10.25% NBB debenture opens from tomorrow; All necessary information to make an informed decision

Company profile

Nepal Bangladesh Bank Limited (NBB) was incorporated in 1994 as a joint venture with IFIC Bank of Bangladesh. IFIC Bank holds major promoter shares in NBB and the major chunk of the remaining promoter shares are held by individuals from the NB Group. All three Promoter Directors of the bank, including the Chairman, are representatives of IFIC Bank. 

As of mid-January 2019, NBB had a market share of 1.97% in terms of deposit base and 2.11% of the total advances of the commercial banking industry in Nepal.  The bank’s deposit had risen by 16.67% to Rs 56.06 arba whereas loans and advances had increased by 26.04% to Rs 51.52 arba in the third quarter of FY 2075/76. In the same quarter, the bank has Rs 60.25 crore as distributable profit after Regulatory Adjustments and PL appropriations which can be utilized in distributing dividends to its shareholders. If the profit growth of this quarter continues in fourth quarter then the company will have Rs 80.33 crore (approx.) as distributable profit. This means Nepal Bangladesh Bank can distribute around 10% (approx.) dividend from the earnings of FY 2075/76 next year if other regulatory reserve requirements are not required. (Taken from ICRA Nepal) 

NBB was once a problematic bank mainly due to lack of corporate governance among its erstwhile key promoter group i.e. the NB Group. As the loans which were provided in various names to the promoter group went non-performing, the NPLs went to ~40% and capital fund became negative by ~24% in 2006/07. Following the same, management of the bank was taken over by Nepal Rastra Bank (NRB) for corrective actions. In a bid to revive the bank, IFIC Bank agreed to increase its stake in the bank by purchasing shares from the group. The proceeds from this was intended to be utilized for settlement of loans outstanding from promoter groups. Accordingly, IFIC bank purchased shares from NB group as well as from another Bangladeshi partner namely Bank Asia, which had 15% stake in the bank. Ultimately, the total stake of IFIC Bank increased to 40.91% from 10%.

Thereafter, NBB gradually recovered loans from promoter groups. With concomitant improvement in assets quality and capital adequacy, NRB management handed over the bank to the board on January 2010. As of now, NB group holds around <10% stake in the bank with no representation in board.

The bank currently has a network of 87 branches, 72 ATMs and 7 extension counters with a total of 808 employees.

Objective of the issue

About the issue

Nepal Bangladesh Bank Limited (NBB) will be issuing “10.25% NBBL Debenture 2085” from Jestha 10, 2076. The issue for 20 lakh units debenture will remain open till Jestha 14, 2076. If the issue is not subscribed till Jestha 14, then this debenture issue can be extended upto Ashad 8, 2076.

The commercial bank will be issuing 8 lakh units i.e. 40% for the general public while remaining 12 lakh units i.e. 60% of the issue will be for the private placement. Out of public quota of 8 lakh units; 5% i.e 40,000 units is set aside for mutual funds.

The debenture will be providing 10.25% return on the investment which will be paid semi-annually and this debenture matures in 10 years. Interested applicants can place applications for minimum 25 units and maximum 1 lakh units for par value of Rs 1,000.

The application can be placed form the branches of any financial institutions providing C ASBA facilities. Nabil Investment Banking Limited has been appointed as the issue manager for the debenture issuance.

Capital structure

Shareholding composition

*19,511 units promoter shares has been frozen by Kathmandu district court

Primary shareholders

Board of directors

Management team

Credit rating

ICRA Nepal has assigned the issuer rating of [ICRANP-IR] BBB+ (pronounced ICRA NP issuer rating triple B plus) to Nepal Bangladesh Bank Limited (NBB). [ICRANP-IR] BBB+ rating is considered to be of moderate credit quality. The rated entity carries moderate credit risk. The issuer rating is only an opinion on the general creditworthiness of the rated entity and not specific to a particular debt instrument.

ICRA Nepal has also assigned [ICRANP] LBBB+ (pronounced ICRA NP L triple B plus) to the proposed subordinated debenture programme of NBB. 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.

Strengths

• Strong institutional promoters, such as IFIC Bank
• Association with IFIC Bank improves its board profile as all the three Promoter Directors in NBB have been deputed from IFIC Bank. These professionals bring in extensive banking experience to the board.
• Established track record (operating since 1994)
• Moderate pace of growth in the recent years (~18% in last three years ending mid-July 2018 against ~24% for the industry)
• Diversified network with further expansion plans,
• Experienced/ stable management team
• Comfortable capitalization profile
• Healthy net interest margins (NIMs) and strong fee-based income, which led to adequate earnings profile among peers.
• Balanced portfolio mix, with ~37% corporate loans followed by an almost equal proportion of retail and SME loans, also remain rating positives. The ratings also considered the bank’s relatively moderate credit concentration of ~22% among the top 20 accounts as of mid-January 2019.

Weaknesses

• Stress seen in the bank’s asset quality in the recent periods with rise in delinquencies to ~11% as of mid-January 2019, including non-performing loans (NPLs) of 1.78% compared to ~4-6% levels earlier.
• Increased pace of credit growth in H1 FY2019 (~36% annualized growth), which remains a rating concern.
• Ageing of the incremental portfolio along with a sharp increase in interest rates in the last two years could keep its asset quality under stress over the near term.
• Relatively smaller asset base in relation to its age and its market positioning
• Risks emanating from a sizeable non-fund based business, which remains almost equal to the bank’s fund-based portfolio.
• Relatively inferior deposits profile with declining proportion of stable/ low-cost current and savings accounts (CASA), leading to a higher cost of funds, along with high deposit concentration risks
• Probable systemic risks emanating from the mismatch in credit and deposit growth in the industry over the last few years.

Source: ICRA Nepal

Financial performance

Source: Company prospectus and ICRA Nepal