Kathmandu, January 14

Two commercial banks — Kumari Bank and Nepal Credit and Commerce (NCC) Bank — and four other development banks — Infrastructure, International, Apex and Supreme — have formally launched merger process to consolidate their position in the market.

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Source: Merger Committee

A memorandum of understanding (MoU), in this regard, was signed today by Laxmi Prapanna Niraula, executive director of Nepal Rastra Bank (NRB) and coordinator of the management committee of NCC Bank; Shobha Kant Dhakal, coordinator of Kumari Bank’s merger committee; and Chairpersons of Infrastructure, International, Apex and Supreme development banks, Iman Singh Lama, Madhav Prasad Bhatta, Bishnu Prasad Dhital and Chandra Prasad Bastola, respectively. These institutions will now conduct due diligence audits based on which share swap ratio will be determined. These institutions will also have to settle on the name of the merged unit. Once the merger process is over, the new unit will have paid-up capital of Rs 8.29 billion, Niraula told The Himalayan Times.

Currently, Kumari Bank has the largest paid-up capital stock of Rs 2.43 billion among six institutions. NCC Bank, on the other hand, has a paid-up capital of Rs 2.03 billion. Infrastructure, International, Apex and Supreme development banks have paid-up capital of around Rs 910 million, Rs 770 million, Rs 670 million and 870 million, respectively.

All the units that are merging also have healthy balance sheets, with the portion of bad loans hovering in the range of 1.43 per cent to 2.76 per cent of the loan portfolio. However, Supreme Development Bank maintains non-performing assets of 4.23 per cent.

Also, capital adequacy ratio — which gauges a banking institution’s strength to absorb shocks and ability to extend loans — of these institutions is at a comfortable level.

Lately, many financial institutions are eyeing merger, as they have to meet new minimum regulatory paid-up capital requirement within the deadline of mid-July, 2017.

For instance, commercial banks have to increase minimum paid-up capital from existing Rs two billion to Rs eight billion within mid-July, 2017. Similarly, national-level development banks will have to raise minimum paid-up capital from Rs 640 million to Rs 2.5 billion within the deadline, while national-level finance companies, including those operating in four to 10 districts, will have to jack up minimum paid-up capital from Rs 300 million to Rs 800 million.

Once ongoing merger process is over, NRB, which is overseeing management of NCC Bank, is expected to make an exit from the institution. NRB had to supervise the management of the bank after dispute between two promoter groups of NCC Bank raised the prospect of resource misutilisation at the financial institution.