This document discusses mergers and acquisitions (M&A) among banking and financial institutions (BFIs) in Nepal. It outlines reasons for M&A including liquidity crisis, capital requirements, and increased competition from an open financial market. Major provisions and problems related to M&A are described, such as due diligence audits, management issues, and valuation discrepancies. Several BFI mergers that have occurred in Nepal are listed. The document concludes that M&A can help firms survive but challenges include integrating culture and addressing unused problems from improper due diligence.

1. “Problems & Prospects of Merger
and Acquisition” Movement in
Nepal
By:By:
Abishek GyawaliAbishek Gyawali

2. INTRODUCTION
Merger:
 It is the combination of two or more than two corporations
maintaining the identity of one of the corporation.
 One new corporation will continue to exist & other losses its currents
existences. E.g. NIC Bank & Bank of Asia forming NIC Asia Bank
Ltd.
Acquisition:
 It refers to the acquiring the ownership in the property.
 It is the process of acquiring the assets in the course of merger, E.g.
Prabhu Finance Acquired the business of Kist Bank.

3. Types of Merger

4. Reasons of M & A in Nepalese BIFs
Presently the Nepalese Banking Sector is facing a huge problem and
is in critical juncture. There are 3 reason forced Nepalese Banking
Sector to go into Merger & Acquisition.
 Liquidity Crisis
Capital requirement
Open Financial Market
Increase in market share
Value Generation
Creation of synergic effect

5. Legal and Tax Provision
 Company act 2063
 Bank and financial institution act 2063
 Competition ,promotion & market protection act,2063
 Security act 2063
 Labor act 2048
 Income tax act 2058
 Section 69 of bank and financial institution act

6. Major provision of Merger By laws 2011
 A,B,C class financial institution can merge with each other but D
only with same class.
 BFIs that want to merge should form a separate merger committee
from AGN & sign a memorandum of understanding (MoU).
 The due process including MoU should be completed before
applying to NRB for letter of Intent (LOI).
 NRB should hold meeting within 15 days of receiving LOI
application.
 NRB should decide whether to issues LOI or not.
 Due Diligence Audit should be completed within 6 month of
receiving of LOI from Central Bank.
 The detailed factual report of assets, liabilities, name, address share
ratio of concerned institution should be submitted to NRB

7. Problems of Merger & Acquisition
 Due Diligence Audit
 Problem with Top Management
 Culture values
 Inadequate valuation of target
 Inability to achieve synergy
 Employs may be resistance to change
 Swap Ratio

8. Issues Concerning M&A In Nepal
 Less confidence among domestic shareholder
 Complex Regulation
 Legal and Tax Perspective
 Discrepancy in Asset valuation & Tax incentive

9. M & A Movement In Nepal
 Merger begin in Nepal when the Eastern Electricity Corporation merge with Nepal
Electricity Authority.
 Standard Charted took Grind lays from ANZ Group.
 Recent merger began 10 years back in 2004.
 [
 Laxmi Bank merged into Himalayan Saving Financial Company.
 On May 2011 NRB came up with a special rule to facilitate merger between BFIs.
 But many people still had doubt whether to merge or not.
 Soon merger spree started among BFIs.
 Birgunj finance & Himchuli Bikash Bank merge & form Himchuli & Birgunj D.Bank.
 The process get memorandum after that.

10. BFIs that have merged

11. Conclusion
 Merger & Acquisition is the current blowing issues in Nepalese Financial Market to
survive a firm from losing its existence M & A is the right option. Impact of M&A
depends upon how well the vision, mission & objective of two firm are well
integrated. Moreover, it depends on how the, Management is & hoe the stakeholder
perceive M&A decision. So, M&A of any business firm should be carried out with
sufficient homework
 Organization culture has been the main error after two or more than two merged
financial institutions starts their operation as one. HR policies/directives regarding
M&A has to be add up/amended by NRB for upcoming merger to erase these kind of
error.
 Merger & Acquisition in Nepal banking sector has faced unused problem due to
improper due diligence. Giant financial institution hold all the DDA activities in their
hand and acquire all those micro level financial institutions by bargaining in
swapping ratio that resulted in inappropriate value, inefficient performance after
merger because if bad loan. Along with implementing policies regarding M&A in
Nepal. NRB need to look after the DDA or introduce policies of DDA for M&A in
Nepal.

12. Recommendation
M&A has became a wave in Nepal
these days over dozen of BFIs
are in process of merger or acquisition.
All BFIs should focus on “M&A Management”
to accomplish their process.