Himalayan Bank's AGM rejects merger plan with Nepal Investment Bank

 The annual general meeting of the Himalayan Bank Ltd (HBL) rejected the planned merger between HBL and Nepal Investment Bank Ltd (NIBL), after 10 months.

"The 29th annual general meeting of the bank today rejected the planned merger with Nepal Investment Bank,” confirmed Himalayan Bank chief executive officer Ashoke Rana. "So the merger plan with Nepal Investment Bank has officially ended as of now."

The failure of the merger proposal will, however, hurt the investors as the bank cannot distribute dividends and also cannot expand their networks to increase business. The proposal of merger failed in the AGM as the Employees Provident Fund (EPF) and a group led by Manoj Bahadur Shrestha refused to endorse it. The EPF and Shrestha’s group totals some 36 per cent share in the bank.

Shrestha is a former chairman of Himalayan Bank, and EPF -- the government body -- is the institutional promoter. The central bank, has however, clarified that the banks will not be able to distribute the dividends as a fine for 'the demerger'. 

The two commercial banks had signed a memorandum of understanding (MoU) for the merger last May, committing to completing the merger within two months. But the group led by Shrestha was not happy with the proposal.

"The EPF conducted a separate due diligence audit (DDA) of both the banks after the new government was formed in July, even though the merger committee had already conducted DDA,” according to an investor. "The EPF also rejected the merger plan in view of losses projected for it on the basis of the DDA it has conducted."

The merger committee had agreed to seek approval from the AGM for the merger with Nepal Investment Bank on the basis of 1:1 share swap ratio.

The AGM of Nepal Investment Bank Ltd is scheduled for January 18. Howeverm it also needs have a second thought after the rejection from the Himalayn Bank's annual general meeting. Nepal Investment Bank Ltd that feels betrayed by the new development has called emergency meeting of the board of the bank for Sunday.

The central bank -- that is encouraging the mergers -- had extended the deadline for the completion of merger after they wrote an official letter of intent for merger last June.

The merger of the two big commercial banks has been expected to set a precedent for big mergers in future as thed central bank wanted to reduce the number of banks and financial institutions (BFIs) through 'big mergers' enabling the single bank to invest in large infrastructure projects.

Currently, there are 27 commercial banks in Nepal. The number came down as some of the BFIs have already merged.

Himalayan Bank had decided to pass the merger proposal through voting following differences over the  merger between its promoters. According to the voting result some 42 per cent of the votes came in against the merger proposal following objections expressed by the EPF, N Trading Company and Chhaya International. In order to pass the merger proposal, some 75 per cent shareholders had to approve it.

Himalayan Bank has 14.87 per cent share investment of the EPF, where N Trading Company has 12.77 per cent and Chhaya International has 8.94 per cent stake in the bank. Likewise, Habib Bank of Pakistan has a 20 per cent stake in the bank. It is the largest shareholder in the bank, followed by the EPF.

The board of directors of Himalayan Bank had been divided since the merger agreement was signed with the NIBL. Founding promoters Habib Bank, Mutual Trading Company, Aabha International and Khetan Group are in favour of the merger where EPF, N Trading Company and Chaaya International were against the merger. 

Following the agreement, both the institutions had formally informed the regulatory authority central bank, Nepal Stock Exchange (Nepse), Office of the Company Registrar and Securities Board of Nepal (Sebon) about the merger agreement. Moreover, shares of both the institutions had been been suspended until the integrated transaction is completed. The two institutions had planned to start joint operation from last October 1, last year.

Himalayan Bank Ltd --- established in 1993 in a joint venture with Habib Bank Ltd of Pakistan -- was established by Prithvi Bahadur Pandey, who is currently the chairman of Nepal Investment Bank Ltd. 

Nepal Investment Bank Ltd, earlier Nepal Indosuez Bank Ltd, was established in 1986 as a joint venture between Nepali and French partners. But in 2002, a group of Nepali companies, comprising bankers, professionals, industrialists and businessmen acquired the 50 per cent stakes of the French partner, Credit Agricole Indosuez in Nepal Indosuez Bank, and accordingly the name of the Bank was changed to Nepal Investment Bank Ltd.

Some 286 branchless banking points to open in underserved regions

Seven banks are opening 173 branchless banking points in 14 districts affected by the devastating earthquake of April 25.
Seven commercial banks and Sakchyam Access to Finance Program signed an agreement today to open 173 Branchless Banking (BLB) outlets in 14 districts affected most severely by the earthquake. "As part of the partnership, Citizens Bank, Global IME Bank, Nepal Investment Bank, NMB Bank, Rastriya Banijya Bank, Sanima Bank and Siddhartha Bank have already setup 55 branchless banking points with the remaining to be established by the end of November," a statement read.
The launch of these crucial financial services comes at a point when the financial sector is under pressure to provide quick access to financial services in far-flung areas of the 14 districts.
The central bank is moving aggressively to expand branchless banking outlets throughout the country in line with its monetary policy, Nepal Rastra Bank governor Dr Chiranjibi Nepal said, addressing the signing ceremony. "The central bank is committed to working with banks and the government to provide a sustainable basis for expanding its goals of financial inclusion and expediting government to people (G2P) payments in an efficient manner," he added.
"The establishment of delivery points and making them sustainable holds key in achieving financial inclusion," joint secretary at the Finance Ministry Suresh Acharya. "The government intends to establish the right incentives for banks working with the central bank to rollout G2P and other cash transfer programmes, through networks such as the ones created by banks with Sakchyam support," he added.
Likewise, director general at the Department of Civil Registration Basanta Raj Gautam said that the government was finalising pricing structure for its implementation. "We have had presentations from Sakchyam on the basis for pricing and been looking at international as well as our own experiences to date," he said, adding that government would work closely with the banks to develop a sustainable model for delivery of G2P services.
Likewsie, reiterating the Government of UK's commitment to accelerate the deepening of access to financial services in rural Nepal, Economic Development Team Leader at DfID Gareth Weir, said that the active deliberation will enable retail finance and G2P payments through the banking sector.
On the occasion, Sakchyam Team Leader Baljit Vohra briefed about Sakchyam's achievements. "Sakchyam is supporting opening of 286 branchless banking outlets in mid and far-west and in quake-affected districts," he said, adding that the transformational BLB strategy includes the use of Point of Sale (PoS) machines, mobile phones and tablets enabled through agents, extensions counter and physical branches to rollout micro-banking products, G2P payments and value chain financing models that will further deepen financial-service penetration for households and enterprises in the remotest areas of the country.

ADB creates emergency trade finance facility for Nepal by expanding its Trade Finance Programme

Asian Development Bank (ADB) is expanding its Trade Finance Programme (TFP) in Nepal by an additional $40 million to help banks finance import of much needed goods to support reconstruction and immediate needs in response to the recent earthquake.        
"The emergency facility for Nepal will help remove financial constraints when companies approach their banks to import what they need for emergency assistance, rehabilitation and reconstruction," ADB’s head of Trade Finance Steven Beck said, adding that the impact of the facility can reach $80 million within a year, since trade finance is typically short term and can roll over in less than 180 days.
ADB’s Trade Finance Programme provides guarantees and loans through banks to support trade. The emergency Trade Finance Programme facility for Nepal will be implemented through four Nepali banks – Himalayan Bank, Nabil Bank, Nepal Investment Bank, and NIC Asia Bank – already participants in ADB’s Trade Finance Programme. The facility will prioritise imports of basic commodities – including food and medicine – and needs related to reconstruction, the ADB press note said.
Thousands have died following the earthquake and hundreds of thousands are unable to return home because buildings have collapsed and transport systems, including roads, are unusable. Over two-thirds of Nepal’s 75 districts are thought to have been affected by the earthquake. It will impose a huge economic toll on the country. Preliminary ADB estimates suggest that the economic growth in Nepal may decline to 4.2 per cent for the current fiscal year of 2014-15, compared to the March projection of 4.6 per cent.
ADB has established a Nepal Earthquake Response Team, which along with UN agencies and other development partners will assess the damage and long-term investment needs for reconstruction and rehabilitation.
Support for trade finance will add to the $3 million grant from the Asia-Pacific Disaster Response Fund that ADB is providing for relief efforts and the up to $200 million additional resources for projects in the first phase of rehabilitation.
The Trade Finance Programme helps fill market gaps for trade finance in developing Asia by providing guarantees and loans to banks to support trade. Backed by ADB’s AAA credit rating, the programme works with over 200 partner banks to provide companies throughout Asia and beyond with the financial support they need to engage in import and export activities.
Since 2009, the Trade Finance Programme has supported more than 6,000 small and medium-sized enterprises in about 10,000 transactions valued at over $20 billion in a wide range of sectors, from commodities and capital goods to medical supplies and consumer goods in the region’s most challenging markets.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.

Banking sector's return continues to decrease

The return of the investors in the banking sector is squeezing due to slowdown in the profit growth rate lately.

The industry average of the listed commercial banks’ return has been continuously decreasing since last three years, though the banking sector can still distribute 21.78 per cent dividend in an average from the profits it recorded in the fiscal year 2011-12, but it differs from institution to

institution, according to their individual profit.

Some half dozen banks including Agriculture Development Bank, Nabil Bank, Nepal Investment Bank, Standard Chartered Bank Nepal, Everest Bank and Himalayan Bank have recorded over a billion rupees profit, whereas some of the banks have failed to post the profit equal to that of last fiscal year.

The listed 26 commercial banks posted a net profit of Rs 13.49 billion in the last fiscal year, and from the net profit, after separating 20 per cent in the reserve and surplus fund which is mandatory according to the central bank regulation, they can distribute Rs 10.79 billion — which is an average of 21.78 per cent dividends — to the share holders.

“The average dividend yield or the return has been decreasing since last couple of years, said share market analyst Rabindra Bhattarai.

In the last fiscal year 2011-12, the total paid up capital of the listed 26 commercial banks stood at Rs 49.54 billion and their net profit stood at

Rs 13.49 billion.

Of the total net profit, they have to separate 20 per cent in the reserve and surplus fund, according to the central bank. However, in the fiscal year 2010-11, an average return of the listed commercial banks was 31.96 per cent, and a fiscal year ago in 2009-10, it was 38.93 per cent.

Due to low confidence of the private sector, the banks are sitting on surplus cash currently, which will not only hit the profit growth rate but also overall economy as the banks and financial institutions are the financial intermediaries and they do not invest themselves.

The private sector borrowing could not be increased, unless the investors have confidence on government and guarantee of security of their investment and return. With limited sectors to invest in, the banks might feel heat in the current fiscal year.

However, the commercial banks’ profit growth rate will not go down, though it might slowdown, according to chief executive officer of Everest Bank PK Mohapatra.

 

Banking sector average return

2009-10 — 38.93 per cent

2010-11 — 31.96 per cent

2011-12 — 21.78 per cent

Annual reports of banks discourage market

The stock market today reacted unfavourably to the unaudited annual reports of banks — the key players of the domestic secondary market — that has revealed a slowdown in the profit growth rate, and closed 2.6 points down to 397.18 from the morning's opening of 399.78 points.

Investors, who were expecting higher dividends as in the previous years, were discouraged by the slowing growth rate in profits of the banks, and pulled the banking index down by 5.72 points to 356.88 points that has dragged Nepse down, despite five sub-groups — development banks, hydropower, hotels, insurance and others — gaining in the day's trading.

Of the total 32 commercial banks, 17 banks have published their unaudited annual reports. However, only 26 banks have listed — among the 32 banks — 495,411,739 units of their shares at a face value of Rs 100 per unit at the secondary market.

The unaudited reports of the 17 banks also revealed that there are only three banks — Nabil Bank, Nepal Investment Bank and Standard Chartered Bank — in the billionaire's club with their profits shooting up over a billion.

"Though profit is not the only benchmark to gauge the performance of a sound financial institution, it will definitely have a psychological effect on the investors as they expect higher dividends," said market analyst Rabindra Bhattarai.

The banks' capacity to distribute higher dividends depends primarily on their profits, he said, adding that the banks cannot provide huge dividends in the current economic condition. "The economy has to support the growth of banks and financial institutions, otherwise they cannot sustain in the long run."

Similarly, bankers also opined that investors should not lose hope and wait, as the country is passing through a transition and lengthening uncertainty, hurting the economy. "Shareholders should be patient in the coming couple of years," said Kist Bank chief executive Kamal Gnawali. "Stronger institutions will give them good returns in the long run," he said, adding that investors should let banks grow stronger first instead of expecting returns in the short term.

Another banker said that banks have surplus liquidity but the lack of borrowers has squeezed their profits. "Entrepreneurs do not have any confidence in the government making them reluctant to borrow and that has hit profit growth apart from the ailing real estate that has tightened the profit growth rates of the banks," he added.

 

Annual net profit

Bank – Fiscal Year 2011-12 – Fiscal year 2010-11

Nabil Bank – Rs 1.71 billion– Rs 1.33 billion

Nepal Investment Bank– Rs 1.31 billion– Rs 1.17 billion

Standard Chartered Bank– Rs 1.16 billion– Rs 1.11 billion

NB Bank– Rs 702.90 million– (loss Rs 138.15 million)

Bank of Kathmandu– Rs 607.66 million– Rs 605.15 million

Nepal SBI Bank– Rs 475.62 million– Rs 464.56 million

Global IME Bank– Rs 353.05 million– Rs 224.97 million

Kumari Bank– Rs 275.62 million– Rs 251.23 million

Citizens Bank Int'l– Rs 222.97 million– Rs 198.35 million

Bank of Asia Nepal – Rs 220.89 million– Rs 209.88 million

Lumbini Bank– Rs 193.44 million– Rs 389.69 million

Grand Bank– Rs 183.66 million– Rs 89.07 million

Sunrise Bank – Rs 146.61 million– Rs 44.23 million

Sanima Bank– Rs 120.98 million– Rs 155.22 million

Kist Bank– Rs 100.23 million– Rs 54.07 million

NMB Bank– Rs 59.45 million– Rs 221.50 million

Machhapuchchhre Bank– Rs 10.81 million– Rs 8.92 million

NIBL Capital Markets starts business

NIBL Capital Markets — a wholly owned subsidiary of Nepal Investment Bank — formally commenced its business today.

A licensed merchant banker from the Securities Board of Nepal, NIBL Capital aims to provide a comprehensive and a wide range of financial solutions ranging from Issue and Sales Management, Securities Underwriting and Share Registration, to Portfolio Management, it said, adding that as the company embarks on its first year of operation, it is committed to rendering services to a diverse prospective client base from financial institutions and businesses, to individuals with unique needs.

In the near future, NIBL Capital aims to expand its business and venture into Depository Participant functions and the Mutual Fund segment too.

Dedicated to core service and delivery, NIBL Capital is guided by the principle of seeing value in a different way and helping create synergy that will allow its clients to achieve their goals, it added.

With the strength of the parent company, Nepal Investment Bank, coupled with a strong network and experiences, the company hopes to act as the premier and trusted provider of customer-centric and innovation-driven investment banking services in Nepal, it said, adding that NIBL Capital wishes to serve as an agent of change in the development of the Nepali capital market to help achieve the common goal of economic growth and prosperity.

Hello Nepal to expand service

Nepal Satellite — which operates its telecom service under the brand name 'Hello Mobile' — is all set to introduce its services in the western and far-western regions within nine months, according to the company.
The company has been providing its services to 272 villages in the mid-western region so far. Hello Mobile will be accessible from Narayanghat to Kanchanpur after the expansion drive, it said.
The company has awarded the contract of service expansion project to China-based ZTE company, it said, adding that ZTE will be responsible for constructing the entire necessary infrastructure and for providing equipment according to the contract.
Chief of Nepal Satellite Ajay Raj Sumargi and chief executive officer of ZTE Syu Lee signed the agreement today in Kathmandu.
In the programme, Sumargi said that the company is committed to expanding its services to remote areas where the population density is low and where mostly poor people reside. He also informed that the company will expand its service in the central and eastern regions in the third phase.
Chairperson of the company Asmita Sumargi said that the company is optimistic that ZTE will complete the task on schedule.
Nepal Satellite has a total investment of Rs 2 billion from Airbell Service of Cyprus and Nepali investors, it said, adding that it will also invest an additional Rs 1.80 billion in the coming days to further expand its services.
Nepal Investment Bank, Mega Bank and Nabil Bank have been providing loans to the company.
The company has been using solar energy for power backup of satellite mobile which is environment friendly, the company claimed.