NB Group exit from NB Bank imminent

KATHMANDU, FEB 06 -

NB Group’s exit from Nepal Bangladesh Bank (NB Bank) seems imminent, with key promoter International Finance Investment and Commerce (IFIC), a Bangladesh-based commercial bank , signing a purchase-sale agreement with the Nepali group. The pact was signed on January 30.

IFIC also signed a similar pact on January 7 with another key promoter Bank Asia, also based in Bangladesh, to purchase the latter’s shares.

IFIC will purchase 3,803,434 shares belonging to NB group and another 2,665,500 units of Bank Asia. After the transaction, IFIC will hold a 42 percent stake in the bank . With this, the NB group, which once promoted four financial institutions, will only have shares in Nepal Credit and Commerce (NCC) Bank.

After the agreement, NB Bank has forwarded the proposal to the Nepal Rastra Bank (NRB) for final approval. “After the central bank ’s approval, IFIC will make payments to the share sellers,” said an NB Bank source.

NRB Deputy Governor Maha Prasad Adhikari said the central bank ‘has no problem’ in giving final approval if all necessary procedures have been duly followed. “The next board meeting may give the final approval,” he said.

As per the conditions put forth by NRB for the share sale, the amount supposed to be received by the Nepali promoters will be first collected in a separate account in NRB.

The amount will first be used to repay the loans that NB Group had taken from other bank s against the collateral of the group’s shares in NB Bank. Then, rest of the money will be used for repaying loans that the group had taken from NB Bank. The central bank put in place such a provision as the NB Group had been refusing to repay loans taken from NB Bank. According to an NB Bank source, the group will receive around Rs 1 billion from the share sale which will be enough to recover loans that went to the promoters. The source added the bank has around Rs 800 million to recover from people related to the NB group.

The due diligence audit (DDA) of the bank had fixed the price of the promoter’s shares at Rs 200 per unit, according to the source. “I have learned that the share has been sold at more than that amount,” added the source.

Although a majority of shares owned by individuals related to the NB Group will be sold, Laxmi Bahaudur Shrestha and his brother Jit Bahadur Shrestha cannot sell their shares as the bars them to do so. The Bank and Financial Institution Act (BAFIA) prevents board directors from selling their personal shares within one year after their exit from the board and the duo was directors at NB Bank until recently before they were blacklisted by the Credit Information Bureau for defaulting loans.

Jit Bahadur has a 2.61 percent stake in NB Bank, while Laxmi Bahuar has 0.92 percent. After their blacklisting, they have been automatically disqualified to hold a director’s post at any bank or financial institution as per the BAFIA. Laxmi Bahadur Shrestha is also in the wanted list of the Police on charge of bank ing offense as he has been accused of orchestrating the illegal disbursement of loans from Nepal Sri Lanka Merchant Bank before its merger with NB Bank.

With NB Group’s exit from NB Bank looming, the share price of the bank has started to soar. On January 31, NB Bank shares were trading at Rs 232 per unit, which climbed to Rs 300 on Tuesday, before closing at Rs 281. The shares were traded at Rs 274 per unit on Monday and Rs 255 on Sunday.

A senior NRB official said the exit of NB Group would not only be good for NB Bank, but also the entire bank ing system given their record of defaulting loans.

The central bank had granted approval in principle for the sale of the promoter’s shares on November 12, 2012. Although NRB had received the proposal seeking its permission to

sell the Nepali group’s shares to IFIC much earlier, the central bank board could not take a decision due to strong opposition from some of its members ‘having close connection with the NB Group’. They had taken such a position as the BAFIA says board members cannot sell their shares until one year of their exit.

Source: The Kathmandu Post