IPO ANALYSIS OF EKATA BIKAS BANK LIMITED

Note: IPO applied for more than 50 units should be divisible by 10 and when applied for more than or equal to Rs 50,000 the payment should be made through account payee check.

Issue Manager:  

• NMB Capital Limited

Introduction of Ekata Bikas Bank Limited

Company Profile

Ekata Bikas Bank Limited (EBBL) was established in 2068/01/27 under the Company Act, 2063 and has been carrying out its activities as per Nepal Rastra Bank Act 2058, and Bank and Financial Institution Act, 2063. It commenced its operation as  "B" Class (three District i.e. Rupandehi, Kapilvastu and Dang) financial institution of Nepal from 2068/07/07 after receiving a license from Nepal Rastra Bank as on 2068/06/30.

The bank was mainly established to provide standard financial services to the people. With this ambition, local businessman, intellectuals, industrialists and management professionals of this area came together to establish Ekata Bikash Bank Limited.  From establishment, the company’s mission has been to become preferred provider of quality financial services in the country.

The Bank has been registered with an authorized capital of NPR 400 million and currently holds an issued capital of NPR 200 million and a paid-up capital of NPR 120 million.

The company’s shareholding is diversified across over 186 individual promoter shareholders. At present, promoters own 100 percent shareholding of the bank which is expected to come down to 60 percent, provided the proposed IPO is fully subscribed.

The bank’s registered office is situated at Pushpalalpark-8, Rupandehi district, which is also the Head Office of the bank. Currently, EBBL is providing services to its customers of 3 districts through its four branches and  two extension counters.

Major shareholders of Ekata Bikas Bank Limited

NA

Board of Directors of Ekata Bikas Bank Limited

1. Dr. Dhurba Prasad Dhakal, Chairman

Qualification: Doctor of Philosophy (PhD)

Work Experience: Associated with Tribhuvan University from past 15 years as assistant professor.

2. Mr. Rajan Kumar Pokharel, Managing Director

Qualification: Graduate

Work Experience: Managing Director of Siddhartha Metal and Steel Industries, Butwal, Rupandehi.

3. Mr. Khim Nath Sharma, Director

Qualification: Post Graudate

Work Experience: He has been working in Account Department of Tribhuvan University since past 15 years.

4. Mr. Ram Chandra Pandey, Director

Qualification: Post Graudate

Work Experience: He is involved with various private and T.U. affiliated colleges as professor since 2060 B.S.

5. Mr. Uddhav Chandra Gautam ,  Director

Qualification: Post Graduate

Work Experience: He is involved with various T.U. affiliated colleges as professor since 2059 B.S.

Board of Directors (BOD) shareholding in the bank as per the Offer letter

Management Team of Ekata Bikas Bank Limited

1. Mr.  Dhruba Kumar Poudel (Chief Executive Officer)

2. Mr. Babulal Nepal (Chief Operating Officer)

3. Mr. Aarogya Khanal    ( Head Credit )

Capital Structure

FINANCIAL HIGHLIGHT OF THE BANK

                                                                                                                                                                     Figure in Rs “000”

Looking at the bank’s history, it is newly formed bank. So for the analysis purpose, we haven’t considered the initial period.

Following its establishment, the paid-up capital of the bank has come to double. Currently it stands at 60% of the issued capital. With the initial public offering (IPO), the company plans to par the capital structure with that of the issued capital. Similarly, observing reserve and surplus of the company, it has sustained healthy growth. But, the third quarter data compared to corresponding quarter depicts only a marginal growth of eight percent.

Looking into the third quarter data, it suggests the bank is having stiff time expanding its business because of growing competition, which has attributed to low growth in reserve than other previous periods.

As per the published CD ratios, we can clearly see that the utilization of fund by the bank has gradually decreased coming to the latest period. If we compare current third quarter CD ratio with that of two years before, it has decreased by more than 10 percent, and also we find the CD ratio is behind the optimum level set by NRB at 80%; its signifies that the bank has not been fully able to utilize its deposits which may attribute to a high cost of fund.

From the table, we see that the bank has been making increment in both deposit and loan but not to the level that is required for new banks. If we look into deposit, its growth has drastically decreased from triple figure to double, which is not an encouraging growth for a new bank.

Likewise, loan growth figure has also shrunk to two digit numbers only. Being a new bank, instead of increasing growth figure, it has a decreasing figure. In addition, the lack of optimum utilization of fund through loan distribution is surely to impact on its cost of fund as stated above, which ultimately will result in lower profit.

Looking at the loan portfolio of the company, it still sustains higher exposure in Others loan i.e. 50.25 percent which is 5 percent higher than the previous third quarter data. The second highest exposure is in Overdraft Loan/TR Loan/ WC Loan with 33.80 percent. While, the bank has slightly decreased its exposure to Home/Housing Loan to 7.99 percent from 8.90 percent of corresponding third quarter, and in real estate loan to only 5.90 percent from 13.55 percent. Similarly, it has made two percent exposure in term loan up from 0.91 percent.

In additional information, ICRA report has stated that the bank has high deposit and loan concentration. As per the report, top 10 depositors accounted for 32 percent of total deposit as on mid-Jan-14. Similarly, it has also mentioned that there is higher portfolio vulnerability arising from exposure to hire purchase loan segment, which is around 26 percent as on mid-Jan-14.

In the initial period as the base size of profit was small, the bank was able to publish such a hefty growth in both operating before provision and net profit. In addition, the high spread, because of excess liquidity in the market, also attributed to the growth.

However, coming to the third quarter data of this fiscal year, the outcome is different. In the third quarter, the interest income growth has shrunk to 65.05 percent from 608.67 percent, which mainly diluted the growth size in earning indicators.  Apart from it, the high expense growth to revenue further impacted the outcome.

Now if we look at the non-performing loan in the current third quarter it is tallied at 0.08 percent, which suggests the bank is having success in reducing bad loans. In terms of net provision also, the bank has been able to decrease the amount as it net write back amount in this third quarter totaled at Rs 2,744 thousand from corresponding third quarter figure of Rs 3,385 thousand.

As the bank’s loan portfolio size is small and it is in its initial period, it has succeeded in maintaining minimum bad loans. However, with the need of expansion in upcoming days, it will be interesting to see as how the bank will tackle this issue.

If we look at the Net Worth of the company, its figure is not one of the best among its competitors. Now, looking at the EPS, ROA and ROE till the third quarter of the FY 2070/71, we can see that, the increment has been on smooth track, which is a positive aspect of the bank.

However, it should be kept in mind that the BOD of this bank mainly consists of the directors with teaching and business background that lack banking experience. In addition, the bank’s deposit and loan expansion is moderate because of the stiff competition in the market.

Despite its average performance, the bank’s prospect within its operational areas seems to be on brighter side. As the bank is focused on only three districts, it will have better understanding of needs of people residing in these areas than other national level banks which may led to competitive advantage.

Along with it, looking at the market condition, where even the company having net worth below par is oversubscribed numerous times, the sentiment of the investors may uplift the value of this IPO rather than company’s performance.

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