Pokhara development banks in merger rush to go national

POKHARA, Dec 24:

Pokhara-based regional-level Bishwa Bikash Bank Ltd (BBBank) is looking to become a national-level development bank soon.
For that to happen, BBBank needs to have at least Rs 640 million in paid-up capital at its disposal, according to Nepal Rastra Bank (NRB) regulations.
Therefore BBBank has already agreed in principle with Fewa Finance Ltd (FFL) to combine their capital and capacity. The entity which will emerge when the two financial institutions merge will have paid-up capital of Rs 810 million.

It has already been a few months since Om Finance Ltd (OFL) and Kamana Bikash Bank Ltd (KBBL), two other financial entities with central offices in Pokhara, agreed in principle to merge and create Om Bikash Bank Ltd, which will be a national-level bank. For the merger, which is still some time away, the two companies are planning to put together Rs 660 million to put up as paid-up capital.

All the above mentioned institutions have also already decided on the organizational structures of the new bodies, their board members, chief executives and what posts their current staff will have in the new institutions.

BBBank and FFL have agreed that BBBank’s Jagan Gurung will be the new bank’s chairman while FFL’s Resham Thapa will be the new CEO.
When it starts service, Om Bikash Bank Ltd will be led by KBBL’s Umesh Acharya as CEO while OFL’s current General Manager Buddhi Malla will be its deputy CEO. OFL’s Sushil Kumar Goshali will be the new chairman.

Similarly, Garima Bikash Bank Ltd (GBBL) has started the process of merger with a development bank in its neighboring district, its CEO Govinda Dhakal says. The banks are currently making the necessary preparations to sign a memorandum of understanding (MoU).

“We have already come a long way in the process,” Dhakal says, “Both the companies are making preparations to raise capital for this.” He says GBBL’s shareholders okayed a proposal for a 25 percent rights issue at a recently held general meeting.

The rights issue will increase the bank’s paid-up capital to Rs 560 million, Rs 80 million short of the minimum central bank requirement for a national-level bank.

Dhakal says the other institution, which he did not name, is also preparing for a rights issue. When both institutions have issued new shares, they will be able to combine and create a national-level development bank with paid-up capital of Rs 710 million, according to Dhakal.
Muktinath is another Pokhara-based development bank which is getting ready to join the merger bandwagon and is looking for smaller institutions willing to combine.

Muktinath was spurred into looking for a suitor after it became the bank with the highest amount of profit amongst all development banks in the country.
Becoming a national-level bank allows development banks to expand their investment portfolio and reach, OFL GM Buddhi Malla says.
“We are already a national standard finance company. But we’re still preparing for a merger as we would like to increase out competitiveness. Becoming a bigger institution helps increase both capacity and investment,” he says.

According to NRB regulations, a bank and financial institution (BFI) cannot lend more than 25 percent of its paid-up capital to a single client.
This prevents Pokhara-based BFIs from investing in large-scale projects on their own as those types of projects would require an investment of Rs 250 million to Rs 300 million. By merging and increasing paid-up capital, these BFIs can finally be in a position to woo large projects and grab any opportunity to make large investment.

Becoming a national-level bank after going through a merger will also help BFIs diversify their services and products, BBBank CEO Sameer Shekhar Bajracharya says. “The size of our network will also increase and we can invest in most of the areas we have had an eye on. There is a lot to be gained from a merger.”

Recently, Pokhara-based Shangri-La Bikash Bank Ltd and Nepalgunj-based Bageshwari merged to become a national-level bank. Before that, Business Development and Annapurna Finance also chose a similar path.

Similarly, Himchuli Bikash Bank merged with Birgunj Finance to form H&B and Pokhara-based Api Finance Ltd also merged with Royal Merchant Banking & Finance Ltd and Rara Bikas Bank Ltd to create Apex Development Bank Ltd.

In the past decade, many finance companies and development banks mushroomed in and around Pokhara attracted, among other things, by the opportunity to deal in remittance.

Currently, four finance companies and seven development banks are based in Pokhara. All of them have expanded branches to districts in Gandaki and Dhaulagiri zones.

The eight districts in Gandaki and Dhaulagiri have 140 offices of commercial banks and their branches. Development banks and their offices number 157, finance companies have 33 and micro-finance companies have 51 offices in the area.

Source: Republica