E-Kantipur

KATHMNANDU, JAN 31 -

The proposed sales of shares by Nepali promoters of Nepal Bangladesh Bank (NBB) to their Bangladeshi partner may not be materialised unless the NB Group, one of NBB’s major promoters, clear its liabilities to the bank.

The Nepal Rastra Bank (NRB) is considering putting forth a condition that NB Group must clear its outstanding loans to get the central bank’s nod for the share sales, NRB sources said.

According to NRB, the group owes around Rs 700 million to NBB.

“We have almost reached an understanding for the condition that the money earned from share sales will have to be used for repaying loans to NBB or the outstanding loans should be cleared first,” said a senior NRB official.

International Finance Investment and Commerce (IFIC) Bank, a Bangladeshi promoter having a minority stake in NBB, is seeking to increase its stake in the bank to 51 percent from the current 10 percent. Nepali promoters, including the NB Group, have 26 percent stake, and another Bangladeshi promoter Bank Asia holds 15 percent in NBB. IFIC seeks to acquire the holding of both Nepali and Bangladeshi partners. Nepali promoters and IFIC representatives have already signed a memorandum of understanding (MoU) and applied for the central bank’s approval. IFIC has also received the Bangladeshi central bank’s approval for the share purchase.

However, NRB is not ready to approve the proposal until it is assured that NBB’s health would be improved IFIC’s takeover. As per the latest field study of NBB carried out by the central bank, the bank’s capital adequacy ratio stands at below 8 percent, whereas the minimum requirement is 10 percent. This means the NBB is likely to face the second phase of NRB’s prompt corrective action.

As per the Bylaw on Prompt Corrective Action, the bank concerned should face actions such as cap on credit, requiring taking central bank’s approval to purchase or lease property and start new activities related to deposits and credit if the capital fund is eroded by 2-4 percent points.

According to NRB officials, the bank’s capital eroded after Nepal Sri Lanka Merchant Bank, which only had liabilities and not assets, was merged with NBB. Furthermore, NBB’s failure to recover big loans, including that of NB Group, also forced it make large provisioning, resulting in inadequate capital adequacy ratio. Its non-performing loans level has reached 19 percent as of the second quarter of the current fiscal year.

“If the loans are recovered from the promoters, the bank’s health will get be better,” said the NRB official. “That’s why we are planning to put forth a strong condition.”

Earlier, IFIC had sought to purchase only the shares of Bank Asia. However, the central bank put a condition that it would be allowed to purchase Bank Asia’s shares only if it purchases a majority stake and run the bank professionally. NBB CEO Gyanendra Prasad Dhungana said the bank’s capital deteriorated while adjusting loans worth around Rs 250 million of Nepal Sri Lanka Merchant Bank after the their merger. He, however, said promoters having liabilities to the bank have promised to clear the liabilities. “Even if they don’t pay, I am committed to recover their loans within the third quarter.”

NBB Director Laxmi Bahadur Shrestha also pledged that they would clear the liabilities. “My relatives have loans worth around Rs 350 million and that will be cleared before our departure,” he said.

Posted on: 2012-01-31 08:55

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