ICRA Nepal upgrades rating of Bank of Kathmandu's Subordinated Bond Program “7.5% BOK Bond 2078”

ICRA Nepal has upgraded the rating of (7.5% BOK Bond 2078) to [ICRANP] LBBB+ (pronounced ICRA NP L triple B plus) from [ICRANP] LBBB, which indicates that  bank has moderate degree of safety regarding timely servicing of financial obligations assigned.  Subordinated bond rating BBB+ is one notch higher than BBB. According to a statement of ICRA Nepal, the rated entity carries moderate credit risk. ICRA Nepal also takes into consideration scale up of operations because of merger with Lumbini Bank Limited during FY 2072/73 leading to improvement in franchisee and customer base. Increase in franchise and customer base has helped increase the granularity of the credit portfolio (top 20 borrower groups accounted for ~15% of total credit on Poush 2073). Improved market positioning post-merger along with BOK’s established track record (operating since 1995) and experienced management team is likely to have positive impact on the future prospect of the bank; which has been also factored into the rating action. While upgrading the ratings for BOK, ICRA Nepal takes into consideration of addition of institutional promoters in BOK post-merger, cautious growth in current adverse interest rate scenario and improvement in return indicators of BOK in past 12-18 months following two-year period of modest profitability due to increased credit cost towards erstwhile off-balance-sheet exposure. Further, the bank’s financial indicators continue to remain stable in the aftermath of earthquake and blockade which was not clear while assigning earlier rating.