KATHMANDU, June 25: Capital Merchant Banking and Finance (CMBF) that witnessed massive deposit withdrawals over the past one week suddenly succumbed to liquidity crisis and shut down operations without even consulting the regulatory authority, Nepal Rastra Bank (NRB), on Friday.
The action of CMBF left depositors in the lurch. Bankers and chief executives of other finance companies too flayed its move, particularly as such illegal and irresponsible acts — fifth in a series over the past four months — has largely contributed to erode depositors´ confidence in the financial system.
The category C financial institution was reeling under severe pressure to manage liquidity, particularly after large depositors rushed to withdraw fixed deposits prematurely over the last few weeks. The withdrawals had soared particularly after the central bank deputed a team to inspect its portfolio. A total of Rs 750 million was withdrawn in last 45 days.
"The inspection has revealed a severe governance problem in CMBF. Apparently, large depositors too were aware of its affairs. So, when we started to dig out the facts, they rushed to withdraw their savings," said an official.
Given the mess the finance company has now landed in, NRB officials refused to disclose the inspection´s findings.
Massive withdrawal is not all the trouble confronting the finance company. It is facing problems in recovering loans, a major chunk of which has gone into the real estate business.
The latest financial statement of CMBF shows that it has mobilized deposits of Rs 3.04 billion. Its total loans and advances stand at Rs 3.36 billion, of which Rs 839.38 million has gone into speculative land purchase and plotting business.
That is not all. The company has invested additional Rs 295 million in different real estate projects and also issued loans worth Rs 1.02 billion under the undefined ´others´ category. The central bank officials said these investment and loans too have gone into the speculative land business.
"We have traced cases of irregularities by the board of directors and chief executive on real estate and other lending," said the source.
´Resume services´
NRB, meanwhile, has issued instructions to CMBF to resume operations from Sunday. The central bank had summoned the entire board of directors of the finance company as soon as it got the information of its closure. "We informed them that the central bank will provide all possible support to bail out the company from the present crisis," said Bhaskar Mani Gyawali, NRB spokesperson.
The central bank also suggested the finance company to apply for special refinancing, promising it a speedy release of money. The company had applied for refinancing two weeks ago, but according to CMBF official, the central bank had denied it the facility.
CMBF was established in 2001 and was operating with 12 branches including head office in Battisputali, Kathmandu. It was offering interest return of 15 percent to fixed depositors.
Gurkha Development Bank, Nepal Share Markets and Finance, People´s Finance, and Vibor Development Bank had faced similar crisis over the past four months.
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