Kathmandu. KATHMANDU: Confederation of Bank and Financial Institutions (CBFN) has said its serious attention has been drawn to the case filed against some key officials of Nepal Investment Mega Bank while conducting investigation into the regular process of the sale of its securities.

KATHMANDU: Serious questions have been raised on the established legal and regulatory provisions of the banking sector while proceeding with the investigation and prosecution related to the auction of securities of Nepal Investment Mega Bank and the institutional decisions related to it.

CBFIN said it needs clarity on whether other sectoral regulations to be issued at a later date can nullify the first right of banks and financial institutions to be legitimately created over their assets under existing laws and regulations.

“It should also be clear whether the revocation of a business’s licence automatically means that all of its assets will automatically go to the state, or whether the collateral and security rights that were previously created in favour of the bank will be retained,” it said.

Similarly, there is a need for a clear legal provision regarding the extent to which the regulations issued later can affect the rights already created by the Act.

The central bank has primary authority and expertise to examine the technical and regulatory decisions made by the banks through the institutional process regarding loan disbursement, collateral security, loan recovery and auction, among others.

Therefore, before proceeding further with other agencies on such issues, the necessary technical and regulatory examination should be conducted by the Nepal Rastra Bank and coordination should be made among the concerned bodies based on the findings and opinions of the CIFIN.

“We have the highest respect for the judicial process,” the company said, noting that significant legal disputes and complexities related to these issues are sub judice. “We are confident that the matter will be properly resolved by the court in accordance with the Constitution of Nepal, prevailing laws, established precedents and judicial practices,” the statement said.

CBFIN has stressed that the technical, commercial and regulatory nature of the mortgage auction and related institutional decisions should be properly evaluated while examining the interests of the bank, depositor safety of depositors and loan recovery.

CBFIN warned that unclearing the legal distinction between commercial banking decisions, regulatory lapses and criminal acts could have an adverse impact on the ability to investigate and prosecute the banking sector’s decision-making, corporate governance, leadership morale and public trust. “The confidentiality and sensitivity of customer information, internal decisions of the bank, business details and personal data obtained during the investigation should also be protected as per the law,” the statement said.

“The incident raises serious policy questions about the safety and risk of credit flowing to nationally prioritized and directed sectors based on government licenses, including hydropower, telecommunications and infrastructure,” Cibfin said in a statement.

Cibfin said the question of how banks should assess risk in such areas will arise if the bank’s ownership or security rights are uncertain due to the latest licensing decision.

It also said that there should be clarity on who will ultimately bear the additional risk arising from loans that are prioritized or mandated by the state or regulatory body.

Such legal and policy uncertainties could have long-term implications for the flow of credit, cost of credit, financial stability and overall economy in the national priority areas.

“In the absence of a clear criminal intent or objective basis for a criminal act, the tendency to criminalize disputes between banks, borrowers and the Government of Nepal regarding transactions, liabilities and rights of a fundamentally civil and regulatory nature should be discouraged,” the statement said.

It believes that such disputes should be resolved through the prevailing civil, commercial and regulatory processes.

“No one should be above the rule of law in the rule of law and the investigation should be conducted in a fair, just and prudent manner, within the bounds of existing laws and banking norms,” the statement said.

“The CBFIN has no objection to taking action in accordance with the law if the activities prohibited by law are proven,” the statement said.

“We remain committed to continuously coordinating and collaborating with relevant authorities to support the legitimate process and build a sustainable economy and a strong economy in the overall economic and banking sector by fully abiding by the rule of law,” the statement said.