Transcript Nepal - Reserve Bank of India

Safeguarding Financial Stability:
Nepal’s Experiences
Country Paper Presentation by
Nepal Rastra Bank at the
SAARCFINANCE Governors’ Symposium
Kumarakom, Kerala, India
June 10, 2011
Presentation Outline
 Introduction
 Financial
Crisis and Financial Stability
 Nepal’s Economy and Financial
System
 Measures Initiated toward Financial
Stability
 Major Challenges
Introduction

Financial stability—ability of financial
system to smoothly fulfill its key
economic functions at all times.

Failures of financial institutions and
financial crisis—implication to the
economy, society and polity.

Maintaining financial stability—a core
responsibility of the central bank.
Financial Crisis and Financial
Stability

Repercussions and lessons.

Significance of macro-prudential policy.

Appropriate regulatory structure.

South Asia better sustained financial
crises—low level of market integration
and conventional services.
Macroeconomic Trends

GDP growth: 3.5% growth in 2009/10; 4%
estimated for 2010/11.

Inflation: 10.6 % in mid-April 2011.

Monetary sector: M2 ↑ 3.3% and M1 ↓ 0.6% in
1st nine months of 2010/11.

Fiscal sector: budget deficit/GDP at 3.3 percent
in 2009/10; budget surplus in 1st nine months
of 2010/11.

External sector: BoP deficit of NRs. 3.6 billion in
2009/10; no expected improvement in 1st nine
months of 2010/11.
Nepal’s Financial System
•
Promoting financial stability: major objective
of NRB.
•
Classification
of
banks
institutions: A, B, C and D.
•
Number of banks and financial institutions as
of mid-March 2011; 31 commercial banks, 87
development banks, 80 finance companies,
21 micro finance development banks.
•
Banking sector problems: thinly spread
institutions, liquidity shortage and credit
concentration.
and
financial
Measures for Safeguarding
Financial Stability

Conduct of monetary policy: multiple
objectives and instruments—price
stability, financial and external sector
stability.

Approach: gradualist; foreign investment
permitted in almost all sectors; portfolio
investment not permitted.

Capital account transactions mostly
regulated.
Measures

Balanced monetary policy.

Fiscal discipline—no spill over to monetary
sector.

Focus on credit flow to productive sector.

Credit ceiling on real estate and housing
loan, cap on margin lending.

Fixed exchange rate regime with major
trading partner.
Measures

Capital
standard
based
on
BASEL-II
implemented fully for A class banks; from
2010/11, BASEL-II applicable to development
banks.

Risk-based supervision system technique and
risk management guideline issued.

Stress testing system: a permanent task
force set up; a model stress testing exercise
done.

Support from IFIs on risk based supervision.
Measures

Contingency planning at progress.

Ensuring
transparency
in
transactions—establishment of FIU.

Strengthening legislations.

Encouraging merger of banks and financial
institutions

Senior Policy Group under chairmanship of
Finance Minister to address issues that
impact the financial system.

A Coordination Committee under Deputy
Governor to deal with issues pertaining to the
maintenance of financial stability.
financial
Challenges

Enhancing competitiveness and coping with
global
competition,
expanding
financial
access and ensuring credit flow to productive
sectors.

Nepal’s commitment in WTO—opportunities &
risks.

Ensuring adequate monitoring of banks and
non-banks.

Growth of credit cooperatives.

Government owned banks and their reforms.
Conclusions

Institutional expansion and access to
services.

Regulatory
architectures.

Building a financial system that is
supportive to growth and sustained
economic development.
and
supervisory