Door open for foreign banks to set up shop in Nepal

Door open for foreign banks to set up shop in Nepal
Nepalnews, 1-Jan-10

Foreign banks are allowed to expand their physical presence in Nepal through branch offices beginning from Friday.

As per Nepal's commitment made to the World Trade Organisation (WTO) during its accession on April 23, 2004, foreign banks can make their foray in Nepal to do only wholesale banking from Jan. 1, 2010.

According to a new policy of Nepal Rastra Bank (NRB), foreign banks willing to open a branch in Nepal are required to bring in at least US$ 30 million (Rs. 2.24 billion) to get a license to start banking services here.

Similarly, banks are required to invest at least another US$ 5 million (Rs. 374 million) for each branch they want to set up here.

According to the central bank, the capital requirement was fixed as per the WTO's principle of national treatment for foreign companies.

NRB has defined wholesale banking as deposits above Rs. 100 million and lending above Rs. 300 million.

Foreign banks wishing to expand their presence in Nepal must be at least 'B' rated as per the evaluation of international rating agencies such as Moody's and Fitch, as per NRB policy.

They are also legally bound to produce a no-objection letter issued by the regulatory authority of their home country to apply to open a branch here.

Foreign banks are also obligated to follow the rules and regulations of NRB. They can repatriate their profits to their home country after paying taxes, fees and other liabilities as per the laws of Nepal. But they have to obtain the approval of the central bank before taking away the income.

The NRB policy also states that branches of foreign banks which are scrapped or liquidated could get their licenses scrapped in Nepal too.

According to experts, the arrival of foreign banks to do wholesale banking could well stimulate Nepali banks to invest in major projects.

Technology as well as knowledge transfer can be yet another advantage the Nepali banking system can get with the entry of foreign banks, they argue.