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