The two commercial banks signed a memorandum of understanding (MoU) to pursue merger on Thursday. Both the banks decided to go for merger after Nepal Rastra Bank (NRB) raised minimum paid-up capital requirement for the bank and financial institutions (BFIs) by as much as four times.
“Both the banks signed the MoU in line with their plan to meet the minimum paid-up capital requirement of Rs 8 billion within 2016/17 as stipulated by the central bank,” BoK said in a statement, issued after the MoU was signed.
Unveiling the Monetary Policy for Fiscal Year 2015/16, the central bank had increased the paid-up capital floor for commercial banks to Rs 8 billion from Rs 2 billion. The new provision has unleashed merger and acquisition spree in the banking industry as it is said to be the most viable option of capital consolidation.
The merger between the two banks will be the third merger of 'A' class financial institutions. Earlier, NIC and Bank of Asia merged to become NIC Asia. Similarly, Global IME Bank Ltd has gone into an amalgamation with the then Commerz and Trust Ltd.
Prabhu Bank Ltd, which was formed after a merger between Prabhu Bikas Bank Ltd and Kist Bank Ltd, is in the process of acquiring another commercial bank -- Grand Bank Ltd.
BoK's Chairman Satya Narayan Manandhar and Director Hem Raj Subedi, and LBL's Chairman Prakash Shrestha and Director Subarna Lal Shrestha signed the MoU on behalf of their respective institutions. Officials of both the banks have decided to name the merged entity as Bank of Kathmandu Lumbini Ltd, according to the statement.
BoK and Lumbini Bank have agreed to fix shares swap ratio at 1:0.8281. It, however, is subject to all regulatory and general meeting approvals of both the banks.
“The merger is aimed at creating a number one bank in the country as well as to gain international stature,” said BoK Boar Director Subedi said. “After the merger, our business volume will increase and it will have footholds in different parts of the country,” added Subedi.
The two banks plan to complete the merger process within the current financial year.
According to the statement, the paid-up capital of BoK will increase to Rs 2.67 billion after approval of its proposed bonus shares, while the paid-up capital of Lumbini Bank Ltd will rise to Rs 2.3 billion after proposed bonus shares are distributed to shareholders.
“Besides meeting the minimum capital requirement, both the banks expect that the proposed consolidation will yield benefits of larger scale and efficiency. We also expect that the merged entity will be financially stronger to mitigate possible risks and make positive contribution toward improving access to finance,” the statement added.
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