Rethinking banking classification

It is essential to analyse the impact of mergers and acquisitions on the overall financial system and economy.

The recent big mergers between Global IME Bank and Bank of Kathmandu, Prabhu Bank and Prime Bank, and some in discussions have made mergers and acquisitions (M&A) issues more imperative in the Nepali financial market. It is not an overnight act, though. Nepal Rastra Bank (NRB) has for years been suggesting banks go for mergers and acquisitions. The arguments of NRB for M&A are to make financial institutions more resilient to macroeconomic shocks, strengthen their lending capacity in big projects, and reduce unhealthy competition in the market. In a recent public oration, Maha Prasad Adhikari, the incumbent governor of NRB, urged government-owned banks to engage in mergers and acquisitions. However, it seems that NRB has not fully studied the impact of such actions on the overall financial market, and their arguments for M&A seem to be based solely on the high number of banking and financial institutions in Nepal.