Merchant Banks of Nepal: Things to know

The definition of Merchant Banker varies depending on the nature and multitude of services it provides. In case of Nepal, the governing regulation {Securities Businessperson (Merchant Banker) Regulation, 2064} defines Merchant banker as securities businessperson which has obtained license to perform one or more function pursuant to Regulation 16.

The Regulation 16 lists the following as the functions of Merchant Banker:

• All the functions related to issue and sales management of securities including drafting of prospectus, offer documents and other related documents.
• Underwriting by entering into agreement with body corporate and undertake to purchase the unsubscribed portion of securities offered by body corporate.
• provide share registration related services such as maintaining register of ownership of securities and execute name transfer on behalf of the body corporate
• Provide portfolio management services to the clients by entering into an agreement.

Securities Board of Nepal (SEBON) is the regulatory body looking after the licensing and supervision of Merchant Banking in Nepal. Currently, there are 28 licensed Merchant banks in Nepal with 5 more in the pipeline.

Therefore, after the companies in pipeline also get license 22 out of 33 merchant banks will be subsidiaries of Commercial Banks. Six banks vis-à-vis Nepal bank, Agricultural development bank, Standard chartered bank, Everest bank, NCC bank and Prime commercial bank don’t have a merchant bank as their subsidiary yet.

The list is presented below:

Currently in Nepal, the services provided by Merchant banks can be categorized into:

• Portfolio Management services
• Issue Management
• Share Registrar
• Underwriting
• Financial Advisory

As seen in the table above, of the 28 operating Capitals 26 provide PMS services, 20 provide Issue management, Share registrar and underwriting services and 18 of them provide Financial Advisory services.

Given such huge number of merchant banks, the number of services offered does seem slim. Talks of introducing loan syndication, venture capital, private equity fund and SIP related products have been floating for long enough. Adding up these service will surely add value to Nepal capital market and entrepreneurship eco-system.

To be eligible to provide each of the services mentioned above, Merchant Banks have to meet the minimum required capital as mandated by SEBON. The requirements are:

Along with the capital requirement, SEBON also states the applications to be submitted to apply for a license. These documents are:

In a small economy like Nepal, where 28 commercial banks are considered a lot 33 merchants banks might be more than we need. But since we're still in developing phase, the higher number could be our strength to outreach of financial services to all parts of the country.

However, if all these Capitals stay concentrated in the Kathmandu valley and few large cities, maybe we are looking at an oversupply of Merchant banks.