March 2005
BIZNEWS

NRB Not in Mood to Change Exchange Rate System

Nepal Rastra Bank (NRB) has revised its inflation forecast for the current year ending mid-July 2005 to 4.3%, up from the earlier prediction of 4.0%.

The revised estimated rate will now be the targeted rate of inflation for the year and NRB will act accordingly during the remaining period of the year. The factors causing the revision are the 30% increase in VAT (from 10% to 13%) and the hike in petroleum prices effected early January.

In its half-yearly monetary policy review, NRB has stated that the rate of inflation during the first six months of the year remained at 4.6% compared to 5% in the same period last year.

NRB has said that it is not going to change the existing exchange rate system under which the Nepali rupee has been gaining value against the US dollar while its rate is fixed against the Indian rupee.

NRB has accepted that the Nepali rupee is overvalued by 5% against the greenback in nominal terms and 2.5% in real terms thus eroding the competitiveness of Nepal’s overseas exports.

On the other hand, against the Indian rupee, the Nepali rupee is undervalued by about 1.5%. But the real effective exchange rate of the Nepali rupee is in balance when viewed against the weight of Nepal’s trade with India and the rest of the world. Hence there is no need to change the system, NRB has concluded.

Regarding the increased flow of bank credit for consumption purpose, NRB has said that it is not going to intervene. Though such loans are helping to boost the consumption of imported goods and thus putting pressure on the balance of payment, they have helped in the profitability of the banks by easing the excess liquidity problem, says NRB. The excess liquidity is caused by increased remittance inflow and slowdown in the credit demand for industries and trade.

Though NRB is suffering losses from its practice of keeping a major portion of foreign exchange reserve in US dollars, the review of the monetary policy has remained silent about it.

Nepali Transformers to Electrify Bhutan

Nepal Ekarat Engineering Co. (P) Ltd. (NEEK) signed a contract late January with the Bhutan Power Corporation (BPC), Bhutan to supply distribution transformer to the Bhutanese government undertaking.

The contract is learnt to be for the supply of 120 units to be delivered within May.

This supply will be the first instance of exporting electrical distribution transformers from Nepal. Moreover, it is also the first time that a Bhutanese government agency is directly importing anything from Nepal.

Nepal Ekarat is a joint venture between Nepali and Thai investors and a recipient of ISO 9001.

BaFIO relaxed for bankers

The government has promulgated the revised Banks and Financial Institutions Ordinance (BaFIO) relaxing some clauses that the bankers had complained as being too restrictive.

According to the revision, Nepal Rastra Bank now can approve the transfer of shares among the promoters of a new bank or financial institution even before the completion of five years of operation by such bank provided that the bank is facing some problems in its operation and there is an expectation of improvement in the situation if such a transfer is allowed.

Another change in the law allows a director of a bank or financial institution to be a director simultaneously also in a company that handles insurance or an employee’s provident fund. Earlier, a director of a bank or financial institution was not allowed to hold the same position in any other financial institution.

Also the qualification requirement for a CEO of a bank or financial institution has been relaxed. According to the new provision, the CEO should have a Bachelor’s degree in any discipline and work experience of at least five years as an executive or director in any bank, financial institution or corporate body. Earlier, the work experience in corporate bodies other than banks or financial institutions was not considered.

Kamana’s Ownership Structure to Change

More business houses are being inducted as shareholders in Kamana Publication Group (P) Ltd., the company that publishes vernacular broadsheet daily Nepal Samachar Patra and cine magazine Kamana monthly.

The new group of investors led by Padma Jyoti, Chairman of Jyoti Group of Companies, will now hold 50% in the company which will have its name changed to Kamana Group of Publications (P) Ltd.

Other members in the new group of about two dozens investors include Manoj Bahadur Shrestha (currently Chairman of Himalayan Bank Ltd.), Pradeep Kumar Shrestha (MD of Panchakanya Group), Rabi Bhakta Shrestha (MD of NE Group), Dinesh Lal Shrestha (MD of ICTC Group), Prithivi Bahadur Pandey (Chairman of Nepal Investment Bank) and Rajesh Babu Shrestha, (MD, Manakamana Darshan Pvt. Ltd.).

The existing shareholders in the company are Puskar Lal Shrestha (Editor of Nepal Samachar Patra and Kamana), Atma Ram Murarka (Chairman of Murarka Group) and Kumud Dugar (MD of KL Dugar Group).

According to company sources, the new set up will be effected in the company from mid-April, the new year under Nepali calendar.

Global Plus Enters TV Program Production

Global Plus, which started some months ago as a manufacturer of long-range wireless equipment, assembler of PCs and providers of low-cost telecommunication services to remote areas, has now entered the business of producing programs for television channels.

The company is planning to invest about Rs. 20 million in their business initially and has already set up Studio Global Plus as its arm to cater to this growing market which already has five TV channels in business with a number of other in the wings.

According to Ashish Shrestha, Business Development Manager of the company, Studio Global Plus will also produce TV commercials in addition to original documentaries, music videos and TV drama for local as well as export market.

The business is at present at the marketing stage and will go operational very soon.

“We’re waiting for some high profile businesses to commence full-swing operation though we already have enough prestigious small businesses,” adds Shrestha.

The company is also contemplating to enter the fashion business of designing and producing dresses for upmarket clients. The brand for this business will be Fashion Global Plus, according to Shrestha. However, he said the detailed modalities for this business are still being developed.

Corporate Kaleidoscope

l Nepal Lever Ltd. has changed its name to Unilever Nepal Ltd. According to company sources, it is in accordance with the global strategy of Unilever to create a uniform corporate brand and identity across the world. It is also learnt that the Hindustan Lever is being renamed Unilever India.

l Soaltee Crowne Plaza (SCP) has been conferred the "Preferred Hotel" title by Qatar Airways. 'This will help us in producing more than 300 additional room nights per month in 2005,' said Rajiv Malla, General Manager of SCP.

l Nepal Bank Ltd. has brought out yet another voluntary retirement scheme (VRS) with the target of reducing the number of employees by about 1,200 from the existing 3,600 plus. The latest scheme offers more facilities than the earlier two schemes and is addressed to employees who have completed 22 years of service.

l Royal Drugs Ltd., a government owned pharmaceuticals company, is coming out with a voluntary retirement scheme (VRS) to lay off about 250 of its 522 employees by spending nearly Rs. 100 million.

l Salt Trading Corporation Ltd., has set up a subsidiary in Qatar by the name Salt Trading Limited Qatar WLL and started selling Nepali vegetables and fruits through its own outlet at Doha.

Corporate Scorecard

Commercial Banks published their quarterly performance of the second quarter of the fiscal year 2004-05. The reports show an increase in operating profit of every bank as compared to the previous quarter. Moreover, every bank, except Himalayan Bank, has increased its performance as compared to the same period in the previous fiscal year. The performance of the Himalayan Bank has decreased by 5.49% as compared to the same period in the previous year. Nepal Bank Ltd in the same period of the previous year was in loss but during the period of current fiscal year it has tremendously increased its performance reaching an operating profit of Rs. 162 million from a loss of Rs. 10 million.

Finance companies too have published their unaudited semiannual financial reports of the first six months of the current fiscal year 2004-05. The reports show that most of the companies are in profit. Investment and Credit Finance Co. Ltd. and General Finance Ltd. are in operating loss of Rs. 757 and Rs. 2237 thousands respectively.

Some of the finance companies have held their AGMs. The annual reports of these companies show that Universal Finance and Fewa Finance have increased their net profit in fiscal year 2003-04 by 35.18% and 3720.90% respectively as compared to the previous fiscal year 2002-03. Fewa Finance had started business from the 3rd quarter of 2002-03. On the other hand, the net profit of the Gorkha Finance Ltd. has decreased by 40% as compared to the previous fiscal year. The major reason for the decrease in net profit is the decrease in interest income and increase in employee, office and non operating expenses.