Download International Bank for Reconstruction and Development

NEPAL RASTRA BANK
April 30, 2003
International Development Association
1818 H Street NW
Washington, DC 20433
United States of America
Re:
NEPAL: Credit No. 3727 NEP
(Financial Sector Technical Assistance Project)
Paragraph 8 (a) of the Project Agreement
Performance Monitoring Indicators
Dear Sirs and Mesdames:
This letter is with reference to paragraph 8 (a) of Schedule 2 to the Project Agreement of
even date herewith between the International Development Association (the Association) and
Nepal Rastra Bank for the above-captioned project (the Project).
Unless agreed otherwise with the Association, Nepal Rastra Bank shall monitor and
evaluate implementation of the Project in accordance with the Performance Monitoring Indicators
attached to this letter.
Very truly yours,
NEPAL RASTRA BANK
By /s/ Rajan Singh Bhandari
Authorized Representative
Attachment
Attachment
NEPAL: Financial Sector Technical Assistance Project
Key Performance Indicators
\
Hierarchy of Objectives
Key Performance
Indicators
Data Collection Strategy
Critical Assumptions
Sector-related CAS Goal:
Sector Indicators:
Sector/ country reports:
(from Goal to Bank
Mission)
Improve the efficiency and
stability of the financial sector
to facilitate private-sector led
growth and ongoing
macroeconomic stability.
Comprehensive financial
sector reform that eliminates
the need for (real or
contingent) budgetary
support for the financial
system.
Periodic review of national
accounts, NRB's monetary
and financial data, and
commercial bank audited
financial statements.
Stability in the financial
sector will help set the stage
for longer term growth and
more rapid poverty
alleviation in Nepal.
Periodic Economic and
Sector Work, including a
Financial Sector Study
(completed).
A lower level of Government
involvement within the
financial sector will also free
up budgetary resources for
increased social sector
expenditures.
Reorient the role of the state
in the financial sector from
that of an owner of financial
institutions to that of a
regulator and supervisor of
the entire financial system.
A deeper and broader
financial sector will also
ultimately, have a positive
impact upon rural banking in
Nepal.
Project Development
Objective
Outcome / Impact
Indicators:
Project reports:
(from Objective to Goal)
NRB operates independently
and effectively regulates the
banking sector to ensure that
commercial banks operate on
a prudent and commercial
basis.
A record of timely, effective,
and independent
implementation of central
banking policies.
Annual Report of NRB and
supervision and
implementation reports.
Sufficient political stability to
achieve the overall goals of
the program.
Timely and effective
intervention by NRB to
enforce prudential
regulations and relevant
banking legislation.
Periodic supervision and
evaluation reporting.
Positive response by the
private sector to banking
sector reforms leading to
higher levels of both
domestic and foreign
investment and consequent
higher growth.
Increased share of financial
system owned and operated
by private-sector players.
Commercial bank financial
statements, NRB reports, and
supervision missions.
Increase in range and
sophistication of financial
instruments and services
available at competitive
prices.
Annual reports of
commercial banks and
supervision missions.
NEPAL: Financial Sector Technical Assistance Project
Key Performance Indicators
Hierarchy of Objectives
Key Performance
Indicators
Data Collection
Strategy
Critical Assumptions
Output from each
Component:
Output Indicators:
Project reports:
(from Outputs to Objective)
Capacity of banking
supervision department within
NRB strengthened to conduct
examinations of financial
institutions competently and
undertake appropriate
remedial action.
Production of timely quarterly
off-site and annual on-site
banking supervision reports for
each of the banks operating in
Nepal with accompanying
relevant analysis.
NRB reports, supervision
missions, midterm project
reviews.
The Ministry of Finance is
willing to allow NRB to
enforce the bank supervisory
regulations unfettered by
political considerations.
Review of the audited
financial statements of all
commercial banks.
NRB is prepared to take swift
and decisive action (even
taking curatorship) when a
bank is found to be in
noncompliance with Central
Bank requirements even
when the bank is a publiclyowned institution.
2. Timely and reliable
banking information
published for general use,
improved central and
commercial banking
legislation (and
accompanying regulations)
drafted and ready for
adoption.
Production of good quality (to
international standards) audited
financial data for the banks
within four months of the end
of the financial year.
Finalization of a new Central
Banking Act (done) and a
Banking and Financial
Institutions Act and associated
regulations.
Review of draft legislation
and regulations.
Supervision missions and
midterm project reviews.
3. Progress made on
restructuring of RBB and
NBL.
Gradually improved financial
health of RBB and NBL.
Review of annual financial
statements.
4. Final decisions made on
liquidation, privatization,
splitting, or other options for
RBB and NBL.
Progress made on:
(a) The promulgation of a new
central banking and commercial
banking act.
(b) Issuance of new regulations
for above legislation.
(c) Revocation of existing
restrictions on foreign
accountancy companies from
operating in Nepal.
(d) Changed rules on majority
banking ownership in Nepal.
(e) Cessation of directed
lending to priority sectors.
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NEPAL: Financial Sector Technical Assistance Project
Key Performance Indicators
Hierarchy of Objectives
Key Performance
Indicators
Data Collection Strategy
Critical Assumptions
Project Components / Subcomponents:
Inputs: (budget for each
component)
Project reports:
(from Components to
Outputs)
1. Re-engineering NRB.
US$4.68 million, of which:
IDA will finance US$2.64
million, and
DFID will finance US$1.56
million.
Quarterly disbursement
reports; quarterly progress
reports and supervision
reports.
Close cooperation between
the World Bank, MOF and
NRB.
Close cooperation between
the World Bank, the IMF,
DFID, and the ADB.
Accountancy skills can be
developed or imported to
meet the increased needs.
2. Restructuring the two
largest commercial banks,
RBB and NBL.
US$24.43 million of which:
IDA will finance US$12.81
million, and DFID will
finance US$8.10 million.
3. Capacity building in the
financial sector
TOTAL Project Cost
HMGN is willing to privatize
and/or liquidate the stateowned banks and lose control
over them as stated in official
policy.
Timely provision of
counterpart funds as agreed
in the project plan.
Institution building will be
possible through a
commitment to skills'
upgrading by financial sector
participants.
US$0.99 million, of which:
IDA will finance US$0.55
million, and
DFID will finance US$0.34
million.
US$30.10 million
IDA financing of US$16.00
million,
DFID financing of
US$10.00 million.
HMGN will fiance the
balance of US$4.10 million.
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