The board of directors of the two banks finalized a deal and signed a memorandum of understanding (MoU) to this effect on Thursday. [break]
“We have already formed a merger committee. If things moved ahead smoothly, we will complete all the necessary formalities by mid-January 2013,” said Sashin Joshi, chief executive officer of NIC Bank.
NIC and BoAN were largely promoted by the same groups. While Bishal Group and Shanghai Group that hold majority stakes in them are their common promoters; NIC Bank has promoters from Golchha and Golyan Groups, and BoAN has promoters from Lucky Group, among others.
As a result of possessing common promoters, Nepal Rastra Bank (NRB) a few months ago had asked their promoters and managements to either undergo merger voluntarily or face the fate of forceful merger. The central bank had issued such a warning as a part of its drive to persuade commercial banks, particularly the ones promoted by the same groups, to undergo merger.
However, officials of both BoAN and NIC refrained from spelling out such instruction of NRB. “Merger of banks and financial institutions was long due and we were open to it as well. We finally decided to execute it. After all, it will fortify our financial strength, human resources, branches network and service delivery capacity, thereby bolstering our position in the market,” said Joshi.
Once merged, the paid up capital of the new institution will total to Rs 3.31 billion and reserves and surplus at more than Rs 1.21 billion. Their deposits will add up to Rs 33.91 and loans and advances at Rs 27.80 billion.
Instantly after the signing of MoU, the merger committee headed by Rajendra Aryal, an NIC board director who represents public shareholders, has written to the Nepal Stock Exchange to halt the transactions of their shares till the merger is completed.
“We will soon approach the central bank for further formalities like carrying out due diligence audit and working out the name, structure and details of the new institution,” said Aryal.
The promoters of the NIC and BoAN disclosed that they have agreed to retain Chairman of NIC Jagadish Prasad Agrawal as the Chairman of the merged institution. They also announced that there would not be staff downsizing.
“We might have to relocate some of the branches, but we will continue operating with existing strength of branch network and staff,” said Joshi. Together, NIC Bank and BoAN are presently operating with 65 branches and their staff number at around 800.
Meanwhile, the central bank has welcomed the NIC-BoAN merger decision. “We are glad they (bank promoters) realized the importance and benefits of merger. Their decision has put NIC-BoAN on the track of becoming one of the institutions having large capital base. We welcome their decision,” said NRB Spokesperson Bhaskar Mani Gyawali.
NRB has been pushing banks and financial institutions (BFIs) to undergo merger after liquidity crisis and financial crisis jolted the country in early 2011. The central bank in May 2011 even endorsed a Merger Bylaw, with provisions for incentives and forceful merger of BFIs in case the central bank deemed it appropriate.
Since the enforcement of the bylaw, more than one-and-a-half dozen financial institutions have either already undergone merger or are in the process, but no such outcome had been seen in the banking sector.
“We hope NIC-BoAN merger will encourage more banks to follow suit,” said Gyawali.
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