What would the financial highlights of the merged entity look like after Global IME Bank and Janata Bank merger? What are the implications for the shareholders of the banks?

Tue, Jul 9, 2019 5:28 PM on Exclusive, Latest, Stock Market,

Since the BFI heads have met with the Governor last week, the BFIs have been on a merger and acquisition spree with commercial banks looking to acquire development banks and finance companies. Irrespective of the merger spree, the merger between two commercial banks would have been a rare eventuality. But desperate times call for desperate measures. Keeping up with the competitive BFI industry, Global IME Bank (GBIME) and Janata Bank Nepal (JBNL), two established commercial banks have decided to join operations and merge the two entities.

If the merger talks between the two entities is successful, the merged entity would be a significant player in the BFI industry and would have a competitive edge amongst the commercial banks. This size of the balance sheet and the scale of operations would shoot up. The market penetration and customer base would also increase to compete with that of other leading commercial banks. This move could very well make the merged entity in to a leader in the commercial bank industry.

To roughly estimate the post-merger financials of the entity, third quarter financials of both the banks have been used to derive the resulting figures. Further, they have been compared to the current industry average to get a clear picture of the size and scale of the merger entity. For this purpose, the swap ratio has been taken as 1:0.85, as per the preliminary reports.

Particulars (Rs.)

As of Q3 2075/76

Post-Merger

Industry Average

GBIME

JBNL

Paid up capital

10,310,516,000

8,000,786,000

17,111,184,100

8,864,608,630

Reserves

5,126,338,000

2,376,072,000

8,702,527,900

5,744,945,180

Loans and Advances

103,169,704,000

64,701,088,000

167,870,792,000

81,836,547,560

Deposits

116,943,168,000

70,449,792,000

187,392,960,000

91,041,633,190

Property and Equipment

1,321,697,000

1,057,834,000

2,379,531,000

1,666,892,550

Borrowings

200,000,000

-  

200,000,000

167,679,050

Provisions

810,899,000

-  

810,899,000

41,394,430

Net Interest Income

3,687,945,000

2,450,904,000

6,138,849,000

3,189,798,610

Depreciation

18,134,845,000

11,229,928,000

29,364,773,000

105,139,920

Operating Profit

2,649,014,000

1,472,829,500

4,121,843,500

2,205,274,940

Net Profit

1,872,124,000

     1,023,744,000

        2,895,868,000

       1,561,848,850

No. of outstanding shares (units)

103,105,160

80,007,856

171,111,838

88,646,087

In almost all indicators, the merged entity is ahead of the industry average by a landslide. The paid up capital is estimated to increase to Rs 17.11 Arba with Rs 8.70 Arba in reserves. The portfolio of the merged entity would increase to Rs 1.67 Kharba in Loans and Advances and Rs 1.87 Kharba in Deposits. Similarly, at the assumed swap ratio of 1:0.85, the number of outstanding shares would stand at 17.11 Crore units.

Also, some of the key metrics of both the commercial banks have also been compared to ascertain the efficiency of the merged entity and its performance against the industry average. This will give an idea of how effectively the merged entity will be expected to perform. Factors like Annualized EPS, Current P/E Ratio, Return on Equity etc. have been compared.

Key Metrics

GBIME

JBNL

Industry Average

Annualized EPS (Rs.)

24.21

17.06

23.71

NPL

0.76%

1.21%

1.78%

Net Worth Per Share (Rs.)

149.72

129.70

165.82

Current P/E Ratio (Times)

12.19

12.54

14.77

Return On Equity

0.16

0.13

0.14

Return On Asset

0.02

0.02

0.02

Although, in some of the metrics, JBNL is behind the industry average, GBIME has performed satisfactorily well against the industry average. The merger of the two would strengthen the operations of the commercial bank and set a benchmark in the commercial bank industry.

The merger guarantees appreciation in value of investment for shareholders of both the commercial banks. For the shareholders of GBIME, they can expect a sharp increase in the prices of the stocks upon the completion of merger as the operations of the bank would be scaled up which would bring in more returns. While for the shareholders of JBNL, although their investment volume would decrease, the value of investment will eventually increase due to the increase in the price and value of the stocks.