2002年-世界发展银行全球_Nepal___Financial_Sector_Study_191页_11mb

Summary of the World Bank Financial Sector Study for Nepal (2002)

Core Content

This report provides an in-depth analysis of Nepal's financial sector, focusing on its structure, performance, and regulatory environment. It highlights the challenges and opportunities for reform and outlines key recommendations for improving the sector's efficiency and sustainability.

Main Views

1. Diversified Financial Sector

Nepal has a reasonably diversified financial sector that includes:

• 15 commercial banks
• 8 development banks
• 5 regional rural development banks
• 1 postal savings bank
• 48 finance companies
• 30 non-government micro-credit institutions
• 35 non-government cooperative societies

Despite this diversity, the sector has not delivered significant benefits to the population due to systemic issues.

2. Excessive Government Involvement

Government ownership and influence are widespread and have contributed to:

• Poor governance and inefficient operations
• Fragile financial health of state-owned institutions
• Politicization of financial institutions
• Conflicts of interest, especially for the central bank

The government owns the largest commercial bank (RBB), is the largest shareholder in the second-largest (NBL), and holds significant shares in most joint-venture banks.

3. Weak Central Bank

The Nepal Rastra Bank (NRB) is the central bank, but it faces several challenges:

• Lack of autonomy
• Outdated legal framework (Nepal Rastra Bank Act of 1955)
• Inadequate and unproductive staff
• Direct participation in financial institutions through ownership and board representation
• Poor supervision and lack of enforcement

The central bank is also not maintaining good, up-to-date, externally audited accounts, which undermines its credibility as a regulator.

4. Fragmented Legal Framework

• The Commercial Banking Act (1974) is outdated and lacks comprehensive coverage.
• There is a need for a new Banking and Financial Institutions Act.
• Other laws such as the Financial Intermediary Act (1998), Company Law, and Insolvency and Liquidation Laws also require strengthening or amendment.
• Institution-specific regulations have created a fragmented legal environment, stifling competition.

5. Weak Corporate Governance and Banking Culture

• Corporate governance is weak with no clear rules for engagement between management, boards, shareholders, and stakeholders.
• Information asymmetry and poor procedures are prevalent.
• Banking culture is underdeveloped, with lack of transparency and poor financial information practices among both banks and customers.

6. Lack of Competition

• The sector lacks a competitive environment, which is essential for efficient financial intermediation.
• The dominance of two large government-established commercial banks (RBB and NBL) accounts for more than 50% of the commercial banking assets, leading to limited competition and marginal benefits from financial liberalization.
• Priority sector lending and interest rate mandates have distorted the market and burdened institutions.

7. Weak Accounting and Auditing Environment

• Many financial institutions do not maintain up-to-date, externally audited accounts.
• The Credit Information Bureau is ineffective due to lack of data from major banks.
• Asset liquidation is rarely successful, and court actions are delayed.

8. Micro-finance Challenges

• Government dominance in micro-finance has limited the role of private institutions.
• There is limited outreach in the Terai and Hilly regions.
• Diffused focus and lack of coordination among micro-finance institutions.
• Regulatory framework needs to be improved to support sustainable micro-finance operations.

9. Capital Market Development

• The Nepal Stock Exchange (NEPSE) has a limited and unattractive business environment.
• Accounting standards are not effectively enforced.
• Corporate governance is lacking, and investment in banking stocks is predominant.
• There is a need for better regulation and greater participation from pension and provident funds.

Key Information

• Currency Unit: Nepalese Rupee (NR)
• Exchange Rate (December 2001): 1 NR = US$0.01308, or US$1 = 76.475 NR
• Fiscal Year: July 16 - July 15
• Key Institutions:
  • Nepal Rastra Bank (NRB): Central bank, responsible for monetary policy and financial supervision.
  • Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB): Largest government-established commercial banks.
  • Agricultural Development Bank of Nepal (ADB/N) and Nepal Industrial Development Corporation (NIDC): Major development banks.
  • Micro-finance Institutions (MFIs): Including Grameen Bīkas Bank (GBB) and Micro Finance Association of Nepal (MIFAN).

Recommendations

1. Divest Government Ownership:

   • Reduce government involvement in financial institutions.
   • Replace public sector institutions with "fit and proper" private owners and operators.

2. Strengthen Central Bank Autonomy and Capacity:

   • Implement the new central bank law effectively.
   • Restructure the central bank, improve its legal framework, and enhance staff training and productivity.

3. Amend and Simplify Legal Framework:

   • Replace the Commercial Banking Act (1974) with a new Banking and Financial Institutions Act.
   • Strengthen Company Law, Insolvency and Liquidation Laws, and Financial Intermediary Act (1998).

4. Improve Corporate Governance:

   • Establish clear rules of engagement between management, boards, shareholders, and stakeholders.
   • Enhance governance and transparency procedures.

5. Enhance Banking Culture and Practices:

   • Promote transparency and sound financial information practices.
   • Encourage collateral-based lending with proper assessment and re-evaluation.

6. Promote Competition:

   • Encourage market-oriented approaches to increase competition.
   • Avoid mandates like interest rate spreads and priority sector lending that distort the market.

7. Improve Accounting and Auditing:

   • Ensure all financial institutions maintain up-to-date, externally audited accounts.
   • Strengthen accounting standards and enforcement mechanisms.

8. Revitalize Micro-finance:

   • Reduce government dominance in micro-finance.
   • Improve outreach in rural and hilly areas.
   • Enhance regulatory framework to support sustainable micro-finance operations.

9. Develop Capital Markets:

   • Improve the business environment for capital market development.
   • Enforce accounting standards.
   • Encourage diversification of investment in the Nepal Stock Exchange (NEPSE).

10. Strengthen Legal and Regulatory Enforcement:

    • Ensure timely enforcement of laws and regulations.
    • Improve court action against defaulters and asset liquidation processes.

11. Enhance Financial Sector Infrastructure:

    • Revamp research and financial monitoring capabilities of NRB.
    • Establish credit rating agencies and assets reconstruction companies.

12. Support Institutional Reforms:

    • Strengthen banking supervision and inspection systems.
    • Streamline ownership structures and legal frameworks.

Conclusion

Nepal's financial sector is underdeveloped and faces significant challenges due to excessive government involvement, a weak central bank, outdated legal frameworks, poor corporate governance, and a lack of competition. Addressing these issues through comprehensive reforms and market-oriented policies is essential for the sector to deliver sustainable benefits to the population.