ICRA Nepal reaffirms LBBB+ to debentures worth Rs 3 arba of Kumari Bank; Reaffirms BBB+ issuer rating

ICRA Nepal has reaffirmed the issuer rating of [ICRANP-IR] BBB+ (pronounced ICRA NP issuer rating triple B plus) to Kumari Bank Limited (KBL). The rating is considered to have a moderate degree of safety, regarding the timely servicing of financial obligations with the rated entity carrying moderate credit risk. The rating is only an opinion on the general creditworthiness of the rated entity and not specific to any particular debt instrument. ICRA Nepal has also reaffirmed the rating of [ICRANP] LBBB+ (pronounced ICRA NP L triple B plus) to KBL’s subordinated debentures. Instruments with this rating are considered to have a moderate degree of safety, regarding the timely servicing of financial obligations. Such instruments carry a moderate credit risk. The sign of + (plus) or – (minus) appended to the rating symbols indicates their relative position within the rating categories concerned.

Strengths

• Adequate track record and experienced management; increment in franchise a further positive for balanced portfolio growth
• Experienced track record in managing merger/acquisitions in the past
• Average capitalisation and solvency profile
• Asset quality expected to remain fair despite some increment in NPLs, post-acquisition

Challenges

• High pace of credit growth
• Changing regulatory landscape could affect growth and scale economies
• Relatively high cost of deposits given the higher share of term deposits
• Lower profitability profile, likely to slightly moderate over near term following proposed acquisition

Bank Profile

Incorporated in 2001, Kumari Bank Limited (KBL) has since undergone multiple acquisitions of various class of BFIs that has improved its positioning in the industry. In January 2020, the bank signed an agreement to acquire another class B bank named Deva Bikas Bank Limited (Deva). After this acquisition, the bank would have presence across the country through its 193 branches, 14 extension and revenue collection counters and 131 ATMs. On a consolidated basis (including Deva), the bank commands a market share of 3.78% in terms of deposit base and 3.84% in terms of the credit portfolio of commercial banks, as of mid-October 2019. 

KBL reported a profit after tax (PAT) of NPR 1,230 million for FY2019 (YoY growth of ~18%) over an asset base of NPR 105,311 million as of mid-July 2019. For Q1 FY2020, the bank reported a profit of NPR 402 million over an asset base of NPR 110,060 million as of mid-October 2019. The reported CRAR of the bank was 11.75% and gross NPLs were 1.05% as of mid-October 2019 (consolidated 12.40% and 1.44% respectively). 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. Mr. Surendra Bhandari is the Chief Executive Officer of the bank.

Source: https://www.icranepal.com/