The much needed recapitalisation of the oldest commercial bank is finally underway as Nepal Bank’s proposal to issue rights shares has garnered approval from the regulator.
“We will soon be issuing right shares to the existing shareholders in 1:9.5 ratio to raise capital,” said coordinator of the management committee of Nepal Bank Maheshwor Lal Shrestha. To increase its paid up capital to Rs 4 billion, it will raise funds worth Rs 3.62 billion by issuing rights shares to the existing shareholders, including the government.
The government holds 41 per cent stake in the bank while 50 per cent is owned by public shareholders and the remainder belongs to different financial institutions.
The recapitalisation plan — forwarded to the central bank in November 2011 — was recently approved by Nepal Rastra Bank (NRB) and also by the High Level Financial Coordination Committee.
“NBL is required to increase its paid up capital to Rs 2 billion by the end of next fiscal year and if the plan is executed well on time, the bank will also be able to improve its capital adequacy framework,” Shrestha pointed out. Currently, the bank’s paid up capital stands at Rs 830 million.
However, more than half a century of bad loan and bad corporate governance has left the bank’s net worth negative by Rs 4.22 billion as of the end of last fiscal year.
Increasing paid up capital by Rs 4 billion will still fall short in making the bank’s capital adequacy ratio sufficient. The 75 year old bank that is going through almost a decade long Financial Sector Restructuring Program since 2002, has improved its performance, but the bank’s core capital is still negative.
A comprehensive audit of the bank in 1999 discovered that the bank was on the brink of insolvency due to a large number of willful defaulters. “Nepal Bank will sell the fixed but unproductive assets to raise the remaining funds,” spokesperson for NRB Bhaskar Mani Gyanwali informed, adding that the central bank is in agreement with NBL’s plan.
Earlier, the government had been suggested to inject the required deficit capital or provide loans worth the deficit amount.
Source: THT
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