Prabhu Bank to acquire ailing Grand Bank

 30 Jan 2015, Kathmandu: In what will be the first acquisition of a commercial bank in the country, Prabhu Bank Ltd on Thursday decided to acquire the ailing Grand Bank Ltd.

Prabhu Bank´s Chairman Devi Prakash Bhattachan and Grand Bank´s Chairman Swarup Gurung Koney signed a Memorandum of Understanding (MoU) to this effect at Prabhu Bank´s central office in Babarmahal. 

Speaking at the signing ceremony, Bhattachan said that the acquisition was a part of ´reform process´ for the bank. “We
have seen improvement in our financial health following merger with the then Kist Bank. We are still in the reform process," said Bhattachan. “The acquisition will give a message to the bank´s promoters, depositors, shareholders and clients, among other, that the bank is coming up with more strength. The consolidation will also contribute to the national economy.”

Though the banking industry has seen series of merger deals in recent years, the acquisition of commercial bank will be the first one in the country´s banking history. According to the data of Nepal Rastra Bank (NRB), a total of 68 banks and financial institutions have merged so far to become 25 institutions. Citizens Bank International Ltd has recently received Letter of Intent from the central bank to acquire Nepal Housing and Merchant Finance Ltd and People Finance. 


Officials of Prabhu Bank Ltd and Grand Bank Ltd exchange signed agreements for Grand Bank´s acquisition by Prabhu Bank at a ceremony in Anamnagar, Kathmandu, on Thursday. ( Bijay Rai/ Republica)

NRB had introduced BFIs Acquisition Bylaws on April 6, 2014 to pave the way and create environment for ´big and healthy BFIs to acquire another BFI that has less net worth or reeling under problems´.

Prabhu Bank, which started integrated operation from mid-September last year following merger with Kist Bank, Prabhu Bikas Bank, Gauri Shankar Development Bank and Zenith Finance, has now decided to acquire Grand Bank Ltd which is in bad health due to heavy non-performing loans. 

According to the financial results of 2013/14, Grand Bank accrued total loss of Rs 1.6 billion in the last fiscal year as it had to provision Rs 1.93 billion for possible loan loss. Sharp rise in non-performing loans to 19.09 percent has hit the bank´s capital thereby bringing down CAR below the required level. The bank is also currently facing prompt corrective action which restricts it from deposit collection, branch expansion, among other measures.

Even Prabhu Bank is yet to recover loss resulting from the merger with the problematic Kist Bank. According to the unaudited financial results of the first quarter of the current fiscal year 2014/15, it accrued total loss of Rs 116.8 million, while its NPA still stands at 15.65 percent which is below the regulatory requirement of five percent.

Prabhu Bank is also in the process of acquiring Nepal Bikas Bank which is already in the liquidation process. Ashok Sherchan, acting CEO of Prabhu Bank, told Republica that they plan to start integrated operation, following the acquisition of Grand Bank, within this fiscal year. 

According to a statement of Prabhu Bank, it will have total paid-up capital of Rs 5.2 billion after the acquisition. It will have a network of 123 branch offices and 124 ATMs. 

Though Sherchan told Republica that the swap ratio between the two banks will be fixed following the due diligence audit, a source at the bank says that the two banks have agreed to pay the Grand Bank shareholders in shares instead of cash. 

Grand Bank´s shareholders will get 62-68 units of shares in the consolidated bank for every 100 shares they hold. - See more at: http://myrepublica.com/portal/index.php?action=news_details&news_id=91236#sthash.3DNg5kZu.dpuf