ICRA Nepal assigned LA Minus and LBBB ratings to Subordinated Debenture and Issue rating to Global IME Bank and Prabhu Bank respectively

Global IME Bank Limited

ICRA  Nepal  has assigned the  rating  of [ICRANP]  LA-(pronounced  ICRA  NP  L  A  minus)  to the proposed  subordinated debentures  of Global  IME  Bank  Limited  (GBIME) and  also reaffirmed  the  rating  of [ICRANP]  LA-to GBIME’s existing subordinated debentures.Instruments with this rating are considered to have an adequate degree of safety regarding the  timely  servicing  of  financial  obligations.  Such  instruments  carry  low  credit  risk.The  sign  of  +  (plus)  or –(minus) appended to the rating symbols indicates their relative position within the rating categories concerned.

ICRA  Nepal  has  also reaffirmed  the  issuer  rating  of [ICRANP-IR]  A-(pronounced  ICRA  NP  issuer  rating  A  minus)  to GBIME, indicating adequate credit quality. The rated entity carries low 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

• Strong branch  network leading to  high share  of  granular  loans
• Experienced promoter group and management profile
• Fair  asset  quality
• Adequate profitability profile despite recent moderations; scale economies likely post-merger

Challenges

• Externalities brought on by Covid-19 could affect key operating parameters
• Moderate capitalisation profile
• Relatively high cost of deposits compared to the industry average; high deposit concentration
• Mismatch  in  credit  and  deposit  growth  in  recent  periods
• Changing  regulatory  landscape  could  affect  growth,  especially  in  SME  segment

Bank Profile

Incorporated  in  2007, Global  IME  Bank  Limited  (GBIME)  has  since  undergone  multiple  large  and  small  mergers/ acquisitions and now encompasses 18 different merged/acquired entities.A major one of these entities is the recently merged Janata  Bank Nepal  Limited  (JBNL).  Supported  by  this merger in  December 2019, the bank has become the largest commercial bank of Nepal in terms of asset base and market share (deposit and credit). GBIME has its presence across  the  country  through  its  266 branches,  248 branchless  banking  centres,  35 extension  and  revenue  collection counters and 255 ATMs. The bank commands a market share of 6.88% in terms of deposit base and 7.45% in terms of the credit portfolio of commercial banks as of mid-January 2020.

GBIME reported a profit after tax (PAT) of NPR 2,762 million for FY2019 (YoY growth of ~31%) over an asset base of NPR 151,654 million as of mid-July 2019. For H1 FY2020, the bank reported profits of NPR 2,137 million (including profit of NPR  451  million  reported  by  Janata  Bank  till  the  date  of the merger) over  an  asset  base  of  NPR 262,089 million  as  of mid-January 2020. The reported CRAR of the bank was 11.47% and gross NPLs were 1.20% as of mid-January 2020. The bank  is  using  Finacle  as the core  banking  software  across  all  its  branches. Its  shareholding  pattern  constitutes  ~51% promoter  holding  and  ~49%  public  holding.  The  shares  of  the  bank  are  listed on  the Nepal  Stock Exchange.  The registered  and  corporate  office  of  the  bank  is at  Kamaladi,  Kathmandu.  Mr.  Parshuram  Kunwar  Chhetri  is  the  Chief Executive Officer of the bank.

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Prabhu Bank Limited

ICRA Nepal has reaffirmed an issuer rating of [ICRANP-IR] BBB(pronounced ICRA NP issuer rating triple B) to Prabhu Bank Limited  (PRVU). This 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 reaffirmed the  rating  of [ICRANP]  LBBB (pronounced  ICRA  NP  L  triple  B) assigned to the existing subordinated  debenture  programme  of PRVU. 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

• Improving  operational  profitability
• Diversified branch  network sees portfolio granularity;affiliation  to  Prabhu  Group  provides  further  support
• Fair funding  profile  with better CASA and  concentration  compared  to  most  peers
• Controlled and cautious credit growth in recent periods 

Challenges

• Weaker asset quality
• Externalities brought on by Covid-19 could affect key operating parameters
• Thin  capitalisation  buffer
• Changing  regulatory  landscape  could  affect  growth

Bank Profile

Prabhu  Bank  Limited  (PRVU),  formerly  known  as  Kist  Bank,  was incorporated  in  2002  as  a finance company  and was upgraded  to a Class  A commercial  bank  in  May  2009. Kist  Bank  came  under  stress  as  a large  chunk  of  its  credit  portfolio turned  into  NPLs  from  2013  (NPLs  were  ~24%  in  July  2014). The  bank opted  for a merger  to  improve  its  financial  profile and was renamed after the merger of four financial institutions on September 15, 2014. These institutions were Kist Bank Limited  (Class  A),  Prabhu  Bikas  Bank  Limited  (Class  B), Gaurishankar  Development  Bank  Limited  (Class  B)  and  Zenith Finance Limited (Class C).In February 2016, PRVU acquired another distressed bank i.e. Grand Bank Nepal Limited, which had a very high level of NPLs at the time of the merger (~35%).

PRVU is mainly promoted by the individuals and entities belonging to the Prabhu Group, which is an established business group,  especially  in the remittance  and financial  sector.  The bank’s shares  are  listed  on  the  Nepal  Stock  Exchange with~51% held  by  the  promoters and the rest  being public holding. PRVU’s registered and  corporate office  is  in  Babarmahal, Kathmandu.

As  of  mid-April 2020, PRVU’s presence  throughout  the  country is  visible with 208 branches, 46 branchless  banking counters and 157 ATMs. Its market share was around 3.70% in terms of the deposit base and 3.61% of the total advances of the commercial  banking  industry  as  of mid-April 2020. PRVU reported  a  profit  after  tax  (PAT)  of  NPR 1,784 million  in FY2019 (YoY growth of  ~84%) on an asset  base  of  NPR 137,886 million  as  of  mid-July  2019.  For 9M FY2020, the bank reported a profit of NPR 1,464 million on an asset base of NPR 150,586 million as of mid-April 2020. PRVU reported a CRAR of 11.56% and gross NPLs of 2.95% as on same date. In terms of the technology platform, PRVU has recently started using Finacle as its core banking software across all its branches.

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