Laxmi Bank Limited (LBL) is in operation since April 2002, LBL is mainly promoted by the Khetan Group and the Shanghai Group, both business houses in Nepal. The shares are listed on the Nepal Stock Exchange and the shareholding pattern constitutes the promoters holding ~64% (including Citizen Investment Trust’s 8.68%) and a public shareholding of ~36%. Mr. Ajaya Bikram Shah is the Chief Executive Officer of the Hattisar, Kathmandu based bank.
LBL has 96 branches, 51 branchless banking counters and 108 ATMs as of mid-January 2019. Its market share is around 2.86% in terms of the deposit base and 2.98% of the total advances of the commercial banking industry as on mid-Jan 2019. LBL reported a profit after tax (PAT) of NPR 1,181 million in FY2018 (YoY growth of ~22%) over an asset base of NPR 80,960 million as of mid-July 2018. For H1 FY2019, bank reported a profit of NPR 724 million over an asset base of NPR 93,915 million as of mid-January 2019. LBL’s reported CRAR was at 11.66% and gross NPLs were around 1.11% as of mid-January 2019. In terms of the technology platform, LBL is using Finacle as the core banking software across all its branches.
LBL intends to mobilize the entire fund received through the issues on loans and advances.
About the issue
Laxmi Bank (LBL) is issuing “10% Laxmi Bank debenture 2086” worth Rs 2 arba with a maturity period of 10 years. The issue will open from Ashwin 23, 2076 till Ashwin 27, 2076. However, in case of under subscription, the issue will be extended till Kartik 22, 2076.
A total of 20 lakh units will be issued at a par price of Rs 1000 per unit. Out of the offered, 12 Lakh units are for the private placement while 8 Lakh units will be issued for the general public. Similarly, 5% or 40,000 units have been reserved for Mutual Funds.
Nabil Investment has been appointed as issue manager.
The interest individuals can apply for a minimum of 25 units or maximum of 1 lakh units.
ICRA Nepal Limited has reaffirmed a [ICRANP-IR] BBB+ (Pronounced as ICRA NP IR Triple B Plus) Issuer Rating of Laxmi Bank Limited.
This rating is considered to have a moderate degree of safety regarding timely servicing of financial obligations. Entities with this rating carry moderate credit risk.
Board of Directors
*There are 812 employees in total.
ICRA Nepal has assigned [ICRANP] LBBB+ (pronounced ICRA NP L triple B plus) to the proposed subordinated debenture programme of Laxmi Bank Limited (LBL). Instruments with this rating are considered to have a moderate degree of safety, regarding the timely servicing of financial obligations. Such instruments carry moderate credit risk.
ICRA Nepal has also reaffirmed the issuer rating of [ICRANP-IR] BBB+ (pronounced ICRA NP issuer rating triple B plus) to LBL. The entities with [ICRANP-IR] BBB+ ratings are considered to have a moderate degree of safety regarding the timely servicing of financial obligations. The rated entity carries a moderate credit risk. The issuer rating is only an opinion on the general creditworthiness of the rated entity and not specific to any particular debt instrument.
Strengths and opportunities
- Adequate track record (since 2002) and the ability to maintain a healthy pace of growth in the last three years (~25% vs. 24% for industry). This has supported the bank in maintaining the return indicators, despite the significant capital increment in the last few years, in line with the regulatory requirement.
- Experienced senior management and established underwriting practices remain positives for controlled growth over the near term.
- Management plans to grow the portfolio more along the retail and the SME segments by expanding its geographical presence. This remains positive, both from the perspective of improvement in yields as well as diversification of portfolio risks and hence is likely to support the bank’s profitability profile going forward.
- Comfortable asset quality indicators, with non-performing loans (NPLs) of 1.11% as of mid-January 2019, has also been factored in the rating action.
- Presence of the institutional promoter in LBL, Citizen Investment Trust (one of the state-owned retirement funds) with ~9% stake and representation in the board.
Weaknesses and threats
- Weak deposits profile with low chunk of current and savings deposits (CASA) at ~34% as on mid-January 2019 vs. ~41% for industry.
- Increased share of term deposits, has kept LBL’s cost of funds relatively higher and hence weakening its competitive positioning.
- Increase in the share of corporate loans in the interim (59% of total loans as of mid-January 2019) leading to increased credit concentration risks (~30% among top-20 groups amounting to ~200% of bank’s tier-I capital as on mid-January 2019 as compared to 146% as on mid-April 2018).
- Declining capital cushion (CRAR of 11.66% as of mid-January 2019 as compared to 12.43% as on mid-July 2018, against the regulatory minimum of 11%) also remains a concern. However, this is expected to be supplemented by the proposed debenture issue plans.
- Probable systemic risks emanating from the mismatch in credit and deposit growth in the industry over the last few years. The resultant hardening of interest rates could build up stress on the bank’s asset quality over the near term, as the incremental portfolio gets more seasoned.
- Risks emanating from the bank’s increasing non-fund based portfolio which remains sizeable at ~two-thirds of funded portfolio with high concentration among top-20 customers (~50%) as on mid-January 2019.
- Uncertain operating environment and liquidity constraints that the banks in Nepal are currently facing, which could have a bearing over the bank’s growth plans.
Source: Company Prospectus and ICRA Nepal rating report