KATHMANDU: Nepal Rasta Bank (NRB), the banking sector regulator, has barred shareholders of erstwhile Grand Bank from trading their stocks in the merged unit of Prabhu Bank, stating “losses of Grand are yet to be recovered”. Prabhu and Grand received final approval for merger from NRB on January 29. The two institutions formally began joint operation as Prabhu Bank on February 12, after the two agreed on a swap ratio of 121.45:65.58. The swap ratio shows every 100 units of Prabhu stocks generated an extra 21.45 units of shares in the merged unit, while every 100 units of Grand shares yielded only 65.58 units of shares in the consolidated unit.
It is a general practice here to suspended stock trading of listed companies that have formally announced consolidation plans. As per this practice, Nepal Stock Exchange (Nepse) suspended stock trading of both the banks after they officially declared their merger plan. But stock trading of the merged unit generally begins right after the consolidation process is over.
Yet that did not happen in the case of Prabhu and Grand, as NRB denied granting such permission citing “reserve loss of Grand is yet to be recovered”, an NRB source told the Post on condition of anonymity. However, NRB recently revised its own decision and allowed shareholders who held stocks of Prabhu Bank prior to the launch of merger process to trade their shares, without granting similar permission to those who owned shares in Grand Bank.
With this permission, transactions of shares of Prabhu Bank began on Monday, while shareholders of Grand Bank have been barred from trading their stocks. Shares of Prabhu Bank closed at Rs 399 on Monday. “This is the first time we resumed trading of shares of only one company involved in the merger process,” said Murahari Parajuli, deputy spokesperson at Nepse. “We allowed this to happen based on approval extended by NRB.”
The NRB official said people who held shares of Grand Bank prior to the merger have been barred from engaging in stock trading because “Prabhu still has not been able to recover all the losses of Grand”. “This is a way of exerting pressure on the management to expedite the loss recovery process-albeit progress is being made on this front,” the official said, without elaborating further.
Prior to the merger, Grand Bank had suffered huge financial loss because of high exposure to the real estate market when property prices were at their peak. As a result, the bank’s capital adequacy ratio-which gauges a financial institution’s strength to absorb shocks and ability to extend loans-had dropped to as low as 2.55 percent. This ratio was way below minimum regulatory requirement of 10 percent for commercial banks at that time. The bank’s capital adequacy ratio had taken a dip largely because of accumulation of bad loans, which soared to 25.49 per cent of the total credit portfolio.
