"The purpose of FPO is clear, one to reduce government stake and two to strengthen our balance sheet"; Interview with Devendra Pratap Shah, CEO of Nepal Bank

Thu, May 17, 2018 4:07 PM on Exclusive, Experts Speak, Interview, Stock Market,
"The purpo...

The CEO of Nepal Bank Limited, Mr Devendra Pratap Shah, was appointed in this position on 2015. Prior to this, he also performed as the General Manager of Agriculture Development Bank (ADBL) and as the Chairman of Insurance Board (IB). Within a year of his appointment, visible improvements were seen in Nepal Bank – a government owned bank. When asked his recipe to bring about this development he humbly replies, “It’s not just me who did it. Plus what I did was just tap the unused potential or strengths of the bank.”

Nepal Bank Limited’s 62% stake remains in the name of government. Recently an announcement was made regarding the issuance of FPO (Further Public Offering) for 1,76,84,858 units of shares, which would decrease the government stake to 51%. So in this backdrop an interview was taken with Mr. Devendra Pratap Shah, the excerpts of which are attached below:

The upcoming FPO of Nepal Bank Limited will reduce the government stake from 62% to 51%, what is the purpose behind it?

The purpose of FPO is very clear. We want our capital base to go up in order to increase volume of business and take more risk compared to today’s size. FPO is an instrument that will strengthen our financial position as it is being issued at premium. Additionally, government also is happy as it wanted to reduce its holding since long. The trade unions also should be happy as this does not amount to privatization of NBL.

What will be the estimated FPO price?

That I can’t say at this stage. Our board has tentatively decided to issue it at slightly more than Rs 300, but of course this is not final. As you know FPO needs 100 % underwriting before its issue, we are now discussing the matter with likely underwriters. There is also a role to be played by Security Board of Nepal. So it is a bit early to talk about the price publicly.

One thing I want to say at this point is that our share is undervalued in the market which is reflected by its Price Earnings Ratio (PER).  We should consider both PER and the current market price before we decide premium content.

When is the issue likely to float?

We wanted to issue it within current fiscal year, but time is running out. So we’re trying to do it as soon as possible.

Is NBL looking forward to strategic partnership with foreign entity like Agricultural Development Bank (ADBL)?

This question can be replied properly by the government and not by NBL management.

Being a oldest bank of Nepal, Nepal Bank has huge assets, if its DDA (Due Diligence Audit) is done then its per share value will be huge or more than Rs.1000 (Just a guess). So why Nepal Bank is opting for FPO? If Nepal Bank got approval from SEBON to issue FPO at a premium of Rs.200 also, there will be huge loss compared to net worth. Won’t this be a loss to existing shareholders and government?

First of all, we all know that oldest bank should not necessarily have huge assets. But we have. You know Due Diligence Report will not automatically improve our Balance Sheet in a way we want. The generally followed accounting policies and NRB directives prevail while preparing banks’ financial statements. Until and unless you sell it, real value of the property is not reflected in the Balance Sheet we used to publish.  As our capital adequacy ratio is now more than 18 % (more than NRB requirement) we are not in a mood to sell our existing land properties further. FPO if issued at premium would directly improve our Balance Sheet without selling our properties. This is what we want. You are talking about the huge loss to the government and existing shareholders due to FPO, but in my view it is imaginary to say so as new shareholders will come in not at nominal value but at premium.

Will the change in ownership structure bring changes in governance and operation modality of the bank?

There will be three public directors instead of two now. Not other things will change.

 

As per the Q3 reports published, your bank has shown considerable improvement in net profit and other sectors too. Is there any specific recipe behind this?

I am not the only one who is responsible for ‘considerable improvement’ as you said. What I did is I tapped NBL’s existing strengths which had not been done before.

Like previous years, will Nepal Bank sell further assets (land and Shares)?

We have stopped to sell lands for now, but selling of shares is likely in the future depending upon the situation. If shares are not giving any benefit to us, there is no harm to sell them at appropriate price with capital gain.

When do you think this liquidity problem in the banking system will be solved? Don’t you think at this level of interest rate, economy will suffer?

Yes, it is true that the country’s economy is now suffering. Many good projects are not being financed these days because of loanable fund crisis. The optimism seen in the entrepreneurs is not being tapped. This is a serious matter. However I am not in a position to prescribe any medicine to address this problem. Many people say many things as they like. They just guess without any proper basis. I just wait.

What is your expectation from upcoming budget and monetary policy?

There are not much that I can suggest. The government machinery’s efficiency should improve so that it can spend money at appropriate time during the next fiscal year. There is no harm if the government starts to put its money with the commercial banks it owns. I expect country’s central bank to watch banks’ lending behavior before the crisis and warn them.

I also expect NRB to spend reasonable amount of money for regular financial research involving country’s top economists and players of financial sector. Such research should come out with recommendations to address the problems facing the banks or they are likely to face. I don’t suggest NRB to hike or dismantle upper limit of CCD ratio (which is now 80%) as others do.

However I request NRB to provide interest to the banks on the money they (banks) keep at it (NRB).

When will Nepal Bank be able to give dividend to its shareholders?

We have provided nothing to the shareholders for last 21 years. This is too much. We are trying our best to make next year historic.