Marriage of commercial banks expected to give momentum to ‘big’ merger policy

KATHMANDU, July 6: Global IME Bank Ltd and Janata Bank Ltd have agreed to merge, becoming the first pair to announce their intent to amalgamate after the government took a formal policy to encourage ‘big’ merger through the budget for the upcoming fiscal year 2019/20.

Signing a memorandum of understanding (MoU) for merger on Friday, the two Class ‘A’ banks have agreed to retain the name ‘Global IME Bank Ltd’, while Janata’s CEO Parshuram Kunwar Chhetri will lead the management of the merged entity.

The merger agreement of the two commercial banks comes a week after verbal instruction of NRB Governor Chiranjibi Nepal to come up with commitment for ‘big’ merger and find a suitable partner for the amalgamation. However, the senior leaders of the two banks say that they were carrying out internal preparation for merger even before the governor’s diktat came.

“We hope the merger will support the government in implementing its policy and the recent instruction of the central bank,” Chandra Prasad Dhakal, chairperson of the Global IME Bank Ltd, said. “We were looking for appropriate partner for a long time in line with our own view that the bank should be bigger and stronger to become capable to invest in bigger projects as well as to withstand any shock. However, the recent instruction of the central bank has given an impetus to the merger process,” Dhakal, who will become chairperson of the merged entity, added.

The agreement between the two commercial banks is expected to give a momentum to consolidation in the banking sector.

According to the MoU, the board of the joint entity will comprise of five directors from Global IME Bank and two from Janata.  Similarly, the two banks have agreed in principle to set share swap ratio at 1:0.85 which means investors holding 100 units of shares of Janata will receive 85 shares of the merged entity.

“However, the final swap ratio will be determined after the Due Diligence Audit (DDA). We don’t expect a variation of 10 percent in the swap ratio that we have agreed initially,” said Dhakal.
Senior executives of two banks expect the merger process to complete in four months. “We will now seek the letter of intent from the NRB for the merger, while a committee will work on the DDA simultaneously. After that, the AGMs of respective banks will approve the merger proposal,” Mahesh Dhakal, acting CEO of Global IME Bank Ltd, said. “Our plan is to begin joint operation after four months.”

Following the merger, Global IME Bank is expected to become the largest bank in the country in terms of capital size. Post merger, the bank will have a paid-up capital of Rs 17.12 billion, according to Dhakal who will become the senior deputy CEO of the merged entity.

This will be the second merger for the Global IME Bank Ltd at the commercial bank level. Global IME Bank Ltd was formed following a merger with the then Commerz and Trust Bank Ltd as well as two development banks and two finance companies, and acquisition of two development banks.

 
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