ICRA Nepal assigns top ratings to proposed ADBL Debenture Issue worth Rs.2.50 Arba

ICRA Nepal has assigned a rating of [ICRANP] LA to the proposed subordinated debenture program 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 timely servicing of financial obligations. Such instruments carry low credit risk. The proposed debenture will be a part of ADBL’s tier-II capital.  The  bank  is  issuing debentures  to comply  with  the Nepal  Rastra  Bank’s  (NRB) regulation requiring  commercial  banks  to  maintain tier-II  debentures equivalent to 25% of their paid-up equity capital.

The assigned rating factors in ADBL’s ownership profile with 51% equity stake held by the Government of  Nepal  (GoN),  its  long  track  record in  the  industry,  diversified  loan  portfolio  and  strong capitalization. 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 rating also factors in the importance of ADBL for the GoN as a medium for agricultural financing. The rating further considers the bank’s good profitability profile with strong net interest margins, which in turn results from healthy yield on its granular retail lending portfolio.

The rating is constrained by ADBL’s moderate deposit profile. The bank’s funding profile does not reflect the diversification of its credit portfolio, despite a large branch network. Its  deposits  are fairly concentrated  among  top  depositors  and the  cost of  deposits is marginally  higher  than  the  industry average. This is a concern for both liquidity and the bank’s competitiveness in the base-rate-plus lending model currently practiced in the industry.

Source: ICRA Ratings Nepal