Sunday, March 25, 2007

Business Proposal for Bank Buyout in Nepal

Business Proposal


Purchase of majority stake in one major Bank of Nepal.


(1) Nepal Bangladesh Bank

(2) Nepal Credit and Commerce Bank

Why in Nepal?

  1. Nepal, still a Least Developed Country, is situated between India and China (two among the top 5 markets of the world).
  2. Nepal has a very good future for banking studying its geographic analogy with Switzerland, Singapore or Mauritius.
  3. Nepal has one of the safest banking industries in the world. It is well regulated by Nepal Rastra Bank (Central Bank of Nepal).
  4. Nepal is in cross-roads now. The only reason for Nepal to remain poor is political instability. But now after political parties and Maoist had historic agreement, the road is paved for peace.
  5. Nepal is an economy run by Remittances (US $5 billion in 2005-06). The main industry includes Tourism, Entertainment, and Liquor etc. apart from Agriculture. Agriculture gives good scope for Microfinance and other sectors scope for Retail Banking.
  6. Nepal has FTA and Free border with India.
  7. Takeover of Bank in India is very difficult and the valuation may be much higher than the target’s market valuation. And so takeover of Bank in Nepal will be an easy entry into the South Asian Financial Market.
  8. Nepal has a functional bureau, Credit Information Bureau (CIB) but there is not much penetration of Analytics. Only few of the top banks including Standard Chartered do.

Why any of these two banks?

Nepal Bangladesh Bank recently faced a crisis. Nepal Rastra Bank found some serious irregularity being done by the promoter cum management group so the Bank’s management is now under Nepal Rastra Bank. IFIC Bank of Bangladesh holds 50% stake in NBL, promoters hold 20% and rest 30% is own by general public of Nepal. Now, the talks are open for sale for the promoter’s holding and news are coming for IFIC’s interest in selling its stake as well.

NB Group, the promoter group of NBL also holds some minority stake in Nepal Credit and Commerce Bank. News has spread for the possible sale of their in NCC Bank to pay the debts in NBL. NCC Bank’s current CEO, Narendra Bhattarai, is one of the most influential executive in the banking industry of Nepal. He has won several awards for service excellence, and has taken several banks to a good height.

Benefits of the buyout:

  1. Both the banks have good market coverage in Nepal. NBBL has about 15 branches and NCCB has about 5 branches diversified in various towns.
  2. Chance for purchase at lower than market cost.
  3. Entry into booming Nepalese Financial Market.
  4. Relation with IFIC and NB group. NB group own 8 firms in Nepal including two banks and IFIC group own Banks in Bangladesh, Pakistan and Oman.

Market Valuation of the Targets:

  1. Nepal Bangladesh Bank

Authorized Capital 1500 million rupees (US $21 million)

Issued Capital 1000 million rupees (US $14 million)

Paid up Capital 360 million rupees (US $5 million)

Statuary and other Reserve 324 million rupees (US $4.5 million)

  1. Nepal Credit and Commerce Bank

It is almost of equal size to NBBL but figures are not available.

Regulatory needs:

  1. Foreign stake holding cap in Banking is 74%.
  2. Market is open for all, not much restriction.

Steps to be taken:

  1. Contact Nepal Rastra Bank with proposal.
  2. Get the details from Nepal Rastra Bank and start valuation of the target. Few weeks’ Nepalese market research and consultation with banking figures is essential for that.
  3. May need to hire some investment advisor, as many others are seen to be interested for the deal. The process may face stiff competition.
  4. Look in for Finance and/or scout for financers.

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