Shangrila & Bageshwori dev banks eye merger, upgrade

Two regional development banks have lodged an application at Nepal Rastra Bank (NRB) for a merger, eyeing to upgrade into a national-level development bank. Shangrila Development Bank, based in Pokhara, and Bageshwori Development Bank in Nepalgunj, have recently sought the central bank´s nod for the merger. If the central bank endorsed and the two companies managed to steer the process of merger smoothly, they will become the first development banks to merge. "Board of directors of both the development banks have already endorsed the merger proposal and lodged application as well," said an official at NRB. In their letters to the central bank, they have said that they will take steps towards merger as well as upgrading simultaneously.

For merger, the companies will have to satisfy their promoters and shareholders and define how it will reconcile them in relation to assets and liabilities. It will largely depend on how the banks manage the details internally. To be upgraded into national-level development bank, the two banks need to raise their paid-up capital to Rs 640 million, among others. "The financials of the banks are almost similar and also fine enough to satisfy the central bank. How will they raise the paid-up capital is our matter of interest nonetheless," said the source.

Currently, the paid-up capital of Shangrila Development Bank stands at Rs 79.80 million and that of Bageshwori Development Bank is Rs 69.795 million. Even if they merged, they will together need to re-inject more than Rs 490 million for upgrading into a national-level development bank. To attain that, the companies have unveiled a plan to expedite public issue. But given that IPO alone will not suffice them to raise their capital to Rs 320 million each, both have planned rights issue as well.

So far the two banks have not finalized the possible name of the merged bank. They have also not worked out the structure of the new board. One of the ticklish questions as to who will lead the board and how the directors of two banks will represent in the new structure, remains to be seen. "To sort these issues and resolve possible differences, the boards of these two banks consented at taking decisions through joint meetings," said the source.

Knowledgeable sources said that the two banks took steps for merger especially as a significant chunk of their promoters belong to same groups. For instance, former Chairman of Bageshwori Development Bank Bishwas Gauchan is presently the Chairman of Shangrila Development Bank. Although the central bank has long been suggesting the banks and financial institutions to merge to gain strength and deepen their presence in the market, so far the country has only one success story of National Finance and Narayani Finance to cite. These two finance companies had merged into Narayani National Finance more than a year ago. Five other finance companies operating in different parts of the country too had announced the merger, albeit leading to a failure. At the commercial bank level, Everest Bank Limited and Nepal Investment Bank Limited had recently taken initiative to explore the possibilities of merger but soon announced that the understanding has terminated.
Source:
myrepublica