Kumari Bank initiates merger talks with Siddhartha
RUPAK D SHARMA
KATHMANDU, Oct 8: Kumari Bank has initiated merger talks with Siddhartha Bank as it aims to create a viable category ´A´ financial institution that ranks among the largest in terms of capital and has the capacity to absorb greater shocks.
The merger deal, if completed, would be the second among commercial banks after the consolidation of NIC Bank and Bank of Asia Nepal which has reached final stage.
“Yes, we have seriously entered into merger talks with Siddhartha Bank,” a very reliable source of Kumari Bank told Republica. “The deal is being negotiated by a four-member merger committee headed by Rishi Agarwal (a board director of Kumari Bank).”
Surender Bhandari, CEO of Siddhartha Bank, also confirmed that preliminary talks on consolidation were being held with Kumari Bank. “But it´s still premature,” Bhandari told Republica. “In fact, we are holding talks with couple of other banks as well in this regard.”
Although the talks between the two would reach the stage of ´maturity´ only after they sign a memorandum of understanding, the deal has high chances of taking off because the position of CEO is still vacant at Kumari.
This provides leverage to Siddhartha Bank CEO Bhandari, who can play a vital role in consolidation of the two banks, as he has high chances of retaining his current position at the combined unit.
It is said chief executives usually play an important role in taking mergers of banks and financial institutions to a logical conclusion, since they hold power to convince promoters.
“But at times they also play vital role in ruining such deals because of fear of losing their positions,” a high-ranking official of Nepal Rastra Bank said on condition of anonymity. “In the case of Kumari and Siddhartha, this pretext, at least, is non-existent.”
As this factor throws support to the budding deal, other financial indicators also suggest the negotiations have high chances of yielding positive results.
For instance, the capital base of the two - with Kumari´s Rs 1.60 billion and Siddhartha´s Rs 1.62 billion - is almost identical.
Both banks are also not heavily exposed to bad debts. Non-performing loans at Kumari stand at 2.24 percent of the credit portfolio, while meager 1.52 percent of Siddhartha´s loans have turned bad. Capital adequacy ratio, a measure of capital reserves against assets at risk, of both banks is also higher than the central bank´s requirement of 10 percent.
“These are also factors why we are pursuing merger talks with Siddhartha,” the source from Kumari Bank said.
Success in this regard will not only create one of the top five banks in terms of paid-up capital but a stronger unit which has the capacity to lend extra amount and absorb greater shocks.
Experts say many banks, ultimately, will have to follow this path of merger as the central bank is mulling over raising capital base of commercial banks to Rs 5 billion, soon after they meet the capital requirement of Rs 2 billion by mid-July 2013.