Govt injects capital in RBB, to buy NBL rights shares

KATHMANDU, JULY 16: 

The government has decided to step in and pump funds to help with the restructuring of two state-owned commercial banks.

The cabinet meeting held today has approved financial assistance for the recapitalisation of Rastriya Banijya Bank (RBB) and Nepal Bank Ltd (NBL). It has approved the injection of Rs 4.32 billion to RBB.

Likewise, it has given a green signal to the government for the purchase of rights shares worth Rs 1.37 billion of NBL’s upcoming rights issue. The budget of the current fiscal year had announced that banks and financial institutions in which the government was involved in would be restructured with necessary capitalisation. 

Both the commercial banks are in need of capital injection to make their net worth positive along with increasing their paid up capital to Rs two billion as directed by Nepal Rastra Bank.

NBL has already started its recapitalisation plan and will issue rights shares to existing shareholders at 1:9.5 ratio.

According to NBL's plan of increasing its paid up capital to Rs four billion, the bank has planned to raise funds worth Rs 3.62 billion by issuing rights shares to existing shareholders. The government is the largest stakeholder in the bank with 41 per cent ownership. The other public shareholders of the bank were positive about the rights issue. 

Moreover, the bank has decided to sell its assets and raise about Rs two billion and capitalise profits worth Rs one billion. NBL’s capital fund is negative by Rs 4.2 billion. 

RBB on the other hand was pursuing a merger with another state-owned financial institution –– NIDC Development Bank. The fully state owned bank’s reserve was negative by about Rs 9.8 billion as of the third quarter of this fiscal year. 

The bank was also planning to recover bad loans, sell non-banking assets and divest stakes in many profitable ventures such as Nepal Investment Bank thus generating about Rs four billion. But it still needed financial support from the government to get back on its feet. Both the banks went through almost a decade-long Financial Sector Restructuring Programme since 2002, which improved their performance but their core capital remained negative.

A comprehensive audit of the banks in 1999, had discovered that the banks were on the verge of insolvency due to a large number of willful defaulters thus the need for the restructuring programme. There was fear that the failure of these two largest banks in the Nepali financial sector would bring about a systemic failure in the market.