ICRA Nepal assigned LA Minus and LBBB ratings to Subordinated Debenture and Issue rating to Global IME Bank and Prabhu Bank respectively
Fri, Jul 10, 2020 2:59 PM on Bonds & Debentures, Credit Rating, Latest,
Global IME Bank Limited
ICRA Nepal has assigned the rating of [ICRANP] LA-(pronounced ICRA NP L A minus) to the proposed subordinated debentures of Global IME Bank Limited (GBIME) and also reaffirmed the rating of [ICRANP] LA-to GBIME’s existing subordinated debentures.Instruments with this rating are considered to have an adequate degree of safety regarding the timely servicing of financial obligations. Such instruments carry low credit risk.The sign of + (plus) or –(minus) appended to the rating symbols indicates their relative position within the rating categories concerned.
ICRA Nepal has also reaffirmed the issuer rating of [ICRANP-IR] A-(pronounced ICRA NP issuer rating A minus) to GBIME, indicating adequate credit quality. The rated entity carries low credit risk. The issuer rating is only an opinion on the general creditworthiness of the rated entity and not specific to any particular debt instrument.
Strengths
- Strong branch network leading to high share of granular loans
- Experienced promoter group and management profile
- Fair asset quality
- Adequate profitability profile despite recent moderations; scale economies likely post-merger
Challenges
- Externalities brought on by Covid-19 could affect key operating parameters
- Moderate capitalisation profile
- Relatively high cost of deposits compared to the industry average; high deposit concentration
- Mismatch in credit and deposit growth in recent periods
- Changing regulatory landscape could affect growth, especially in SME segment
Bank Profile
Incorporated in 2007, Global IME Bank Limited (GBIME) has since undergone multiple large and small mergers/ acquisitions and now encompasses 18 different merged/acquired entities.A major one of these entities is the recently merged Janata Bank Nepal Limited (JBNL). Supported by this merger in December 2019, the bank has become the largest commercial bank of Nepal in terms of asset base and market share (deposit and credit). GBIME has its presence across the country through its 266 branches, 248 branchless banking centres, 35 extension and revenue collection counters and 255 ATMs. The bank commands a market share of 6.88% in terms of deposit base and 7.45% in terms of the credit portfolio of commercial banks as of mid-January 2020.
GBIME reported a profit after tax (PAT) of NPR 2,762 million for FY2019 (YoY growth of ~31%) over an asset base of NPR 151,654 million as of mid-July 2019. For H1 FY2020, the bank reported profits of NPR 2,137 million (including profit of NPR 451 million reported by Janata Bank till the date of the merger) over an asset base of NPR 262,089 million as of mid-January 2020. The reported CRAR of the bank was 11.47% and gross NPLs were 1.20% as of mid-January 2020. The bank is using Finacle as the core banking software across all its branches. Its shareholding pattern constitutes ~51% promoter holding and ~49% public holding. The shares of the bank are listed on the Nepal Stock Exchange. The registered and corporate office of the bank is at Kamaladi, Kathmandu. Mr. Parshuram Kunwar Chhetri is the Chief Executive Officer of the bank.
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Prabhu Bank Limited
ICRA Nepal has reaffirmed an issuer rating of [ICRANP-IR] BBB(pronounced ICRA NP issuer rating triple B) to Prabhu Bank Limited (PRVU). This rating is considered to be of moderate credit quality. The rated entity carries 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 reaffirmed the rating of [ICRANP] LBBB (pronounced ICRA NP L triple B) assigned to the existing subordinated debenture programme of PRVU. 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
- Improving operational profitability
- Diversified branch network sees portfolio granularity;affiliation to Prabhu Group provides further support
- Fair funding profile with better CASA and concentration compared to most peers
- Controlled and cautious credit growth in recent periods
Challenges
- Weaker asset quality
- Externalities brought on by Covid-19 could affect key operating parameters
- Thin capitalisation buffer
- Changing regulatory landscape could affect growth
Bank Profile
Prabhu Bank Limited (PRVU), formerly known as Kist Bank, was incorporated in 2002 as a finance company and was upgraded to a Class A commercial bank in May 2009. Kist Bank came under stress as a large chunk of its credit portfolio turned into NPLs from 2013 (NPLs were ~24% in July 2014). The bank opted for a merger to improve its financial profile and was renamed after the merger of four financial institutions on September 15, 2014. These institutions were Kist Bank Limited (Class A), Prabhu Bikas Bank Limited (Class B), Gaurishankar Development Bank Limited (Class B) and Zenith Finance Limited (Class C).In February 2016, PRVU acquired another distressed bank i.e. Grand Bank Nepal Limited, which had a very high level of NPLs at the time of the merger (~35%).
PRVU is mainly promoted by the individuals and entities belonging to the Prabhu Group, which is an established business group, especially in the remittance and financial sector. The bank’s shares are listed on the Nepal Stock Exchange with~51% held by the promoters and the rest being public holding. PRVU’s registered and corporate office is in Babarmahal, Kathmandu.
As of mid-April 2020, PRVU’s presence throughout the country is visible with 208 branches, 46 branchless banking counters and 157 ATMs. Its market share was around 3.70% in terms of the deposit base and 3.61% of the total advances of the commercial banking industry as of mid-April 2020. PRVU reported a profit after tax (PAT) of NPR 1,784 million in FY2019 (YoY growth of ~84%) on an asset base of NPR 137,886 million as of mid-July 2019. For 9M FY2020, the bank reported a profit of NPR 1,464 million on an asset base of NPR 150,586 million as of mid-April 2020. PRVU reported a CRAR of 11.56% and gross NPLs of 2.95% as on same date. In terms of the technology platform, PRVU has recently started using Finacle as its core banking software across all its branches.
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