KATHMANDU, Feb 10: With Prabhu Bank Ltd all set to start joint operation after merger with Grand Bank Nepal Ltd from this Friday, the number of commercial banks in the country coming down to 29 from 30.
The merger of Prabhu Bank Ltd with the ailing Grand Bank Nepal Ltd is the third merger among commercial banks in the country. Earlier, NIC Bank and Bank of Asia had merged to become NIC Asia Bank while Commerz and Trust Bank Ltd merged with Global IME Bank Ltd.
The first merger of the commercial banks this year marks the start of a series of merger throughout the year and the next year due to rise in paid-up capital of BFIs by four times to Rs 8 billion.
Six other commercial banks have announced merger deals that include Janata Bank and Machhapuchhre Bank Ltd, Kumari Bank Ltd and NCC Bank Ltd along with other four development banks, and Lumbini Bank and Bank of Kathmandu Ltd. The completion of these mega deals will bring the number of commercial banks further down to 26.
Similarly, other banks are also feeling the pinch of the central bank decision to raise the capital floor to Rs 8 billion by the end of mid-July 2017, triggering hunt for the appropriate partner to pursue merger and acquisition (M&A).
The new requirement by the central bank announced through the Monetary Policy for fiscal year 2015/16 is also likely to record the highest number of merger and acquisitions deals in the current Fiscal Year 2015/16.
Though Prabhu Bank had signed the memorandum of understanding to buy Grand Bank Nepal Ltd on January 29 last year, the process had dragged a little longer due to delay by the respective banks to complete necessary procedure.
"The merger took a bit longer due to the process required in two banks. Also, the confusion about whether the deal is to be termed a merger or an acquisition dragged the process longer. However, the combined bank will start the joint operation from Friday, ending a yearlong process," Ashok Sherchan, CEO of Prabhu Bank Ltd, told Republica.
Prabhu Bank is an entity formed after merger of Prabhu Bikas Bank Ltd with problematic Kist Bank Ltd. The decision to add another ailing bank, Grand Bank, has raised doubts about the health of the new entity. However, observers say that the bank has managed to improve its balance sheet to a large extent, recovering a large amount of bad debt.
"The merger decision was taken cautiously. Though recovery, staff management and branding are still challenges for us, the consolidation process will help the bank to take a new height," Sherchan, who took charge of the bank immediately after the completion of merger with Kist Bank, said.
According to Sherchan, the bank will have paid-up capital of Rs 5.2 billion, deposit mobilization of Rs 56 billion and loans volume of Rs 41 billion after the merger. The bank, which was in red until last fiscal year, will have a net profit of Rs 550 million. Similarly, it will have a network of 136 branch offices, 122 ATM terminals, 1,250 staff members and 750,000 clients across the country, added Sherchan.
Realizing that the number of the BFIs was too high for the country to manage and supervise, the central bank is also encouraging BFIs to go for merger and acquisition.
A report entitled 'Study on Status of BFIs after Merger and Effectiveness of Merger' conducted by the central bank shows many positive impacts of the merger among BFIs. The increase of the 'economies of scale', public confidence, upgradation in the technology and expansion of new services are the positive results of the merger, according to the findings of the report.
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