Banking sector's first acquisition to be delayed

KATHMANDU:

The first acquisition in the Nepali banking sector is likely to be delayed as Nepal Rastra Bank (NRB) has asked the two concerned financial institutions that had initiated the acquisition process to get approval from their respective special general meetings.

Last week, Citizens Bank International had formally announced it was buying Nepal Housing and Merchant Finance for an undisclosed sum. A memorandum of understanding was then signed between Citizens Bank’s Chairman Pabitra Kumar Karki and Nepal Housing Finance’s Chairman Sonam Lama in this regard.

Following this, the two institutions had approached NRB and requested it to give due permission to formally start acquisition process.

“We went through the documents that they had submitted, but it didn’t contain shareholders’ consent which had to be obtained through a special general meeting,” a high-ranking NRB official said on condition of anonymity.

According to the official, the documents provided by the two financial institutions only contained approval extended by shareholders to start a merger process.

“Since the nature of mergers and acquisitions is different, we have asked the two institutions to first get consent for acquisition. We will then let them start the acquisition process,” the official said.

A bylaw on acquisition introduced by NRB on April 20 also states that parties to acquisition process must first get the approval from their respective general meetings and give authority to their boards of directors to take the matter forward.

“Representatives of both the institutions have agreed to follow the due process,” the NRB official said. Officials of both the financial institutions could not be contacted.

Citizens Bank, a class ‘A’ financial institution, had announced its plan to acquire Nepal Housing Finance, a class ‘C’ financial institution on May 19 — a month after a new bylaw on acquisition was introduced. Following this, share trading of Nepal Housing Finance was suspended.

Although the financial sector here has witnessed more than 50 sets of mergers in the past three years, the acquisition process started by the two is the first of its kind in Nepal’s banking sector.

Citizens Bank had said it would conduct due diligence audit of the finance company prior to coming up with an offer price.

The finance company, with paid-up capital of Rs 220 million, has capital adequacy of 18 per cent and less than 2.5 per cent as bad loans. Citizens Bank, on the other hand, has paid-up capital of Rs 2.1 billion and more than half a billion rupees in its reserve fund.

Source: THT