Nepal - Financial Sector Technical Assistance Project

ISDS THE WORLD BANK GROUP AWorld Free ol Poverty infoShop Integrated Safeguards Data Sheet (Initial) Date ISDS Prepared/Updated: 11/18/2002 25153 Section I - Basic Information November 18, 2002 A. Basic Project Data Country: NEPAL Project ID: P071291 Project: Financial Sector Technical Assistance Project Task Team Leader: Simon C. Bell Authorized to Appraise Date: January 22, 2002 IBRD Amount ($m): Bank Approval: December 19, 2002 IDA Amount ($m): 16.00 Managing Unit: SASFP Sector: Banking (100%) Lending Instrument: Technical Assistance Loan (TAL) Theme: State enterprise/bank restructuring and Status: Lending privatization (P); Corporate governance (S); Regulation and competition policy (S); Standards and financial reporting (S) I.A.2. Project Objectives: The overarching objective of the Reform Program in the Financial Sector is to support the renewed efforts of His Majesty's Government of Nepal (HMGN) to improve the sector in order to bring macroeconomic stability and promote private-sector-led economic growth. The proposed Financial Sector Technical Assistance Project is the first major step in this process and focuses on three broad objectives (a) helping to restructure and re-engineer the Central Bank (Nepal Rastra Bank - NRB), so that it can effectively perform its key central banking functions; (b) commencing commercial banking reform in the two large ailing commercial banks that dominate the sector (Rastriya Banijya Bank (RBB) and Nepal Bank Limited (NBL)) -- by introducing stronger bank management that protects the financial integrity of the two banks and would take on a conservator role to prepare the banks for the next steps of restructuring; and (c) supporting a better environment for financial sector reform in areas such as enhanced credit information, better financial news reporting, and better training for staff in financial institutions. These actions will help create a more prudently operated and commercially viable commercial banking system that is overseen by a modern, effective, and technically competent central bank. If sufficient progress is made during this first phase of reform, then subsequent IDA support would focus on more longer term objectives. These include further deepening and broadening of the sector, supporting worker retrenchment in the banks, bank privatization and/or liquidation, and helping to cover the financial losses in the large publically owned banks. It is anticipated that IDA's support for the overall financial sector reform program will be in the form of several, sequential projects. The first of these -- the Financial Sector Technical Assistance Project -- is centered around the re-engineering of Nepal Rastra Bank (particularly in its core central banking functions; supervision, monetary policy, banking legislation, accounting and auditing, information technology, human resources, and training); reform of the two large commercial banks -- RBB and NBL  2 ISDS (through the recruitment of Management Teams to put these two banks in conservatorship on behalf of the central bank); and support for capacity building in the financial sector (through support for training, financial journalism, and a credit information bureau). This project will finance a range of activities that are necessary to prepare for a major reform operation. This initial phase will also serve to demonstrate and confirm broad-based commitment to undertake difficult reforms. This sequential approach to financial sector reform has been endorsed by colleagues in the International Monetary Fund (IMF), the Department for International Development (DFID) U.K., and the Asian Development Bank (ADB). The Financial Sector Reform Program is also important in terms of enhancing poverty alleviation. It is expected to (a) support private-sector-led economic growth and job creation; and (b) reduce the number of nonperforming loans made through the banking system to the politically powerful elite in Kathmandu. As the large non-recoverable losses in the banking system will have to ultimately be borne by the Government -- this represents a transfer of resources from the tax payer in Nepal to the urban rich (who represent some of the largest defaulting borrowers in the banking system). A more efficient intermediation of funds should also result in a better allocation of financial resources and hence stronger economic growth. I.A.3. Project Description: The project has three main components (Table below). Based on its cofinancing agreement, DFID will provide US$10.0 million equivalent in the form ofjoint financing for this project. The respective DFID shares for the three components will be: US$1.56 million for re-engineering of NRB; US$8.10 million for restructuring of RBB and NBL; and US$0.34 million for capacity building in the financial sector. The balance of US$4.1 million will be provided by HMGN. Components: Re-engineering Nepal Rastra Bank Restructuring the Two Big Banks (RBB and NBL) Capacity Building in the Financial Sector I.A.4. Project Location: (Geographic location, information about the key environmental and social characteristics of the area and population likely to be affected, and proximity to any protected areas, or sites or critical natural habitats, or any other culturally or socially sensitive areas.) This is a TA to the Central Bank of Nepal located in Kathmandu. No relocation or resettlement involved in this project.  3 ISDS B. Check Environmental Classification: C (Not Required) Comments: Category C - No environmental or social policies are triggered under this TA to the Cental Bank of Nepal. C. Safeguard Policies Triggered Policy Applicability Environmental Assessment (OP/BP/GP 4.01) Yes 0 No Forestry (OP/GP 4.36) C0 Yes * No Natural Habitats (OP/BP 4.04) 0 Yes * No Safety of Dams (OP/BP 4.37) > Yes 0 No Pest Management (OP 4.09) C; Yes * No Involuntary Resettlement (OP/BP 4.12) . Yes * No Indigenous Peoples (OD 4.20) :D Yes * No Cultural Property (OP 4.11) Yes* No Projects in Disputed Territories (OP/BP/GP 7.60)* D Yes * No Projects in International Waterways (OP/BP/GP 7.50) Yes * No *By supporting the proposed project, the Bank does not intend to prejudice thefinal determination of the parties' claims on the disputed areas Section II - Key Safeguard Issues and Their Management D. Summary of Key Safeguard Issues. Please fill in all relevant questions. If information is not available, describe steps to be taken to obtain necessary data. II.D.la. Describe any safeguard issues and impacts associated with the proposed project. Identify and describe any potential large scale, significant and/or irreversible impacts. Not Applicable II.D. I b. Describe any potential cumulative impacts due to application of more than one safeguard policy or due to multiple project component. Not Applicable II.D. I c Describe any potential long term impacts due to anticipated future activities in the project area. Not Applicable II.D.2. In light of 1, describe the proposed treatment of alternatives (if required) Not Applicable II.D.3. Describe arrangement for the borrower to address safeguard issues IL.D.4. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people. Not Applicable E. Safeguards Classification. Category is determined by the highest impact in any policy. Or on basis of cumulative impacts from multiple safeguards. Whenever an individual safeguard policy is triggered the provisions of that policy apply.  4 ISDS SI. - Significant, cumulative and/or irreversible impacts; or significant technical and institutional risks in management of one or more safeguard areas S2. - One or more safeguard policies are triggered, but effects are limited in their impact and are technically and institutionally manageable [XI S3. -No safeguard issues ] SF. - Financial intermediary projects, social development funds, community driven development or similar projects which require a safeguard framework or programmatic approach to address safeguard issues. F. Disclosure Requirements Environmental Assessment/Analysis/Management Plan: Expected Actual Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Date of distributing the Exec. Summary of the EA to the ED (For category A projects) Resettlement Action Plan/Framework: Expected Actual Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Indigenous Peoples Development Plan/Framework: Expected Actual Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Pest Management Plan. Expected Actual Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Dam Safety Management Plan: Expected Actual Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop If in-country disclosure of any of the above documents is not expected, please explain why. Signed and submitted by Name Date Task Team Leader: Simon C. Bell Nov. 13, 2002 Project Safeguards Specialists 1: Project Safeguards Specialists 2: Project Safeguards Specialists 3: Approved by: Name Date Regional Safeguards Coordinator: L. Panneer Selvam Nov. 18, 2002 Sector Manager/Director: Joseph Del Mar Pemia Nov. 18, 2002 For a list of World Bank news releases on projects and reports, click here  5 ISDS SEARCH, - FEEDBACK.- S-TE MAP ' - ' SHOWCASE . S