M&A in banking sector gathers momentum

Kathmandu, July 14

The number of commercial banks — classified as class ‘A’ financial institutions — has come down to 28 from 32 in 2011, when Nepal Rastra Bank (NRB) introduced Merger Bylaws.

Earlier, financial institutions with similar group of promoters were encouraged to opt for merger with each other. However, since last year, financial institutions have been compelled to go for mergers, acquisitions or inject fresh capital, as the central bank raised the paid-up capital requirement for class ‘A’, class ‘B’ and class ‘C’ financial institutions by up to four folds.

Against this backdrop, two commercial banks — Bank of Kathmandu (BoK) and Lumbini Bank — have successfully merged and started joint operation from today.

Following the merger, the bank will now be operated under the name ‘Bank of Kathmandu Lumbini Ltd’. These financial institutions were merged to meet the capital requirement criteria set by the NRB.

Inaugurating the joint operation, central bank Governor Chiranjibi Nepal said that the merged entity has greater lending capacity and is better equipped to absorb capital shocks. He further suggested the bank operators to be conscious of the possible threats that might occur in the merged financial institutions and take all the measures to strongly unite the institutions, mainly employees.

“The key success of the merger depends upon how well the merged institution manages its human resources,” Governor Nepal said.

After the merger, the paid-up capital of the merged bank, Bank of Kathmandu Lumbini Ltd, has reached Rs 4.57 billion. Further, the share-swap ratio of 1:0.8281 agreed between BoK and Lumbini Bank has also resulted in capital reserve of Rs 0.39 billion in the books of merged institution.

“Following the provision of raising the paid-up capital to at least Rs eight billion by fiscal 2016-17, both the banks had published their capital plan which included merger as a possibility to increase the capital,” explained Ajay Shrestha, CEO of Bank of Kathmandu Lumbini Ltd, adding, “Based on that plan, this merger was initiated.”

Shrestha was at the helm of BoK before the merger and will continue to hold the position of CEO of the merged institution. As Sovan Dev Pant, who was the CEO of Lumbini Bank, has resigned from his post, the merged financial institution has appointed Shrawan Maskey as deputy CEO.

The head office of Bank of Kathmandu Lumbini Ltd is located at Kamal Pokhari, Kathmandu. Customers can avail the services of the bank through 74 branches, 63 ATMs, seven extension counters and 33 branchless banking points across the country. The bank employs 750 staffers.

The two banks had signed memorandum of understanding to go for merger in December of last year.

As per the unaudited financial figures of the third quarter published by both the banks, the total deposits and loans of BoK stood at Rs 40.72 billion and Rs 34.85 billion, respectively.

The deposits and loans of Lumbini Bank as on the same date had reached Rs 22.94 billion and Rs 20.36 billion, respectively.

Similarly, net profit of BoK and Lumbini Bank in the same period was Rs 483.51 million and Rs 277.93 million, respectively.