ICRA Nepal has assigned [ICRANP-IR] A (pronounced ICRA NP issuer rating A), to Agricultural Development Bank Limited (ADBL) indicating an adequate degree of safety regarding timely servicing of financial obligations. Such issuers carry a low credit risk.
ICRA Nepal has also reaffirmed the rating of [ICRANP] LA (pronounced ICRA NP long-term debt rating A) to the proposed subordinated debenture programme worth NPR 2,500 million of Agricultural Development Bank Limited (ADBL). Instruments with this rating are considered to have an adequate degree of safety regarding the timely servicing of the financial obligations. Such instruments carry a low credit risk.
The assigned/reaffirmed ratings factor in ADBL’s ownership profile with 51% equity stake by the Government of Nepal (GoN) and its long track record in the industry. The bank also remains among the strongest players in the industry in terms of branch strength, which, coupled with strong traction developed by the bank across the country, especially in the semi-urban and rural areas of the country, remains a positive for its future growth and diversification. The bank’s credit portfolio remains highly diversified, which mitigates the future assets quality to a large extent (despite the current high NPL levels). Also, the bank’s strong capitalization enables it to withstand any credit shock over the short to medium term.
The rating also factors in the importance of ADBL for the GoN as a medium for agricultural financing and the bank’s good profitability profile, with strong net interest margins, which is a result of a healthy yield on its granular retail lending portfolio.
The ratings are constrained by ADBL’s moderate deposit profile, as reflected in high concentration among its top depositors and higher-than-industry average cost of deposits. This is a concern from both the liquidity and the bank’s competitiveness in the base-rate-plus lending model currently practiced in the industry.
Source: ICRA Ratings Nepal