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Country Commercial Guides for FY 2000: Nepal Report prepared by U.S. Embassy Kathmandu, released July 1999 Note*

CHAPTER VIII. TRADE AND PROJECT FINANCING

* DESCRIPTION OF BANKING SYSTEM

Two large banks dominate the banking sector. Nepal Bank, Ltd. is 41 percent government-owned. Rastriya Banijya Bank is 100 percent government-owned, but is troubled by bad loans and is now lending very little to new customers. Together, Nepal Bank Ltd. and Rastriya Banijya Bank account for 70 percent of the banking system's deposits and loans.

In the 1980's, Nepal opened up the commercial banking sector for foreign participation. As a result, several joint venture banks such as Nepal Arab Bank (NABIL Bank, now a Nepal-Bangladesh joint venture), Indosuez Bank, Grindlays Bank, State Bank of India, Bank of Kathmandu (Nepal-Thai joint venture), Everest Bank, Nepal Sri Lanka Merchant Bank and recently Nepal Bank of Ceylon were established. A large number of finance companies have also been established.

In 1994, the government expanded the role of the Stock Exchange by allowing private brokers to operate. The volume of trading subsequently increased dramatically but has since stabilized. In June 1996, the Government of Nepal announced that it would permit foreign institutional investors to hold up to 25 percent of the shares of listed firms in certain sectors such as tourism and power.

* FOREIGN EXCHANGE CONTROLS AFFECTING TRADE

The Nepali rupee is convertible for all current account transactions. Earners of foreign exchange are also permitted to retain 100 percent of those earnings and to open a foreign exchange in Nepal to hold those earnings. However, an approval from the Nepal Rastra Bank is required for payments of any kind to any person living outside of Nepal. Approval is also required to draw, accept or negotiate any bills of exchange, promissory notes or loans, if the payee is a person living outside of Nepal.

Foreign investors who have received permission to invest in convertible currency are permitted to repatriate the proceeds from the sale of that investment, the profits or dividends from that investment and the principal and interest paid on any foreign loans.

One dollar is currently equivalent to approximately 68 Nepali rupees. The currency value is pegged to the Indian rupee at a rate of approximately IR 1.0 = NR 1.60. That rate against the Indian rupee is adjusted periodically.

* GENERAL AVAILABILITY OF FINANCING

The government has recently decided to permit foreign institutional investors to own up to 25 percent of the shares of listed firms in certain sectors such as hydropower and tourism. Promoters can sell their shares and repatriate capital. Banks are only willing to lend short term but will consider loans with terms up to five years. As of June 1999, the total amount of outstanding loans of commercial banks to the private sector was slightly more than $1 billion USD. However, it is difficult to borrow in excess of $20 million from any combination of banks in Nepal. Similar liquidity constraints restrict the capital that can practically be raised on the Nepal Stock Exchange through any one public issue to something less than $5 million.

* HOW TO FINANCE EXPORTS/METHODS OF PAYMENT

For all intents and purposes, the only method of financing imports is a Letter of Credit (L/C). The Government has announced plans to open an export-import bank, but nothing has yet been accomplished.

* AVAILABLE EXPORT FINANCING AND INSURANCE

Agreements with the United States Eximbank, OPIC and IFC are in place. There are also numerous bilateral financing and insurance arrangements. The World Bank and the Asian Development Bank are both active in Nepal. Both provide loan and grant financing for public projects, and loan financing for local companies.

* AVAILABILITY OF PROJECT FINANCING

The U.S. Eximbank can lend to both the private and public sectors in Nepal, but only against a public sector guarantee. Availability of credit varies from year to year depending on Nepal's updated risk rating. The Overseas Private Investment Corporation (OPIC) can make limited financing available to projects with U.S. investment interest. The U.S. Trade and Development Agency (TDA) can fund feasibility studies for projects with significant commercial implications for exports of U.S. goods and services. In the case of the Upper Bhote Koshi Hydroelectric Project, TDA provided a $500 thousand USD grant for completion of a final feasibility study. Both the World Bank and the Asian Development Bank are active in lending for development activities including infrastructure projects such as roads, telecommunications, and hydroelectric power.

* BANKS WITH CORRESPONDENT U.S. BANKING ARRANGEMENTS

Nepal Bank Limited
Ms. Bhawani Devi Sharma, General Manager
Nepal Bank Bldg., Dharma Path
Kathmandu, Nepal
Phone: 977-1-222397, 221185
Fax: 977-1-222383

Rastriya Banijya Bank
Dr. Tilak Rawal, Executive Chairman
Tangal
Kathmandu, Nepal
Phone: 977-1-252595, 413800
Fax: 977-1-220129

Himalayan Bank Ltd.
Mr. Prithvi Bahadur Pandey, Executive Director
Tridevi Marg, Thamel
Kathmandu, Nepal
Phone: 977-1-227749, 250201
Fax: 977-1-222800

Nepal-Arab Bank Limited
Mr. D.C. Khanna, Executive Director
Kanti Path
Kathmandu, Nepal
Phone: 977-1-430427, 420404
Fax: 977-1-430427

Nepal Grindlays Bank Limited
Mr. Robert Arnold Coughlin, General Manager
Naya Banashwor
Kathmandu, Nepal
Phone: 977-1-254002, 246715
Fax: 977-1-226762

Nepal Indo-Suez Bank Limited
Mr. Michel Courzaret, Chief Executive Director
Durbar Marg
Kathmandu, Nepal
Phone: 977-1-228229, 228231
Fax: 977-1-228927

Nepal SBI Bank Limited
Mr. Moti Chanda Singh Yadav, Managing Director
Durbar Marg
Kathmandu, Nepal
Phone: 977-1-435516, 435613
Fax: 977-1-435612

Nepal-Bangladesh Bank Ltd.
Mr. Kazi Khalilur Rehman, Managing Director
Ramrukmani Sadan, Ramshah Path
P.O. Box 9062
Kathmandu, Nepal
Phone: 977-1-419297, 419206
Fax: 977-1-410644

Bank of Kathmandu Ltd.
Mr. Manoj Goel, Exe. V.P.
Kamal Pokhari, P.O. Box 9044
Kathmandu, Nepal
Phone: 977-1-418068, 421552
Fax: 977-1-418900

Everest Bank Limited
Mr. Surendra Singh Bhandari, Chief Executive
Naya Baneshwor
Kathmandu, Nepal
Phone: 977-1-482578, 481018
Fax: 977-1-482263

Nepal Sri Lanka Merchant Bank Ltd.
Mr. Arjuna Herath, Managing Director
P.O. Box 12248, NB Building, Bagbazar
Kathmandu, Nepal
Phone: 977-1-227555, 246109
Fax: 977-1-240647

Nepal Bank of Ceylon Ltd.
Mr. J.B.V. Fernando, Managing Director
P.O. Box 12559, Bagbazar
Kathmandu, Nepal
Phone: 977-1-246105, 227415
Fax: 977-1-244610