Restructuring of Banks and Financial Institutions

Abstract

Effective management of banks and financial institutions are crucial issues of contemporary society. Good and effective governance are expected to establish financial credibility to its stakeholders and society. However, insolvency, liquidation and restructuring of the company are the matters of court procedure. Insolvency process begins only with the decision of designated court. In case banks and financial institutions, Nepal Rastra Bank can follow administrative measures of financial liquidation under prevailing laws and custom of administration, and it can recommend to the court for the liquidation of company. Direction to banks and financial institutions for improvement, declaration of problem bank, reformative and corrective measures, resolution process i.e. formation of special administration team, suspension of power of directors, establishment of bridge institutions or unit, exchange of reciprocal assistance; information sharing through credit Information Bureau are also the measures of restructuring of banks and financial institutions in Nepal. Other methods of restructuring of financial sector are granting lender of the last resort facilities, prompt corrective actions for capital improvement, merger and acquisition, declaration of insolvency i.e winding up of companies, liquidation, restructuring of the company if so is possible upon the decision of the court etc. The decision of restructuring of banks and financial institutions are made by the examination of books of account and financial statement. Central Bank can also make inspection and supervision to find out actual situation of banks and financial institutions. Nepal Rastra Bank, with their own administrative team, has already been restructured then Lumbini Bank Limited from March 20, 2002 to December 24, 2004; Nepal Bank Limited from March 14, 2002 to April 2015; Nepal Bangladesh Bank Limited from November 12, 2006 to March 2010; NCC Bank Limited from February 4, 2014 to January 2, 2017; Bank of Kathmandu from May 20, 2009 to July 23, 2009 etc. Nepal Rastra Bank also restructured then Gorkha Development Bank, H & B Development Bank, Nepal Share Market Finance Company, Nepal Finance etc. Many institutions are in the process of resolutions. Nepal Rastra Bank acts as a guardian of banks and financial institutions. If corrective and remedial actions are not sufficient, such institutions are sent for liquidation and winding up. United Development Bank, including some finance companies, was liquidated upon the decision of designated court. Last but not least, Central Bank, Nepalese Judiciary, Office of the Company Registrar, and Credit Information Bureau are playing important role to make restructuring of banks and financial institutions in Nepal. Conversely, absence of the Asset Management Company, longer time period for court decision, priority payment in the time of liquidation through small depositors, and longer time period of liquidation are the challenges of restructuring of banks and financial institutions in Nepal.