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How deferred amortization to capital redemption reserve practices are affecting shareholders of commercial banks in future periods?

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 Nepal Rastra Bank (NRB), through issuance of monetary policy in FY 2076/77 mandated commercial banks to issue at least 25% of paid-up capital prevailing at that time as debentures. The policy of NRB was directed towards stabilizing the interest rate as the bank secured a huge amount of long-term lendable funds. NRB directives require Banks and financial institutions issuing debentures/other debt instruments shall mandatorily allocate proportionate amount of debenture outstanding over the period before maturity from issuance date from the annual profit every year except the financial year in which the payment is made. NRB directives require banks and financial institutions, issuing debentures or other debt instruments, to allocate a proportionate amount from the annual profit each year toward the capital redemption reserve until the maturity of debentures, commencing from the issuance date. However, Banks and Financial Institutions followed a practice to apply exemption on the abov...
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Behind the Numbers: How NRB directives promote interest rate hikes ?

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Interest rates play a crucial role in the growth of the economy by influencing spending and investment. Lower interest rates encourage borrowing and consumption, whereas higher interest rates discourage both, thus playing a pivotal role in either boosting or slowing down the economy. Interest rates also affect inflation, currency exchange rates, direct resources and investment, and maintain financial stability. Overall, interest rates are powerful tools used by central banks to manage the economy and guide it toward desired outcomes. During periods of declining interest rates, everyone tends to think that everything is okay; however, there are some anomalies in the directives and regulations issued by NRB (Nepal Rastra Bank), the central banks that support higher deposit rates. Let's discuss this further . Does NRB regulation promote for BFI's interest rate hike? Currently, we are experiencing declining deposits rates offered by BFIs. However, we were experiencing opposite ...
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Understanding the hidden cost associated with bonus share

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Bonus shares are a common topic in Nepal's stock market, offering excitement among investors. Investors are also usually misguided by saying bonus shares are issued free of costs. The issuance of bonus shares to meet specific requirement can be commendable but issuance of bonus shares in the name of just increasing share do cost shareholders wealth and company's resources. This article takes a deep drive into the cost of bonus shares and procedures and impacts of bonus shares. What is bonus share? A bonus share is an additional share issued by a company to its existing shareholders, in proportion to their holdings. This essentially increases the number of shares outstanding for the company. Why do company issue bonus share? Companies may issue bonus shares for several reasons: Rewarding Shareholders without Cash:   When a company has good profits but limited cash reserves, issuing bonus shares can be a way to reward shareholders without depleting their c...
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Evergrande case study

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Chinese Economy China is a country with second largest economy of the world. Despite the impact of COVID-19 pandemic, China managed to achieve 8.1 per cent GDP growth last year (2021). It is largest growth rate of China in a decade. It surpassed its own government’s 6 per cent target. This figure may look impressive but is not quite strong as it seems. China’s growth m omentum was much wea ker  in the second half of the year (4 % growth) than in the first half (12.2 %), owing largely to the government’s efforts to rein in the real estate sector which contributes around 30% of China’s G DP.  The economy of China is centrally planned where majority of resources are under the control of government. Any real estate company of China may take land on lease and build a building in order to operate it's business. Demographic structure of China With almost 96 Lakh km 2  (37 Lakh sq. miles) of total surface area, China is the 4th largest country in the world after Russia, Ca...
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Effect of pegging on Nepali Rupee and current scenario

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I tried to learn about currency pegging and positive and negative aspect of currency pegging in the context of Nepal. I have prepared this article based on my learnings. Let's proceed... What is Money and currency? Money is an intangible item with value that makes the exchange of goods and services possible. They can be in the form of currency notes, cheques, drafts, letter of credit, bills of exchange, promissory notes etc. (defined in Nepal Rastra Bank Act, 2058) while “Currency Note” means paper money or coins that are in circulation. Previously, currencies of a country were backed up by gold and other precious metal which was called gold standard where each coin or note could have been exchanged for a fixed amount of a currency. Today, majority of countries have left gold standard due to various economic scenarios faced over time (Gold standard can be discussed some other day). Today, majority of currency has followed fiat money (does not possess intrinsic value in itself n...
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