Machhapuchhre and Janata Bank signs merger deal to increase capital

Kathmandu / September 23: In a bid to abide by the directive of the Nepal Rastra Bank, the central bank of the country, to massively increase their capital within two years, two leading commercial banks of the country have decided to merge.

Machhapuchchhre Bank and Janata Bank Limited have signed a deal for merger to increase their paid-up capital and fulfil the directive of the central bank. The central bank has told commercial banks to boost their paid-up capital to Rs8 billion within the next two years from the current Rs2 billion. As most banks have been maintaining only the minimum capital requirement, many of them are expected to consolidate to meet the ramped up requirement. After Machhapuchchhre and Janata announced their merger plan, the Nepal Stock Exchange (Nepse) suspended trading of the shares of both the banks on Tuesday. Nepse has warned banks and financial institutions to first inform it about their capital increment plan so that speculative investment by investors can be discouraged.

Prithvi Shrestha, deputy chief executive officer of Janata Bank, said that the two banks decided to merge after agreeing on the swap ratio. According to him, the swap ratio between Machhapuc-hchhre and Janata has been maintained at Rs121 and Rs 85 per share. The two banks have planned to apply to the central bank for its blessings soon.

Following the merger, the paid-up capital of the new company will be Rs5.1 billion. “The merged entity will be the fourth largest bank in the country,” said Shrestha. After applying to NRB for a letter of intent, the two banks will also conduct a due diligence audit to find out their exact financial status. They have to complete the merger within the next six months as per the Merger Bylaws.

Earlier, Janata had discussed a possible merger with Mega Bank. “They dropped the plan after they couldn’t agree on the swap ratio,” said Shrestha. Currently, many banks and financial institutions are in merger talks after the central bank’s instruction to jack up their capital four-fold. The financial sector of the country faced problem with very high number of banks and financial institutions as compared to the national economy but immediate past Governor Dr. Yuvaraj Khatiwada brought various regulations to monitor the sector and lead this sector in a positive way. Many financial institutions merged during the tenure of Dr. Khatiwada and current governor Dr. Chiranjivi Nepal also followed his suit and brought the plan of massive increment in paid up capital for promoting the merger.