Arun Finance, Progressive Finance and Lalitpur Finance on Friday filed an application at Nepal Rastra Bank (NRB), seeking a Letter of Intent for merger from the banking sector regulator, a high-ranking NRB official confirmed. [break]
Of these institutions, Progressive Finance and Lalitpur Finance had previously sought permission for merger from the regulator. “Although their application was under review, a fresh application received today (Friday) has included the name of Arun Finance as well,” the official said.
Once the three financial institutions are consolidated, the new unit will have a paid-up capital of Rs 457.94 million.
As per NRB´s regulation, national-level finance companies should maintain a minimum paid-up capital of Rs 200 million within mid-July, while those conducting leasing activities should have a paid-up capital of at least Rs 300 million within that period.
Although the forthcoming merger is expected to help the three finance companies meet the minimum regulatory capital requirement, a look into their unaudited third-quarter balance sheets do not paint picture of healthy institutions.
Arun Finance, for instance, has a negative reserve and surplus of Rs 107.36 million, unaudited third quarter financial report shows. This has reduced the net worth of the company to Rs 42.64 million, despite having a paid-up capital of Rs 150 million.
Progressive Finance, on the other hand, maintains a negative reserve and surplus of Rs 44.32 million. With this, the company´s net worth has fallen to Rs 75.68 million.
Lalitpur Finance also maintains a negative reserve and surplus of Rs 13.16 million, which has brought down the net worth of the finance company to Rs 174.78 million.
These finance companies also hold huge chunk of bad debts.
Of the total loans issued by Arun Finance, 54.36 percent are registered as non-performing loans (NPL), meaning borrowers have failed to return 54.36 percent of the credit on time.
Similarly, Progressive Finance´s NPL stand at 50.56 percent of the credit portfolio, while 21.95 percent of loans issued by Lalitpur Finance have been recognized as non-performing loans.
Because of problems in repayment of loans, these institutions have not been able to book healthy profits.
Arun Finance, for instance, posted a net profit of Rs 450,000 in the third quarter of the current fiscal year to mid-April. This profit also did not come from regular banking activities, like interest income, but from writing back of amount allocated for loan loss provisioning.
Progressive Finance, on the other hand, booked a net loss of Rs 3.02 million in the third quarter of the current fiscal year, while Lalitpur Finance managed to earn a net profit of Rs 192.65 million.
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