The bank, which has a paid-up capital of Rs 1 billion, has already roped in NDEP Development Bank, Hama Merchant and Finance Company, Nepal Consumer Development Bank and Imperial Finance Company in the plan. [break]
If the idea turns into reality, this will be first instance of such large number of financial institutions consolidating into one.
“We (the five financial institutions) have agreed in principle to undergo merger,” a person privy to the issue told Republica on condition of anonymity. “We will soon be signing a memorandum of understanding to seal the deal.”
If the deal goes through, the merged unit will have a paid-up capital of Rs 2.13 billion, which meets the regulator´s requirement of Rs 2 billion for formation of a commercial bank.
However, Nepal Rastra Bank (NRB), the banking sector regulator, has raised the benchmark for these institutions and has pushed for creation of a capital base of around Rs 3 billion to apply for commercial bank´s license.
“Although a paid-up capital of Rs 3 billion or even Rs 5 billion does not ensure conversion into commercial bank, it certainly makes the case stronger as higher capital base enhances the risk absorbing capacity of any institution,” a high ranking NRB official told Republica.
After getting this indication, bankers leading the deal are scurrying around to add more financial institutions to the existing stable.
Although the source did not confirm the condition put forth by the central bank, he acknowledged that parties seeking merger are “holding talks with other financial institutions interested in merger”.
“We hope addition of few more institutions to the current grouping will further expand our capital base and help us strengthen our position in the market,” the source said, without giving the number or names of institutions with which talks are currently being held.
If talks with these additional financial institutions materialize, this will be the biggest merger in the country´s banking history in terms of number as well as capital.
“The confirmation on this will come within few days,” the source said.
Once this issue is settled, the group is planning to hammer out issues such as name of the merged unit, composition of board of directors and shareholders, and structure of the new management team, among others, which are crucial for the merger deal to be successful.
“We are hopeful about getting positive response from the central bank as other financial indicators such as capital adequacy ratio and the level of non-performing loans are at a comfortable level,” the source said.
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