NRB likely to approve NBB share sales
The proposed sales of shares by Nepali promoters of Nepal Bangladesh Bank (NBB) to their Bangladeshi partner may get the central bank’s approval soon, with legal issues likely to be resolved.
The Bank and Financial Institution Act (BAFIA) bars directors, chief executive officers, auditors, company secretaries and account chiefs from selling their shares while in service or within one year after their exit from the bank concerned to their family or firms they own. And, NBB Director Laxmi Bahadur Shrestha is still in service. He represents Nepali promoters in the board.
In this connection, the Nepal Rastra Bank (NRB)’s regulation department had sought legal advice from its legal department on whether NBB’s share sale proposal could be approved. In its response, the legal department is planning to recommend that the central bank can approve the proposal, as both the parties have representation in the board and the deal is internal. “The Act does not prohibit share transactions between directors of the same bank, as they are well aware about the actual status of the bank,” said a source at NRB’s legal department. “Therefore, we are advising NRB to approve the share sales.”
The central bank itself had encouraged NBB’s Bangladesh-based minority shareholder—International Finance Investment and Commerce (IFIC) Bank—to purchase the shares of Nepali promoters so that the NB Group, whose track record as a promoter has so far remained unsatisfactory, could exit from the bank.
IFIC 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. 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. NRB is also considering putting forth a condition that NB Group must clear its outstanding loans to NBB in order to get the share sales proposal approved, NRB sources have said. One of the key promoters, NB group owes around Rs 700 million to NBB, according to NRB.
However, before approving the share sales, NRB also seeks to be fully assured about improved financial health of the bank after IFC’s takeover. As per the latest central bank field study, NBB’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. NRB officials say if outstanding loans are recovered from the promoters, the bank’s health will get be better.
According to NRB officials, the bank’s capital eroded after Nepal Sri Lanka Merchant Bank, which only had liabilities and not assets, merged with NBB.
Posted on: 2012-02-10 09:46
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