million) and other real estate loan, including land purchase and plotting (Rs 235.67 million).
It has also issued Rs 839.96 million in overdraft, which officials said has largely gone to the real estate loans to avoid loan loss provisioning, something which could have squeezed its profits. In mid-April 2010, its overdraft loans was just Rs 383.95 million.
Despite such efforts, its provision for possible loan loss had doubled to Rs 101.95 million and the bank was operating with a net loss of Rs 88.44 million as of the end of the third quarter of this fiscal year. In the same period last year, the bank had announced that it earned a profit of Rs 129.56 million.
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