"10.25% Kumari Bank Debenture 2086" receiving application from Poush 14, 2076; Vital information you need to know before investing

Company profile

Kumari Bank Limited (KBL) started its operation from Chaitra 21, 2057 as the 15th Commercial bank of Nepal. It's registered central office is located at Tangal-02, Kathmandu with 116 branches, 20 branchless banking units, 5 extension counters and 125 ATM terminals in its network. Its promoter and public shareholding ratio is 51:49 and the shares are traded in Nepal Stock Exchange.

Kumari Capital, a merchant bank, is the full subsidiary of Kumari bank.

Objective

About the issue

Kumari Bank Limited (KBL) will be issuing 30 lakh unit debentures from Poush 14, 2076 to Poush 17, 2076. In case of under-subscription, the issue will be extended till Magh 14, 2076.

"10.25% Kumari Bank Debenture 2086" will be issuing debentures worth Rs 3 arba at Rs 1000 per unit. From the total 30 lakh units, 12 lakh units has been separated for the General public while 18 lakh units have been separated for private placement.

Interest individuals can apply for a minimum of 25 units or a maximum of 12 lakh units.

Nepal SBI Merchant Banking Ltd. has been appointed as the issue manager.

ICRA Nepal has assigned an issuer rating of [ICRANP-IR] BBB+ (pronounced ICRA NP issuer rating triple B plus) to Kumari Bank Limited (KBL). It has also assigned [ICRANP] LBBB+ (pronounced ICRA NP L triple B plus) to the proposed subordinated debenture program of KBL.

Market share

Capital structure

Shareholding structure

Primary shareholders

Institutional promoters

Board of Directors

Management Team

*There are 1,043 employees in total.

Rating

ICRA Nepal has assigned an issuer rating of [ICRANP-IR] BBB+ (pronounced ICRA NP issuer rating triple B plus) to Kumari Bank Limited (KBL). The rating is considered to have a moderate degree of safety, regarding the timely servicing of financial obligations with the rated entity carrying moderate credit risk. The issuer rating is only an opinion on the general creditworthiness of the rated entity and not specific to a particular debt instrument.

ICRA Nepal has also assigned [ICRANP] LBBB+ (pronounced ICRA NP L triple B plus) to the proposed subordinated debenture program of KBL. Instruments with this rating are considered to have a moderate degree of safety, regarding the timely servicing of financial obligations. Such instruments carry moderate credit risk. 

Strengths and opportunities

• Adequate track record (since 2001) and its improving risk management practices in last few years
• Good asset quality indicators with non-performing loans (NPLs) declining to 0.97% as of mid-July 2019 (0+ dpd of ~7%) compared to 1.86% as of mid-July 2017
• Ability of the bank to manage the risks arising out of acquisition of various classes of banks (in June 2017), which had relatively inferior underwriting norms and borrower quality
• Fairly diversified credit portfolio with ~51% retail/SME loans resulting in moderate credit concentration risks (~19% among top 20 borrowers as on mid-July 2019)
• Experienced senior management team, along with its improving market position through rapid franchise expansion remain positives for sustainable growth over the medium term
• The franchise expansion plans augur well for the growth of the retail/SME segments which could further lower portfolio concentration risks and help improve yields. This in turn is likely to support its profitability profile going forward.

Weaknesses and threats

• Weak deposits profile with low chunk of current and savings accounts (CASA) at ~28% as on mid-July 2019 (~43% for industry)
• Relatively higher cost of funds and hence weakened competitive positioning in the current base rate-based lending regime
• Concentration among top 20 depositors remains on the higher side (~30% as on mid-July 2019), which could pressurise its liquidity profile in case of increased volatility in interest rates
• Though the bank’s credit growth remained low at ~15% in the low interest rate regime of FY2015-2017, a spike in the credit growth trend in the last two years (~30% against ~20% growth in industry) with similar plans over the near term.
• Declining capitalisation (CRAR of 12.07% as of mid-July 2019) is also a concern, although it is comfortable against the regulatory minimum of 11%. However, this is expected to be supplemented by the proposed debenture issue plans.
• Lower profitability profile with return on net worth (RoNW) and return on assets (RoA) of ~12% and 1.46% respectively in FY2019 (~16% and 1.96% for industry), primarily on account of lower net interest margins (NIMs) of 3.30% for FY2019 (3.82% for the industry).
• However, KBL’s margins are already compliant with the recently revised interest spread calculation norms while many players in the industry would need to lower their spreads.
• Lack of strong institutional promoters and the uncertain operating environment/liquidity constraints that the banks in Nepal are currently facing, which could have a bearing over the bank’s growth plans.

Source: ICRA Nepal Rating (https://icranepal.com/releases.php)

Financial indicators

Source: Company Prospectus and ICRA Nepal rating report

Prospectus