Common Interview Tips

First and foremost, congratulations if you have an interview! That in itself is commendable, so now you just want to make sure you come across in the best possible light. I have been asked numerous times what to do in preparation for interviews. While there is no way of predicting exactly what you will be asked, here are 20 common questions that tend to come up. This is by no means an exhaustive list. The purpose is to illustrate the importance of preparation and refreshing your memory regarding specific projects and situations. 

1. Tell me about yourself.

This is probably the most asked question in an interview. It breaks the ice and gets you to talk about something you should be fairly comfortable with. Have something prepared that doesn't sound rehearsed. It's not about you telling your life story and quite frankly, the interviewer just isn't interested. Unless asked to do so, stick to your education, career and current situation. Work through it chronologically from the furthest back to the present.

2. Why are you looking for another job (or why did you leave your previous job)?

On the surface, this appears to be a simple question, yet it is easy to slip. I would suggest not mentioning money at this stage as you may come across as totally mercenary. If you are currently employed, you can say it's about developing your career and yourself as an individual. If you are in the unfortunate position of having been downsized, stay positive and keep it brief. If you were fired, you should have a solid explanation. Whatever your circumstances, do not talk about the drama but remember to stay positive.

3. What do you know about this organization?

Do your homework prior to the interview. Doing the background work will help you stand out. Find out who the main players are -- have they been in the news recently? You're not expected to know every date and individual but you need to have a solid understanding of the company as a whole.

4. Why do you want this job?

This question typically follows on from the previous one. Here is where your research will come in handy. You may want to say that you want to work for a company that is x, y, z, (market leader, innovator, provides a vital service, whatever it may be). Put some thought into this beforehand, be specific and link the company's values and mission statement to your own goals and career plans.

5. Who are our main competitors?

This shows you really understand the industry and the main players.

Think about a few and say how you think they compare (similarities, differences). This is a good opportunity to highlight what you think are the company's key strengths.

6. What would your previous co-workers say about you?

This is not the arena for full disclosure. You want to stay positive and add a few specific statements or paraphrase. Something like "Joe Blogs always mentioned how reliable and hard working I was" is enough.

7. How do you handle stressful situations and working under pressure?

There are several ways of addressing this one. You may be the sort of person that works well under pressure; you may even thrive under pressure. Whatever the case, make sure you don't say you panic. You want to give specific examples of stressful situations and how well you dealt with them. You may also want to list a few tools you use to help you, such as to-do lists, etc. It is alright to say that you will ask for assistance when the job is more than what you can handle. It is equally acceptable to say that you work best under pressure if this is indeed the case and relevant to the particular role.

8. Are you applying for other jobs?

If you are serious about changing jobs then it is likely that you are applying to other positions. It is also a way of showing that you are in demand. Be honest but don't go into too much detail; you don't want to spend a great deal of time on this. If asked about names of who you have spoken to, it is absolutely legitimate to say you prefer not to disclose that information at this stage.

9. What are you like working in a team?

Your answer is of course that you are an excellent team player; there really is no other valid answer here as you will not function in an organization as a loner. You may want to mention what type of role you tend to adopt in a team, especially if you want to emphasize key skills such as leadership. Be prepared to give specific examples in a very matter of fact sort of way.

10. What sort of person do you not like to work with?

This is not an easy one as you have no idea whom you would be working with. Even if you can immediately think of a long list of people who you don't like to work with, you could take some time to think and say that it's a difficult question as you have always gotten on fine with your colleagues.

11. What is your greatest strength?

This is your time to shine. Just remember the interviewer is looking for work related strengths. Mention a number of them such as being a good motivator, problem solver, performing well under pressure, loyal, positive attitude, eager to learn, taking the initiative, attention to detail. Whichever you go for, be prepared to give examples that illustrate this particular skill.

12. What is your biggest weakness?

This is a challenging question -- as if you have no weaknesses you are obviously lying! Be realistic and mention a small work related flaw.

Many people will suggest answering this using a positive trait disguised as a flaw such as "I'm a perfectionist" or "I expect others to be as committed as I am." I would advocate a certain degree of honesty and list a true weakness. Emphasize what you've done to overcome it and improve. This question is all about how you perceive and evaluate yourself.

13. What has been your biggest professional disappointment/achievement so far?

If asked about disappointments, mention something that was beyond your control. Stay positive by showing how you accepted the situation and have no lingering negative feelings. If asked about your greatest achievement, choose an example that was important to you as well as the company. Specify what you did, how you did it and what the results were. Ideally, pick an example that can relate to the positions you are applying for.

14. What kind of decisions do you find most difficult to take?

There is no right or wrong answer here. The logic behind this type of question is that your past behavior is likely to predict what you will do in the future. What the interviewer is looking for is to understand what you find difficult.

15. Tell me about a suggestion that you have made that has been successfully implemented.

Here the emphasis is on the implemented. You may have had many brilliant ideas, but what the interviewer is looking for is something that has actually materialized. Be prepared to briefly describe how it went from an idea to implementation stage.

16. Have you ever had to bend the rules in order to achieve a goal?

Beware of this type of question! Under no circumstances is it necessary to break company policy to achieve something. Resist the temptation to answer and give examples, as what the interviewer is looking for is to determine how ethical you are and if you will remain true to company policy.

17. Are you willing to travel or relocate if necessary?

This is something you need to have very clear in your mind prior to the meeting. There is no point in saying yes just to get the job if the real answer is actually no. Just be honest as this can save you problems arising in the future.

18. Why should we hire you?

This is an important question that you will need to answer carefully.

It is your chance to stand out and draw attention to your skills, especially those that haven't already been addressed. Saying "because I need a job" or "I'm really good" just won't cut it. Don't speculate about other candidates and their possible strengths or flaws. Make sure you focus on you. Explain why you make a good employee, why you are a good fit for the job and the company and what you can offer.

Keep it succinct and highlight your achievements.

19. Regarding salary, what are your expectations?

This question is always a tricky one and a dangerous game to play in an interview. It is a common mistake to discuss salary before you have sold yourself, and like in any negotiation, knowledge is power. Do your homework and make sure you have an idea of what this job is offering. You can try asking them about the salary range. If you want to avoid the question altogether, you could say that at the moment, you are looking to advance in your career and money isn't your main motivator. If you do have a specific figure in mind and you are confident you can get it, then it may be worth going for it.

20. Do you have any questions for us?

This one tends to come up every time. Have some questions prepared.

This will show you have done some research and are eager to know and learn as much as possible. You probably don't want to ask more than three or four questions. Try and use questions that focus on you becoming an asset to the company. A generic question might be "how soon can I start if I were to get the job." Another idea is to ask what you would be working on and how quickly they expect you to be able to be productive. Remember to ask about next steps and when you can expect to hear back.

Bear in mind that the interview starts from the minute you walk into the building until you leave and are out of sight. Don't think that just because you have left the meeting room, you are "off the hook."

Common Interview Tips

First and foremost, congratulations if you have an interview! That in itself is commendable, so now you just want to make sure you come across in the best possible light. I have been asked numerous times what to do in preparation for interviews. While there is no way of predicting exactly what you will be asked, here are 20 common questions that tend to come up. This is by no means an exhaustive list. The purpose is to illustrate the importance of preparation and refreshing your memory regarding specific projects and situations. 

1. Tell me about yourself.

This is probably the most asked question in an interview. It breaks the ice and gets you to talk about something you should be fairly comfortable with. Have something prepared that doesn't sound rehearsed. It's not about you telling your life story and quite frankly, the interviewer just isn't interested. Unless asked to do so, stick to your education, career and current situation. Work through it chronologically from the furthest back to the present.

2. Why are you looking for another job (or why did you leave your previous job)?

On the surface, this appears to be a simple question, yet it is easy to slip. I would suggest not mentioning money at this stage as you may come across as totally mercenary. If you are currently employed, you can say it's about developing your career and yourself as an individual. If you are in the unfortunate position of having been downsized, stay positive and keep it brief. If you were fired, you should have a solid explanation. Whatever your circumstances, do not talk about the drama but remember to stay positive.

3. What do you know about this organization?

Do your homework prior to the interview. Doing the background work will help you stand out. Find out who the main players are -- have they been in the news recently? You're not expected to know every date and individual but you need to have a solid understanding of the company as a whole.

4. Why do you want this job?

This question typically follows on from the previous one. Here is where your research will come in handy. You may want to say that you want to work for a company that is x, y, z, (market leader, innovator, provides a vital service, whatever it may be). Put some thought into this beforehand, be specific and link the company's values and mission statement to your own goals and career plans.

5. Who are our main competitors?

This shows you really understand the industry and the main players.

Think about a few and say how you think they compare (similarities, differences). This is a good opportunity to highlight what you think are the company's key strengths.

6. What would your previous co-workers say about you?

This is not the arena for full disclosure. You want to stay positive and add a few specific statements or paraphrase. Something like "Joe Blogs always mentioned how reliable and hard working I was" is enough.

7. How do you handle stressful situations and working under pressure?

There are several ways of addressing this one. You may be the sort of person that works well under pressure; you may even thrive under pressure. Whatever the case, make sure you don't say you panic. You want to give specific examples of stressful situations and how well you dealt with them. You may also want to list a few tools you use to help you, such as to-do lists, etc. It is alright to say that you will ask for assistance when the job is more than what you can handle. It is equally acceptable to say that you work best under pressure if this is indeed the case and relevant to the particular role.

8. Are you applying for other jobs?

If you are serious about changing jobs then it is likely that you are applying to other positions. It is also a way of showing that you are in demand. Be honest but don't go into too much detail; you don't want to spend a great deal of time on this. If asked about names of who you have spoken to, it is absolutely legitimate to say you prefer not to disclose that information at this stage.

9. What are you like working in a team?

Your answer is of course that you are an excellent team player; there really is no other valid answer here as you will not function in an organization as a loner. You may want to mention what type of role you tend to adopt in a team, especially if you want to emphasize key skills such as leadership. Be prepared to give specific examples in a very matter of fact sort of way.

10. What sort of person do you not like to work with?

This is not an easy one as you have no idea whom you would be working with. Even if you can immediately think of a long list of people who you don't like to work with, you could take some time to think and say that it's a difficult question as you have always gotten on fine with your colleagues.

11. What is your greatest strength?

This is your time to shine. Just remember the interviewer is looking for work related strengths. Mention a number of them such as being a good motivator, problem solver, performing well under pressure, loyal, positive attitude, eager to learn, taking the initiative, attention to detail. Whichever you go for, be prepared to give examples that illustrate this particular skill.

12. What is your biggest weakness?

This is a challenging question -- as if you have no weaknesses you are obviously lying! Be realistic and mention a small work related flaw.

Many people will suggest answering this using a positive trait disguised as a flaw such as "I'm a perfectionist" or "I expect others to be as committed as I am." I would advocate a certain degree of honesty and list a true weakness. Emphasize what you've done to overcome it and improve. This question is all about how you perceive and evaluate yourself.

13. What has been your biggest professional disappointment/achievement so far?

If asked about disappointments, mention something that was beyond your control. Stay positive by showing how you accepted the situation and have no lingering negative feelings. If asked about your greatest achievement, choose an example that was important to you as well as the company. Specify what you did, how you did it and what the results were. Ideally, pick an example that can relate to the positions you are applying for.

14. What kind of decisions do you find most difficult to take?

There is no right or wrong answer here. The logic behind this type of question is that your past behavior is likely to predict what you will do in the future. What the interviewer is looking for is to understand what you find difficult.

15. Tell me about a suggestion that you have made that has been successfully implemented.

Here the emphasis is on the implemented. You may have had many brilliant ideas, but what the interviewer is looking for is something that has actually materialized. Be prepared to briefly describe how it went from an idea to implementation stage.

16. Have you ever had to bend the rules in order to achieve a goal?

Beware of this type of question! Under no circumstances is it necessary to break company policy to achieve something. Resist the temptation to answer and give examples, as what the interviewer is looking for is to determine how ethical you are and if you will remain true to company policy.

17. Are you willing to travel or relocate if necessary?

This is something you need to have very clear in your mind prior to the meeting. There is no point in saying yes just to get the job if the real answer is actually no. Just be honest as this can save you problems arising in the future.

18. Why should we hire you?

This is an important question that you will need to answer carefully.

It is your chance to stand out and draw attention to your skills, especially those that haven't already been addressed. Saying "because I need a job" or "I'm really good" just won't cut it. Don't speculate about other candidates and their possible strengths or flaws. Make sure you focus on you. Explain why you make a good employee, why you are a good fit for the job and the company and what you can offer.

Keep it succinct and highlight your achievements.

19. Regarding salary, what are your expectations?

This question is always a tricky one and a dangerous game to play in an interview. It is a common mistake to discuss salary before you have sold yourself, and like in any negotiation, knowledge is power. Do your homework and make sure you have an idea of what this job is offering. You can try asking them about the salary range. If you want to avoid the question altogether, you could say that at the moment, you are looking to advance in your career and money isn't your main motivator. If you do have a specific figure in mind and you are confident you can get it, then it may be worth going for it.

20. Do you have any questions for us?

This one tends to come up every time. Have some questions prepared.

This will show you have done some research and are eager to know and learn as much as possible. You probably don't want to ask more than three or four questions. Try and use questions that focus on you becoming an asset to the company. A generic question might be "how soon can I start if I were to get the job." Another idea is to ask what you would be working on and how quickly they expect you to be able to be productive. Remember to ask about next steps and when you can expect to hear back.

Bear in mind that the interview starts from the minute you walk into the building until you leave and are out of sight. Don't think that just because you have left the meeting room, you are "off the hook."

10 Life Lessons From Harvard Business School’s Class Of 1963

I’ve posted before about research into the most important life lessons we can learn from older people, taken from Karl Pillemer‘s excellent book, 30 Lessons for Living: Tried and True Advice from the Wisest Americans.

Here’s another take on the same subject:

Before the 50th reunion of Harvard Business School’s class of 1963 they asked them what lessons they would pass on to younger people.

This isn’t firm scientific research — but we ignore it at our peril. We can learn much about life from those who have seen it to the end.

The site has a lot of content but I’ve gone through and curated the bits that I felt were most useful and insightful. Hat tip to my friend Nick for the pointer.

LEADERSHIP

ANONYMOUS:

I would have been a better leader if I had been less cocky in my early career, and more confident in my middle career.

ROBERT K. BOWMAN:

A successful leader:

• Knows as much as he can about his organization’s mission
• Believes in the mission
• Communicates the mission clearly
• Points the way
• Gets out of the way

CAREER

RON LESLIE:

Steps to find fulfilling work:

1. Take the initiative to investigate the places you think are of interest. Ask good questions.
2. Go with the self-assurance of having written on an index card each of your past accomplishments(including where you simply helped other people do their thing) in three forms:Use those cards deftly to encourage people to talk to you — showing you listen on their level and understand whatever they tell you. Remember: The more they talk, the smarter they’ll think you are.
1. A simple phrase; e.g., “top salesman in New York office for three years”
2. A three-sentence statement of the problem, your solution, and the result
3. A one-page explanation or anecdote to share if asked to give details 

MARRIAGE & FAMILY

RALPH LINSALATA:

• Tell your spouse and children that you love them every day, no matter how you feel.
• Do not bring your problems home with you.
• Realize the joy that comes from helping your spouse and children excel in their fields of interest and enjoy themselves.
• Develop within your family a sense of obligation to help others.
• Spending quality time with your family — not just time — is critical.
• Choose a spouse who will understand and support you, and one for whom you will do the same. Life is much better if you can help each other grow and expand your knowledge, experiences, friends, and capabilities. 

RON LESLIE:

The sweetest words in the English language are, “Granddad, would you like to …?”

BUSINESS

DONALD P. NIELSEN:

• Not all decisions turn out well. Be prepared to deal with problems over which you have no control.
• Almost everything will require more money and more time than you think.
• Never settle for “good enough.” Always strive for excellence.
• Set high expectations for yourself and those with whom you work.
• Move quickly to deal with people issues.
• Hiring smart, driven people is a ticket to your own success.

WEALTH

WARREN BATTS:

I was born in 1932 and grew up during the Depression. In the beginning, poverty was the level to which I aspired. When I reached it, my next goal was to get out of debt. That took several years. Then my goal was to become financially independent. After reaching independence, more money was not a great motivator for me. My interest became trying to make a difference — making the company I worked for successful, and working for my church and other volunteer organizations.

GROWING OLDER

ANONYMOUS:

Retire to something — not from something. Stay engaged. Be physically active and intellectually curious.

 CHARITY & SPIRITUALITY

J. LAWRENCE WILSON:

If one is devoted solely to promoting the welfare of himself, his family, and his friends, life can be barren. Charity, faith, and spirituality enrich one’s life. Faith or the belief in a power greater than oneself seems to be important for humans, for spirituality is a part of every culture. If this spirituality fosters concern for the welfare of others, it is of great benefit to society. No matter what a person’s professed faith, I admire him if he is charitable.

HAPPINESS & SUCCESS

HENRY A. GILBERT:

Success and wealth are being a lover and being loved.

Success is using your tools and powers to enhance the lives and success of others.

Success is capitalizing on economic opportunities yet treating others with over-reaching kindness.

J. LAWRENCE WILSON:

When I think back over my career, I am struck that my fondest memories are of people rather than experiences, places, or accomplishments.

TURNING POINTS

RALPH LINSALATA:

What did I learn from the turning points in my life? Look for great colleagues, role models, and teachers. Be certain to understand the opportunities relative to the risks, and how the risks can be avoided. Recognize your strengths and weaknesses, and act accordingly. Play to your strengths while you work, but work on your weaknesses.

GERALD (JERRY) WOLIN:

Many things that happened in my career were the result of random acts. The important thing is to keep your eyes open to recognize the right moves.

LIFE’S LESSONS

JOSE M. FAUSTINO:

I switched fields twice in my academic career — I believed the entire experience was part of growing up. The lesson here for young people: Do not hesitate to switch interests, majors, or fields of concentration. Find your preference or your passion, then focus on it to your heart’s content.

Success is a journey – not a race. Prepare well, retain good practices, and make a habit of effective strategies:

1. Do not be content to be average. Mediocrity breeds boredom, poor opportunity, and an unsatisfactory lifestyle. Instead, decide to excel in everything you do, and be distinctive, if not unique, in your approach.
2. Take well-analyzed risks, particularly when there is everything to gain and little to lose. Do not be afraid of rejection when you have competently and ethically tried to succeed.
3. Be skilled in political strategy. Interpersonal, leadership, and motivational skills are all important for success, but few consider political strategy. In my mind, there is organizational politics in any group with more than three people.

JOHN A. MOELLER:

An important lesson in life is learning whom you can rely on, depend on, and trust, and whom you cannot. Only experience and “gut feel” can teach this. Human nature and values — whether of business owners, top management, associates, or staff — vary all over the place. Steering your life, family, career, time, investments, and loyalty toward those you can trust and rely upon is a priority.

Never forget where you came from, and always remember what you are here for. Be true to your values and faith. We are here for a purpose. Enjoy the ride.

Merger and Acquisition

As per the NRB’s latest Financial stability data, the country has 30 commercial banks, 82 development banks, 59 financial companies and 37 micro-finance companies. The number shows that there is tough competition among banks and financial institutions (BFIs) forcing them to face multiple challenges. The major one is surely the capital base. The introduction of merger policy has created opportunities for banks to increase their capital base. At the same time, the BFIs are also going ahead with Initial Public Offerings (IPOs) to increase their capital base. In this issue, New Business Age tries to present an overview of how the Nepali banking sector is going about with mergers and IPOs.

The trend of announcing merger plans by the banks and financial institutions (BFIs) has gathered pace in recent months. According to Nepal Rastra Bank, a total of 28 banks and financial institutions (BFIs) have already merged with each other reducing the total number of BFIs by 15. Similarly, some 24 BFIs have already received Letter of Intent (LoI) to be merged with one other, and upon completion of this process, the total number of BFIs will reduce by another 14. And, other 12 BFIs have applied for the LoI. Once these too complete the process, the number of BFIs will be reduced by additional 5.

This shows that in spite of several weaknesses to implement monetary policy, Nepal Rastra Bank (NRB) has become quite successful in implementing its merger policy. Earlier, the central bank had announced packages of rebates, discounts, waivers and facilities to the BFIs opting for mergers. But now, the bankers themselves believe that merger has become compulsory for many banks which are suffering from the problem of low capital base and limited geographical coverage.

Similarly, a wave of Initial Public Offerings (IPOs) has started among the new BFIs. In the last Nepali calendar year that ended on mid-April, 20 BFIs issued IPOs, issuing shares worth Rs 5.6 billion. More offering such IPOs are in the pipeline. Though BFIs can increase their capital base also through Further Public Offering (FPO) of their shares, very few of them have opted for this route.

Need for Merger

Apparently, the universal objectives of the merger or acquisition are to consolidate the capital, reduce operational expenses, expand business and maximize profits. 

However, in our case, mergers of three distinct natures now seem to be in the offing. 

Firstly, relatively large institutions are planning to create a larger capital base so they could compete with global players who could potentially begin their operations here owing to WTO arrangements. 

The second type of merger would be compulsive of sorts as the NRB has asked the BFIs belonging to the same business house to integrate without any “ifs and buts’’. 

The third types are those who fear the complete meltdown if they fail to merge soon to consolidate resources, introduce corporate best practices and reduce expenses. 

Consolidation is becoming increasingly necessary as banks are struggling to give returns to their shareholders. Almost all BFIs are eyeing mergers, and the number of BFIs will come down notably in the next three years.

However, bankers say more incentives are needed to speed up mergers, particularly between commercial banks. For example, they have been demanding decrease in corporate income tax to 20 percent from the current 30 percent for a merged BFI.

As there is no environment for increasing capital by issuing rights shares and bonus shares as that will not be enough to raise capital to the required level, finance companies have no other option than to go for a merger. Many finance companies have thought that’s it’s better to opt for a merger than to face action from the central bank for failing to increase the capital to the required level next year.

Also the shaken public confidence on towards banking institutions due to recent problems in the banking sector and their inability to give proper returns to their shareholders, has forced the BFIs to increasingly lean towards consolidation. 

Consolidation is necessary also to increase the paid-up capital since the possibility to increase of paid up capital by issuing rights shares is very slim. Moreover, the size of loans being demanded by single borrowers has been increasing in recent years. So, BFIs having low paid-up capital cannot fulfill such demand. 

Similarly, merger becomes an urgent need also because due to the terms agreed by Nepal while gaining membership of World Trade Organisation (WTO), financail services sector is open for foreign investors beginning 2010. So, foreign banks can open their branch in nepal. If big foreign banks open their branches in Nepal, the Nepali banks with small capital base may not be competitive.

The Journey of BFIs Mergers in Nepal So Far

The journey of merger of Nepali banks began nine years back. In 2004, Laxmi Bank merged into it Himalayan Saving and Finance Company (HISEF), and it was done according to the broad provisions of Company Act and Bank and Financial Institution Act (BAFIA). The then Narayani Finance and National Finance had merged to become Narayani National Finance following the same Acts. Similarly, Himchuli Development Bank and Birgunj Finance merged and became H & B Development Bank a also merged under the same act.

That experience highlighted a need for special rules to govern this process. But was only in May 2011 that Nepal Rastra Bank came up with a special rule to facilitate mergers between BFIs.

When Nepal Rastra Bank (NRB) introduced the Merger By-laws in May 2011, many had still doubted whether Nepali banks and financial institutions (BFIs) would go for mergers as the concept was a relatively new for the country.  That doubt seemed valid for some time. But soon a merger spree started among BFIs. Birgunj Finance and Himchuli Bikas Bank sought LoI from NRB in 2004 and completed their merger the same year becoming H&B Development Bank. The process gained memorandum after that. 

As the list on the box shows, most of the BFIs that have chosen to merge are development banks and finance companies merging with another institution of same category or with a commercial bank. However, lately commercial banks too have started merging with another commercial bank. The recent such example is the merger process started by Bank of Asia Nepal and Nepal Industrial and Commercial Bank Limited.

Major Provisions of Merger By-Law

1.      ‘A’, ‘B’ and ‘C’ class financial institutions can merge into each other. ‘D’ class FI can merge with another ‘D’ class FI only.

2.      FIs that want to merge should form a separate merger committee and sign Memorandum of Understanding (MoU).

3.      The due process including MoU should be completed before applying to the Nepal Rastra Bank (NRB)for Letter of Intent (LoI). NRB should hold a meeting within 15 days of receiving LoI application.

4.      NRB decides whether to issue LoI or not after conducting discussions and detailed study of concerned institutions.

5.      Due Diligence Audit should complete within six months of receiving LoI from the central bank.

6.      The detailed factual report comprising assets and liabilities of concerned institutions should be submitted to the NRB.

7.      Copy of the decision regarding name, address and share ratio of concerned financial institutions should be submitted to NRB.

8.      Action plan of concerned financial institution including date of operation after merger process is completed should be submitted to NRB.

9.      Other documents as prescribed by the NRB should be submitted to NRB.

NRB can ask for merger if the following situation prevails:

1.      In case representatives of a family, business group, firm or company are found assuming posts in the boards of directors of two or more BFIs and/or their financial conditions remain unhealthy.

2.      If the non-performing loans (NPL) exceeded 5 percent of the total loan portfolio for 3 consecutive years. 

3.      Increase in systematic risk (i.e. in a situation when a BFI seems likely to fail to meet liabilities).

4.      If independent operation of a BFI is causing negative impact on the banking system.

5.      If a BFI faces prompt corrective action (PCA) for three times or more.

6.      If NRB finds that merger of systemically important BFIs will strengthen the entire banking system.

Facilities for Merger

The new regulations have pledged relaxation on provisions for capital structure, shareholding limit for promoters, credit-deposit ratio, borrowings limit for promoters and deprived sector lending, among others.

If the merger causes increase in the shareholding percentage of any promoter beyond the stipulated limit, such promoters get five years time to bring down their stake within the limit.

Likewise, merged institutions are allowed additional three years to bring CD ratio down to the of 80 percent. Similarly, promoters get additional three years to bring their borrowing (loans) down to less than 50 percent of the total shares they hold in the merged BFI.

In a bid to lure BFIs to merger, the central bank has even promised a discount in refinance rate by one percentage point to the merged institution. It has also offered to lower penal rate on standing liquidity facility by half for three years in case two or more BFIs merged into one.

The central bank has also opened upgrading of  fianancial institutions relaxed the restriction on upgrading of a BFI to encourage merger. A BFI can upgrade to higher category (category ‘C’ to ‘B’ and from ‘B’ to ‘A’) if the institution seeking to upgrade is formed through a merger).

The rules also promise to recommend to the government for exemption of taxes in case a BFI faces losses during the course of merger facilities include the time duration of using SLF will be expanded to 30 days from the existing 5 days for three years after completion of merger process. NRB can provide other facilities according to the need of the banks. 

Challenges of Transition

Most of the consumers do not get sense of transition of banks merger because in an ideal case, all banking services continue to function normally even during the transition. ATM cards work, checks consumers write do not bounce and consumers will be able to get the all services. 

 However, banks face several problems during the transition. Among others major challenges of merger are as mentioned below:

1. Brand Name

The identity of the institution in the market is through the brand name. The image of an entity is joining with a brand image. So, the settlement in the brand name of the newly formed merged entity is essential.

2. Composition of board of directors (BoD) and shareholders

The major decision makers in any entity are the board of directors and the shareholders. If the disputes arise among these people, the performance as well as the future of the entity will be directly hampered. So, the number as well as the persons that should represent at the BoD should be settled in cool mind.

3. Structure of the new management team

The new merged entity comprises of the management team from two or more different entities. So, clear visions should be set-up for making the new management team which could handle the merged organization in coming days.

4. Employees Management

As the organization is merged, at the same time the employees also come together. The major assets any organization is human resources. So, if the merged entity can not handle properly the grievances of the employees, the situation of disputes may arise.  

5. Ownership Division

The problem of division among the ownership might arise in the merged entity. The questions of shareholding as well as takeover of the share equity might create division among the shareholders.  

6. Banking Software

Various types of software are being used by the BFIs for the smooth operation. Huge cost and efforts had been gone in maintain the software in an organization. But if the two different entities are using two different types of banking software, the problem as well as cost may arise in the settlement of the books of accounts.

Need of Separate Acquisition Law

Acquisition is, however, yet to come under the legal regime in the country. The central bank has said that it has been doing necessary preparations to introduce a separate legal mechanism on acquisition to encourage consolidation of the financial sector. Acquisition of financial institutions is difficult at present since there is no related legal provision, says CEO of Kailash Bikas Bank Krishna Raj Lamichhane who is also the president of Development Bankers Association.

NRB officials say that about half a dozen banks had held talks with the central bank about the possibility of acquiring regional development banks and finance companies to reach out to new areas. Acquisition is a relatively faster process as the challenges of merger such as it can be done once the buyer and the seller reach an agreement. Bankers say the introduction of legal provisions for acquisition will help bring down the number of BFIs in the country. The central bank needs to be careful while issuing new licenses and also the ability for smaller banks to withstand the economic crisis.

IPO Attraction

The Nepali investors have been showing very encouraging response to the IPO of the company, especially of commercial banks. The data of Securities Board of Nepal (Sebon) reveals that 22 companies have got approval for the IPO from mid July 2012 to till the mid May of 2013. Shares worth of Rs 5.78 billion came in the market during this period. Of the total 22 companies, eight development banks, eight commercial banks, three finance companies, one insurance company and one hydro-power company.

The Direction Ahead

The foremost challenge to the country’s banking sector in the realm of merger of banks is to create an environment where major financial institutions will go for merger voluntarily, says Upendra Paudyal, vice-president of Nepal Bankers Association (NBA).

The overall financial health of merged institutions has been found to be improved so far, he opines, saying the primary intention of the merger should be to strengthen capacity of concerned banks and financial institutions. 

The policy taken by the Nepal Rastra Bank has resulted in positive signs since the market players in the arena of banks and financial institutions have saturated, adds Paudyal says. “Merger bylaws have played very crucial role in lowering the number of BFIs.” 

But there is a question about the way forward of merger in the banking sector. The mathematical aspect has been highlighted so far by both the government and the BFIs, Paudyal says. It is cultural aspect which largely determines the success of merger. Sincere effort from all concerned parties is a must to make a merger journey a great success in the counry, he concludes.

  In Nutshell

The first case of merger between BFIs in Nepal was the merger of HISEF Finance Ltd into Laxmi Bank Ltd in 2004

BFIs that have merged already

·         Himchuli Development Bank & Birgunj Finance forming H&B Development Bank Ltd

·         Narayani Finance & National Finance forming Narayani National Finance

·         Nepal Bangladesh Bank & Nepal-Sri Lanka Merchant Bank forming Nepal Bangladesh Bank Ltd

·         Kasthamandap Development Bank & Shikhar Finance forming Kasthamandap Development Bank

·         Business Development Bank & Universal Finance forming Business Universal Development Bank 

·         Machhapuchchhre Bank & Standard Finance forming Machhapuchchhre Bank Ltd

·         Global Bank & IME Financial Institution & Lord Buddha Finance forming Global IME Bank Ltd

·     Infrastructure Development Bank & Swastik Merchant Finance forming Infrastructure Development Bank Ltd

·         Annapurna Development Bank & Suryadarshan Finance forming Supreme Development Bank Ltd

·         Vibor Bikas Bank & Bhajuratna Finance forming Vibor Bikas Bank Ltd

·         Alpic Everest Finance & Butwal Finance & CMB Finance forming Synergy Finance Co Ltd

·         Shine Development Bank & Resunga Development Bank forming Shine Resunga Development Bank

·         Pashupati Development Bank & Udyam Development Bank forming Axis Development Bank Ltd

·         Prudential Finance & Gorkha Finance forming Prudential Finance Company Ltd

·         NIC Bank & Bank of Asia forming NIC Asia Bank Ltd (Process ongoing)

Letter of Intent (LoI) Received     

·         Premier Finance & Imperial Finance to form Premier Imperial Finance

·         Royal Merchant Banking and Finance, Rara Bikas Bank & Api Finance

·         Araniko Development Bank & Surya Development Bank

·         Central Finance Ltd & Patan Finance Ltd

·         Diyalo Bikas Bank Ltd & Professional Bikas Bank Ltd

·         NDEP Development Bank & Hama Finance Ltd

·         Siddhatha Development Bank & Public Development Bank Ltd

·         Five Regional Development Bank to form One National Level Gramin Bikas Bank

·         Shangrila Development Bank Ltd & Bagheshwor Development Bank

LoI In Pipeline 

·         Lalitpur Finance Ltd  & Progressive Finance Ltd

·         Sagarmatha Merchant and Finance Ltd  & Reliance Finance Ltd

·         Social Development Bank & Corporate Development Bank

·         Vibor Bikas Bank & Kist Bank Ltd

·         Manakamana Development Bank Ltd, Infrastructure Development Bank, Yeti Finance Limited & Valley Finance Ltd. 

·         Khadbari Bikas Bank & Birat Laxmi Finance

·         Global IME Bank & Social Development Bank Ltd.

Problems of Merger

The country’s banks and financial sector witnessed a significant change with the introduction of merger bylaw by Nepal Rastra Bank (NRB), the central regulatory body of banks and financial institutions (BFIs). The bylaw has provided unique opportunities to BFIs to overcome the problem of capital inadequacy.

Nepal Rastra bank enacted merger bylaw in 2011 and the pace of merger have accelerated after that. The reasons of mergers among banks and financial institution is obvious, they want expand their presence in the market. Some major reasons of merger are as mentioned below:

Increase capital base: The reason of most of the mergers is that banks want to increase their capital base. The central bank has urged banks to enhance capital base to expand their services into the urban areas especially in the capital.

Expand services: Banking consolidation helps concerned institutions expand their services. For instance, merger provides opportunities of utilizing each other’s brand and public relation jointly. Banks and financial institutions can expand their services after increasing their capital base. Similarly, merger helps banks to increase investment capacity that will make them capable of investing in huge projects.

Implementing new and innovative ideas: Banking consolidation through merger will allow BFIs to explore chances of coming up with innovative ideas. Together, the banks and financial institutions can enhance their operation system and implement effective management.

However, the process of merging of banks and financial institutions is not free of hassles. There are basically two types of hassles to complete the merger process: i) external or created by the regulator and ii) internal or the managerial problems within banks and financial institutions.

At present, the central bank has made it mandatory to stop trade of shares after starting the merger process which, I think, should be changed. I do not see any logic and rationale behind this provision. 

Similarly, the government does not provide any facility to the banks and financial institutions which want to be merged. I feel that the government should reduce corporate tax to 25 per cent from existing 30 per cent for five years after merger process complete. It is necessary because BFIs should invest huge chunks of money in managerial activities to complete the merger process. It is really challenging to ensure smooth transition and resolution of conflict likely to surface among the staff due to hostility, ego clashes or layoffs during the merger process.

It is a fact that the existing merger process between various financial institutions seem to be more forceful in nature. I do not mean that the Nepal Rastra Bank has put any pressure for mergers but the circumstances have made BFIs merge. I think the government should create an environment where banks and financial institutions voluntarily show their readiness to be merged.

(Writer is Chairman of Development Bankers Association and CEO at Kailash Bikash Bank)