ICRA Nepal assigns Grade 4 to the proposed 50% right share of Yeti Dev Bank

ICRA Nepal has assigned an “[ICRANP] IPO Grade 4” rating to the proposed 50% right share of Yeti Development Bank Limited (YETI), indicating below-average fundamentals. The development bank is seeking to issue 6,931,167 units right shares worth Rs 69.31 crore in the ratio 100:50 to its shareholders to be floated at a par value of Rs 100 per share. NCM Merchant Banking Ltd. is the issue manager for the right issue. According to ICRA Nepal, the grading has considered the development bank’s modest track record of operation since 2001 while maintaining a moderate portfolio growth. ICRA Nepal has also taken into account the bank’s ability to recover major part of its losses incurred in the FY 2071/72, supported by increased recovery efforts and change in the management team. The grading is, however, confined due to the bank’s weak asset quality profile. YETI’s current and savings accounts profile is also deemed weak, resulting in higher cost of funds than its industry peers. This has also impacted its net interest income. The grading is also hindered by lack of dividend track record over the 15 years of its establishment, lack of institutional promoters, and stiff competition with commercial banks that offer better lending rates. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. For the grading categories 2, 3 and 4, the sign of + (plus) appended to the grading symbols indicate their relative position within the grading categories concerned. Thus, the grading of 2+, 3+ and 4+ are one notch higher than 2, 3, and 4, respectively. YETI’s paid up capital as of the second quarter of the ongoing fiscal year 2073/74 stands at Rs 1.38 arba. It has posted a net profit of Rs 14.41 crore till the second quarter of this year. After the issuance of 50% right, its paid up capital will reach Rs 2.07 arba. As per NRB’s requirement for all national level development banks to increase their paid up capital to a minimum of Rs 2.50 arba by the end of FY 2073/74, YETI will need to issue a further capital hike of around 20.80%.