RBB on track to achieve positive net worth

KATHMANDU, NOV 10 -

State-owned Rastriya Banijya Bank ( RBB ) is on track to attain a positive net worth for the first time in a decade. According to RBB , its capital will turn positive by the second quarter of the fiscal year after the government okays its proposal to convert special drawing rights (SDR) worth Rs 2.5 billion into domestic currency. Currently, RBB ’s capital is negative by Rs 2.5 billion.

The country’s largest commercial bank has sent its plan to change SDRs into Nepali rupees to the Finance Ministry. “Once the government endorses our proposal, we will have a positive net worth for the first time in a decade,” said CEO Krishna Prasad Sharma.

The bank’s financial health has been improving rapidly following a recapitalization plan under which the government has injected Rs 4.32 billion. In addition to the money provided by the government, the profits earned by the bank have helped it to reduce its negative net worth.

RBB had gone into a tailspin due to huge loan defaults. In July 2003, when a diagnostic review of its financial status was made, its net worth was negative by Rs 22.39 billion. Its non-performing loans had reached above 60 percent of the total loans.

Subsequently, the government implemented the Financial Sector Reform Programme at RBB by hiring a foreign management team with assistance from the World Bank. Though the scheme failed to restore RBB to good health and privatise it as expected, it did help to reduce the bank’s non-performing loans drastically. After the programme ended in December 2011, the government appointed a new CEO at RBB in January 2012 through open competition. The government also endorsed the bank’s recapitalization plan by agreeing to inject cash.

As per the recapitalization plan endorsed last year, the bank needs Rs 8.5 billion to fulfil its core capital (Tier 1) requirement that it plans to do within the next two years. Similarly, it needs Rs 12.5 billion to be restored to good health. RBB has planned to raise the rest of the money by issuing debentures within the next three years.

RBB possesses government bonds worth Rs 780 million. Its paid-up capital stands at Rs 1.17 billon and has crossholding shares in Nepal Investment Bank. The government has already decided to merge RBB with state-owned NIDC Develop-ment Bank which will increase its paid-up capital by Rs 410 million. “With these resources in hand, we are in the process of recapitalizing the bank at a faster pace and make it healthy again,” said Sharma.

Source: The Kathmandu Post