Financial institutions navigate economic challenges, Seek approval for branch shutdowns

Credit crunch looms as commercial banks grapple with liquidity mismatch

KATHMANDU: Banks and financial institutions that have rapidly expanded their branches at various local levels are now applying for the abrupt closure of branches, citing financial challenges, with many submitting applications to the central bank, Nepal Rastra Bank.

With banking branches reaching 753 locations, the central bank had previously prioritized branch expansion under the monetary policy, aligning it with the national goal of increasing financial access. Recently, however, numerous bank branches across the country are closing down, reflecting heightened competition among financial institutions.

In one local jurisdiction, 5 out of 7 banks have established branches, intensifying competition in the sector. This increased rivalry has led some banks to operate at a loss. Despite the competition-induced challenges, certain banks have successfully merged branches in the same location as part of strategic consolidations.

The recent economic downturn and reduced cash flow post-COVID-19 have also contributed to the closure of branches, prompting banks and financial institutions to adopt cost-cutting measures. Even after the banking industry transitioned to digital operations in September, following the COVID-19 outbreak, several branches have been shut down as part of a cost-reduction strategy, with the approval and guidance of Nepal Rastra Bank.

The Nepal Rastra Bank has received applications for branch closures from banks like NIC Asia and Global IME Bank, both key players in the banking sector, seeking permission to shut down branches amid financial challenges. While the central bank acknowledges the applications, it has clarified that immediate closure approval will not be granted.

Guruprasad Paudel, Executive Director of the Regulation Department at the Nepal Rastra Bank, stated, “Applications for branch closures are indeed with the central bank. However, immediate approval for branch closures will not be granted, as banks must follow the due process. The current circumstances, while challenging, do not warrant immediate closure. Banks that have undergone mergers enjoy the flexibility to merge or close branches, but the same provision does not apply to other banks.”

As the banking sector evolves into a digital paradigm, and with Nepal Rastra Bank actively promoting digital banking, policies regarding branch closures are expected to be reevaluated. However, Paudel clarified that the central bank’s encouragement of digital banking does not exempt financial institutions from their immediate obligations, emphasizing the need for prudent financial management in challenging times.

Fiscal Nepal |
Thursday February 8, 2024, 01:23:46 PM |

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