Grameen banks set to get merger LoI

KATHMANDU, NOV 06 -

Five Grameen Bikas banks, which have decided to merge into a single entity, are likely to get the letter of intent (LoI) from the Nepal Rastra Bank ( NRB ) before Tihar .

The banks had decided to merge in order to address the operational ineffectiveness felt while operating separately. The central bank also encouraged the merger in the wake of losses at four of the five banks. “The NRB board will issue the LoI most likely before Tihar ,” said Bhaskarmani Gnawali, spokesperson for the central bank.

After receiving the LoI, the banks have to conduct separate due diligence audit studies and complete the merger within the next six months. The banks include Purbanchal, Sudur Pashchimancal, Pashchimanchal, Madhya Pashchimanchal and Madhyamanchal Grameen Bikas banks. They had signed a memorandum of understanding on October 11. Following the merger, the merged entity’s paid-up capital will be Rs 380 million, which means the D-class rural banks will be promoted to a C-class single entity.

However, the central bank, which has shares in Sudur Pashimanchal and Paschimanchal banks, said the banks plan to maintain the paid up-capital of the merged entity at Rs 500 million. “Shareholders may have to put in some money to increase capital,” said Gnawali.

Other shareholders of the Grameen banks include the government (in four of the five banks) and commercial banks including Standard Chartered, Nabil, Himalayan, Bank of Kathmandu, Nepal Bangladesh Bank and Agriculture Development Bank. All of them will retain their stakes in the merged entity.

Following the footsteps of the exemplary Grameen Bank of Bangladesh, the five banks were established to provide micro credit facility to micro-industries, agro businesses and trading, among others, in rural areas during the period of 1992-1996.

However, all the banks, excluding Paschimanchal, are incurring losses due to several problems. According to NRB , these rural banks have a combined negative net worth of Rs 130 million despite good performance of Paschimanchal.

The central bank is planning to finance and conduct their DDA itself so as to ensure fair valuation of shares.

Source: The Kathmandu Post