E-Kantipur

KATHMANDU, JUL 16 -

The Cabinet on Sunday decided to inject fresh capital of Rs 4.32 billion and 1.39 billion in Rastriya Banijya Bank ( RBB ) and Nepal Bank Limited (NBL), respectively, in an effort to revive the ailing banks.

While RBB is a fully state-owned bank, the government has 40 percent stake in NBL. RBB ’s net worth is negative by around Rs 9 billion. The government had recently approved their capital plan. “The decision of injecting fresh capital in the banks was taken to ensure the implementation of their capital plans,” said Baikuntha Aryal, joint secretary at the Ministry of Finance. The amount will be managed from the unspent budget of the current fiscal year.

The move is expected to speed up the banks’ recapitalisation plans. “It is a very encouraging decision,” said RBB CEO Krishna Prasad Sharma. “We will now be able to implement the capital plan properly.”

As per RBB ’s capital plan, the largest bank of the country will need Rs 12.5 billion over the next three years. However, as Rs 8.5 billion is required within the next two years to meet the core capital (Tier 1) requirement, the bank had planned to raise the amount by either issuing rights shares or bonds. It had sought to raise Rs 4.5 billion by issuing debentures in the second phase.

However, as the government now has decided to inject Rs 4.32 billion, RBB plans to raise rest of the amount required for completing the first phase of its capital plan by converting loans provided by the World Bank in SDR forms into shares and converting the government’s bonds into shares.

According to Sharma, loans worth Rs 2.75 billion provided by the World Bank to carry out reforms have not been spent. RBB also has bonds worth Rs 780 million. The bank’s paid-up capital stands at Rs 1.17 billon. “We can meet the capital requirement after all these amounts are converted into shares,” said Sharma.

According to RBB , it requires Rs 14 billion to meet its capital adequacy and paid-up capital requirements, which can be met by selling its assets, including shares in other financial institutions and land and from profits made in the next three years.

As far as NBL is concerned, the fresh capital injection has boosted its capital plan. The country’s oldest bank, which is in the process of issuing 1:9.5 rights shares, seeks to raise its paid-up capital to Rs 4 billion from the current Rs 380 million. However, the amount needed for rights share issuance exceeds the amount the government is injecting in it.

“The rest of the amount will be fulfilled by NBL employees, who in turn will get the 5 percent government-owned share in the bank,” said Maheswor Lal Shrestha, coordinator of the NBL management team.

As the amount raised by issuing rights shares will not be enough to meet the capital adequacy ratio, NBL plans to raise additional amount by selling/leasing its fixed assets and from its retained earnings.

 

Posted on: 2012-07-16 08:41

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