The Ministry of Finance (MoF) is soon initiating the process of bringing in a strategic partner at Nepal Bank Ltd (NBL) by offloading a certain portion of stake owned by the state at the country’s oldest commercial bank.
The move comes in line with the announcement made through the budget to introduce a strategic partner at the state-run bank.“We will now form a committee and decide on how to proceed,” Chief of the Financial Sector Management Division at MoF, Krishna Prasad Devkota said.
The committee will, among others, initiate the process of conducting due diligence audit of the bank and decide on the stake that the government would offload.Established in November 1937, Nepal Bank was a leading commercial bank until mid-1990s. But due to ineffective management, haphazard lending practices and unnecessary government interventions, the bank started accumulating bad debt, which severely deteriorated its financial health.
By 2002, the portion of non-performing loans at the bank had soared to 59 per cent of the total credit portfolio and the bank had a negative networth of around Rs 10 billion.As fears of the collapse of the bank grew, Nepal Rastra Bank, the central bank, took over the management of the financial institution in March 2002 and introduced slew of reforms.
As the new management focused on recovery of bad debt — of which around Rs 10 billion has so far been retrieved — the financial condition of the bank gradually improved.
Things finally started looking up for the bank in fiscal year 2011-12, when it decided to launch recapitalisation drive and issue rights shares at the ratio of 1:9.5.
From sales of these shares, the bank received Rs 1.39
billion from the government — its major shareholder — in fiscal 2011-12 and Rs 2.23 billion from other shareholders in 2012-13. At that time, it also introduced a plan to sell fixed assets to aid its recapitalisation plan.
Due to these initiatives, the bank’s paid-up capital had soared to Rs 3.72 billion by the end of fiscal year 2012-13 from Rs 380.38
million two years ago. Yet, the bank had a negative networth of Rs 209 million at the end of that fiscal and a negative capital adequacy ratio of 4.90 per cent.
To further strengthen the financial condition of the bank, the government made a capital injection of another Rs 2.5 billion in the last fiscal. During that year, it also
accumulated around Rs 620 million from sales of land.
Now, the bank’s paid-up capital stands at Rs 6.47 billion. But because its reserve is around Rs 3.45 billion in the red, its networth hovers around Rs three billion.
Although the bank’s networth is finally in the positive territory, it may not be able to expand its business in a desirable manner as its capital adequacy ratio currently stands at around 6.5 per cent, which is below the regulatory requirement of 10 per cent. This means the bank will not be able to expand lending aggressively.
Things might change drastically at the bank if it is able to recover Rs 2.58 billion in principal amount, which it had written off after loan defaulters did not heed the institution’s repeated calls to settle the debt following management takeover by the central bank in 2002.
“We have launched various schemes and offered discounts to encourage defaulters to clear the debts, but things are moving slowly for now,” said Maheshwor Lal Shrestha, NBL’s coordinator.
source: the himalayan times,22 july 2014
LINK
The move comes in line with the announcement made through the budget to introduce a strategic partner at the state-run bank.“We will now form a committee and decide on how to proceed,” Chief of the Financial Sector Management Division at MoF, Krishna Prasad Devkota said.
The committee will, among others, initiate the process of conducting due diligence audit of the bank and decide on the stake that the government would offload.Established in November 1937, Nepal Bank was a leading commercial bank until mid-1990s. But due to ineffective management, haphazard lending practices and unnecessary government interventions, the bank started accumulating bad debt, which severely deteriorated its financial health.
By 2002, the portion of non-performing loans at the bank had soared to 59 per cent of the total credit portfolio and the bank had a negative networth of around Rs 10 billion.As fears of the collapse of the bank grew, Nepal Rastra Bank, the central bank, took over the management of the financial institution in March 2002 and introduced slew of reforms.
As the new management focused on recovery of bad debt — of which around Rs 10 billion has so far been retrieved — the financial condition of the bank gradually improved.
Things finally started looking up for the bank in fiscal year 2011-12, when it decided to launch recapitalisation drive and issue rights shares at the ratio of 1:9.5.
From sales of these shares, the bank received Rs 1.39
billion from the government — its major shareholder — in fiscal 2011-12 and Rs 2.23 billion from other shareholders in 2012-13. At that time, it also introduced a plan to sell fixed assets to aid its recapitalisation plan.
Due to these initiatives, the bank’s paid-up capital had soared to Rs 3.72 billion by the end of fiscal year 2012-13 from Rs 380.38
million two years ago. Yet, the bank had a negative networth of Rs 209 million at the end of that fiscal and a negative capital adequacy ratio of 4.90 per cent.
To further strengthen the financial condition of the bank, the government made a capital injection of another Rs 2.5 billion in the last fiscal. During that year, it also
accumulated around Rs 620 million from sales of land.
Now, the bank’s paid-up capital stands at Rs 6.47 billion. But because its reserve is around Rs 3.45 billion in the red, its networth hovers around Rs three billion.
Although the bank’s networth is finally in the positive territory, it may not be able to expand its business in a desirable manner as its capital adequacy ratio currently stands at around 6.5 per cent, which is below the regulatory requirement of 10 per cent. This means the bank will not be able to expand lending aggressively.
Things might change drastically at the bank if it is able to recover Rs 2.58 billion in principal amount, which it had written off after loan defaulters did not heed the institution’s repeated calls to settle the debt following management takeover by the central bank in 2002.
“We have launched various schemes and offered discounts to encourage defaulters to clear the debts, but things are moving slowly for now,” said Maheshwor Lal Shrestha, NBL’s coordinator.
source: the himalayan times,22 july 2014
LINK
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