In order to recapitalize the bank, the NBL management had recently mooted rights issue, floating each shareholder to buy 9.5 new shares for each share they hold. As the government holds Rs 40.49 per cent stake in the oldest bank of the country, its decision on whether it would put in additional capital was considered crucial in materializing the plan.[break]
The government in the past had declined to additional investments in the bank, and instead adopted a policy to divest its shares and induct a strategic partner in order to realize the goal of privatization, something agreed while signing the financial sector reform deal with the World Bank.
“Now the government has agreed in principle to make additional investment in the bank in proportion to equity,” said Baikuntha Aryal, joint secretary at Ministry of Finance. Under this understanding, he said the government would make fresh investment of around Rs 1.5 billion.
Aryal disclosed the government´s latest position while interacting with the major shareholders in the Capital.
According to the bank records, it would need a capital of Rs 9.74 billion to do away with negative net worth and comply with the central bank´s capital adequacy ratio norms.
The management in its new recapitalization plan proposed to raise paid up capital to Rs 4 billion through rights issue. It has also planned to mobilize additional Rs 2 billion by selling non-banking assets.
As for the remaining deficit (around Rs 4 billion) that it needs to comply with the central bank´s capital adequacy norms, the management has planned to realize that by retaining its annual profits.
“The plan targets to comply with the capital adequacy norms by the end of 2014/15,” said Maheshwor Lal Shrestha, coordinator of the NBL management team. “If we strictly stick by this plan, we would be able to distribute dividends to our shareholders after 2014/15,” he added.
During the interaction, the influential shareholders agreed with the plan and expressed readiness to put in additional money.
Basudev Adhikari, director of Nepal Rastra Bank (NRB) that took over the management of the then technically insolvent NBL in 2002, said the central bank plans to handover the bank to its shareholders once the recapitalization plan is successfully executed.
NRB had taken over the NBL management after a study revealed it ailing with negative net worth of Rs 12.58 billion and non-performing loans of 60 per cent. After about ten years of reforms, its latest records show the bank is presently operating with negative net worth of 4.22 billion and non-performing loans of 4.17 billion.
Over this period, it has downsized the number of staff to 2,843 from 5,652. The bank has churned out profit since last eight years.
According to a NBL statement, its total deposits stand at Rs 48 billion, credits amount at Rs 27.45 billion and investments total at around Rs 9 billion.
Related story
Li-Ning announced as title sponsor of NBL 3X3 West
