The category ´A´ and ´B´ financial institutions filed an application at Nepal Rastra Bank on Tuesday seeking letter of intent for merger from the banking sector regulator.
“This initiative is a part of the Global IME Bank´s strategy to further raise capital base and extend network,” Chandra Prasad Dhakal, chairman of Global IME, told Republica. “We will continue to look for opportunities to strengthen our position in the market.”[break]
Once the merger process is complete, the new entity will be known as Global IME Bank, according to Dhakal. However, both the institutions have not reached a deal on equity distribution so far. “We will do that once due diligence audits are complete,” said Dhakal.
Since Social Development Bank has not launched initial public offering so far, it is believed it will be easier for Global IME to clinch a deal, as discussions with promoters of the financial institution would settle all issues. “We have also agreed on not making any change to top management position at Global IME,” Dhakal further said.
If everything goes according to plan, the two institutions will come up with a consolidated balance sheet at the end of this fiscal year in mid-July, Dhakal said in an optimistic tone.
As of now, both the banking institutions have obtained approval from all shareholders to take the merger process ahead.
“We will also be calling special general meeting once we receive letter of intent to get final approval for merger from all our shareholders,” Dhakal said.
After receiving the letter of intent, the two institutions will also be conducting due diligence audits, which will provide much clear picture on financial position of both the institutions.
Available data show that Global IME, which has a paid-up capital of Rs 2.25 billion, has a much stronger financial base than Social Development Bank, which has a paid-up capital of Rs 382.65 million.
Global IME, which is a culmination of merger between Global Bank, IME Financial Institution and Lord Buddha Finance, earned a net profit of Rs 361.02 million in the third quarter of the current fiscal year to mid-April, shows the bank´s unaudited financial report.
Although the bank had to allocate Rs 356.21 million for losses likely to emanate from extension of loans in the period, which is more than double the amount allotted in the same period last fiscal year, the portion of bad debt at the institution stood at 2.3 percent of the total loans.
Social Development Bank, on the other hand, accumulated a negative reserve and surplus of Rs 94.18 million in the first quarter of current fiscal year to mid-October 2012, unaudited financial report posted on its website shows.
Although the development bank generated a net profit of Rs 20.17 million in the first quarter, its capital adequacy ratio, which stood at 37.85 percent in the period, shows the institution´s inefficient asset-liability management. The bank also accumulated bad debt to the tune of 21.14 percent of the credit portfolio in the first quarter, which shows prevalence of haphazard lending practice at the institution.
“We have considered these aspects and hope the merger would be beneficial for Social Development Bank,” Dhakal said.
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