Kathmandu. KATHMANDU: NIC Asia Bank (NIC ASIA) has submitted a plan to the Nepal Rastra Bank (NRB) to issue right shares to convert the challenges seen in the banking sector into an opportunity. The bank has sent the plan to the Nepal Rastra Bank with the objective of going for sustainable expansion by strengthening the capital structure.

According to Sujit Shakya, CEO of NIC Asia Bank, the bank has introduced right shares as a major option to maintain capital adequacy ratio as per the regulatory standards and to continue the business expansion in the future. According to him, after the issuance of right shares, the bank’s financial structure will be further strengthened and its risk bearing capacity will increase.

After the issuance of right shares, NIC Asia Bank will introduce a new strategy focusing on long-term recovery and stability. According to Shakya, it is not possible to take the bank to a new height only by recovering old loans. Therefore, the bank has prioritized structural reforms, expense control and customer relations.

KATHMANDU: Nepal Rastra Bank (NRB), the Monetary Policy for the current fiscal year, has released a plan to allow banks to increase capital to relieve them from the pressure of capital funds. However, the bank is planning to issue right shares on the basis of the same provision of the central bank.

Some banks are also issuing preferential shares as per the capital increase plan to be brought by the Nepal Rastra Bank. According to the Securities Board of Nepal (SEBON), 4 banks have been granted permission to issue preferential shares in the current fiscal year. Nabil Bank has already issued the shares, while Siddhartha NMB Bank and Kamana Sewa Bikas Bank have already received permission to issue their shares.

According to sources, the central bank has also given approval to NIC Asia Bank to issue preferential shares. “Nepal Rastra Bank (NRB) has given permission to NIC Asia Bank to issue shares worth Rs 5 billion. ” said a source from the central bank.

NIC Asia Bank has requested Nepal Rastra Bank (NRB) for prior approval for the issuance of right shares. The 746th meeting of the Board of Directors of the bank held on January 3, 2082 has approved the Integrated Directive No. 10÷081 (10081 (c) has demanded the Rastra Bank to issue right shares.

The bank’s existing ordinary paid-up capital is Rs. The company is issuing right shares worth Rs 14.91 billion in the ratio of 2:1. The bank has sought permission to issue 7,45,87,835 units of right shares worth Rs 7.45 billion.

The bank has already requested Nepal Rastra Bank (NRB) to get the required prior approval for the issue of right shares. After the approval of the central bank, the proposal regarding the issuance of the right shares will be submitted to the upcoming AGM of the bank. The bank is yet to announce the AGM on time as per the Companies Act as the bank is to endorse the right share proposal in the AGM of the last fiscal year 2081÷82.

Similarly, the bank has prepared a strategy to merge around 40 branches across the country. According to CEO Shakya, the bank aims to reduce operating costs, increase efficiency and make the bank more efficient.

He also said that the bank is preparing to come up with a special plan to improve the relationship with the existing borrowers. According to him, the policy of recovering loans through information, dialogue and cooperation rather than exerting pressure on the borrowers has been adopted. Under this strategy, the bank issues 40 notices to the same borrower to encourage them to repay the loan.

According to a source at the bank, the process of blacklisting the borrowers has been initiated only if the borrowers fail to repay the loan despite repeated notices from the bank. In addition, the bank is preparing to bring products that will attract new investors, according to Shakya.

He said that the bank will be made competitive again through capital strengthening, risk management and improvement in the quality of service. He said that NIC Asia will focus on long-term sustainability rather than short-term gains in the coming days.

Due to low capital fund and increase in provisions, the bank could not distribute dividend for 4 years

NIC Asia Bank has not been able to distribute dividends to its shareholders in the last few years due to insufficient capital and increasing loan loss provision. The banks have been affected by the problem of non-collection of loans in the banking sector and increasing the bad loan ratio. Due to this, the bank has not been able to distribute dividend in four out of the last 10 years.

The bank has failed to declare any dividend for the fiscal years 2077÷78, 2078÷79, 2080÷81 and 2081÷82. The bank’s financial condition is weak, its inability to manage its capital fund as per regulatory standards and the failure to manage potential risks effectively.

During this period, the bank has set aside Rs 2.43 billion for loan loss provision. The bank has earned a net profit of Rs 59.45 crore in the first five months of the current FY. As of mid-December, the bank’s non-banking assets stood at Rs 4.39 billion.

As of the first quarter of the current FY, the bank’s principal capital stood at Rs 22.18 billion. During this period, the bank has a capital ratio of 9.03 percent and Tier-2 capital ratio of 14.03 percent. As per the Nepal Rastra Bank (NRB) provision, banks should maintain a minimum of 8.5 percent of primary capital fund and a minimum of 11 percent of supplementary capital fund. Although the Nepal Rastra Bank (NRB) has made a provision to add a counter-cyclical buffer of 0.5 percent, it has not been implemented yet.

As of the first quarter of the current FY, the bad loan ratio (NPL) of NIC Asia Bank has increased to 6.99 percent. The base rate of the bank is 6.60 percent and the spread rate is 3.99 percent. The bank’s loan-deposit ratio stood at 66.82 percent in the first three months of the current FY.

As of mid-December, NIC Asia Bank has collected deposit of Rs 330.30 billion and extended loans of Rs 218.37 billion. Of the total loan investment, Rs 214.20 billion has been disbursed to the private sector. The bank has invested only Rs 4.16 billion in loans in banks and financial institutions, while the bank has no investment in government institutions.

What does the NRB say?

According to a source in the NRB, there is little possibility of allowing the banks to issue right shares immediately. Sources claim that the central bank will focus on ‘recovery’ to the banks and financial institutions as far as possible. The best option for banks at this time is to recover and make provision back rather than bringing in right shares.

Similarly, the Nepal Rastra Bank (NRB) has been allowing banks and financial institutions (BFIs) to issue preferential shares. NIC Asia Bank has also received approval from Nepal Rastra Bank (NRB) to issue such shares worth Rs 5 billion.