Cross River Bank Initiates Campaign to Connect Nepal to Global Financial System

Kathmandu. Cross River Bank, a leading institution in building America's advanced financial infrastructure, has launched a campaign to connect Nepal to the global financial system. Two senior officials of the bank currently in Nepal held a comprehensive discussion with chief executive officers of major commercial banks in Nepal, private equity and venture capital investors, hydropower developers, fintech entrepreneurs, non-resident Nepali investors, and former ambassadors in a conference hall at Hotel Marriott on Friday.

The discussion focused on the question: 'Why should institutional investors worldwide choose Nepal as their investment destination, and what kind of financial environment and investment structure should Nepal build to facilitate that decision?'

With this core question at the center, the interaction was jointly organized by the American Chamber of Commerce (AmCham) Nepal and Cross River Bank. The Chatham House Rule, which allows for the free expression of ideas during discussions but prohibits the attribution of statements to specific individuals or speakers, was applied to the interaction.

The discussion was led by Pravesh Rizal, Executive Vice President of Cross River Bank based in New York, and Henry Pinel, the bank's Head of Investment Banking.

In the interaction, they conveyed a clear message that Nepal's current situation offers a historic opportunity to connect with the global financial system in a new way, and Cross River Bank is willing to be a long-term partner in building the necessary financial infrastructure, investment instruments, and capital mobilization mechanisms for it.

Participants in the discussion pointed out that Nepal does not lack capital, but rather lacks financial mechanisms to effectively mobilize it.

Nepal has foreign exchange reserves of approximately US$23 billion. There are trillions of rupees in deposits in the banking system, and the Employees Provident Fund, Pension Fund, and insurance companies have over US$13 billion in capital tied up in fixed deposits yielding low returns.

Despite such a large financial resource, Nepal has not been able to attract foreign direct investment as expected.

Foreign Investment Significantly Less Than Potential

According to data presented during the discussion, only about 39 percent of committed foreign investment has actually entered Nepal. Participants noted that the actual foreign investment that entered Nepal last year was also significantly less than its potential.

The conclusion of most participants in the discussion was the same: the problem is not with capital. The problem lies with the financial system that can effectively mobilize capital, appropriately price risk, ensure exit for investors, and attract long-term investment.

Nepal still lacks a developed bond market, a risk-based pricing system, and the basic infrastructure of capital markets that international investors expect. In other words, Nepal has resources, potential, and savings. However, the financial infrastructure to transform these into a language understood by international investors is still in the development stage.

Energy Sector: Nepal's Biggest Opportunity but Difficult Challenge

The most significant topic of discussion was Nepal's hydropower and energy sector. The world is rapidly moving towards electrification and an artificial intelligence-based economy. In many parts of America, Europe, and Australia, there is a situation where one has to wait for years for the electricity connection required to establish new data centers.

In contrast, Nepal is gradually emerging as a country that produces more electricity than it needs. For this reason, the energy sector is seen as Nepal's biggest opportunity to attract global investment.

According to energy developers who participated, the Government of Nepal has set a limit of 17 percent equity internal rate of return for hydropower projects. For foreign investors, this return is limited to around 11 percent in US dollars.

Moreover, the continuous depreciation of the Nepali Rupee against the US Dollar further reduces the actual return. During the discussion, an example was presented where the exchange rate increased from about NPR 110 to NPR 150 per US dollar in the past few years.

Therefore, based on a single hydropower project alone, the risk-adjusted return is not sufficiently attractive to international institutional investors, according to the participants.

An energy developer said, 'Looking at it on a single project basis, the return according to risk in Nepal is still not competitive enough to meet the expectations of global investors.'