Major Highlights of the NABIL-NBB Merger

Two prominent banks in Nepal: Nabil Bank Limited and Nepal Bangladesh Bank are gearing up to commence joint operation after the acquisition of the latter by the former.

Nepal Rastra Bank has already provided a Letter of Intent (LOI) to Nabil Bank for the acquisition of the Nepal Bangladesh Bank.

Nabil Bank Limited (NABIL) and Nepal Bangladesh Bank Limited (NBB) inked a preliminary agreement for the acquisition of NBB by Nabil Bank in a share swap ratio of 100:43. The agreement of acquisition by Nabil Bank was endorsed by the boards of both banks on Poush 29, 2078.

This article analyzes the key facts and figures of the acquisition.

Paid-Up Capital

The paid-up capital of Nabil Bank at the present is Rs. 18,496.19 million. Meanwhile, the paid-up capital of Nepal Bangladesh Bank is Rs. 10,085.40 million.

The agreed-upon share swap ratio for the acquisition is 100: 43. Thus, shareholders owning 100 shares of Nepal Bangladesh Bank will get 43 shares of Nabil Bank (the company after acquisition).

In more relevant terms, the additional paid-up capital contribution of Nepal Bangladesh Bank to the revamped will be 43% of NBB's currently maintained paid-up capital. Thus, the paid-up capital of the new company will be:

New Paid-up

= Paid-up capital of NABIL + NBB (share swap adjusted)

= Rs. 18,496.19 million + (Rs. 10,085.40 million * 43%)

= Rs. 18,496.19 million + Rs. 4,336.722

= Rs. 22,832.91 million

The increased capital base will help the bank expand its business. The core capital will also be Rs. 44,000 million.

Net Worth

Nabil Bank currently has a net worth of Rs. 34,084.80 million. Nepal Bangladesh Bank has a net worth of Rs. 15,852.31 million. Thus, the combined net worth of the revamped bank will be Rs. 49,937.10 million.

The net worth per share will increase to Rs. 218.71, which is a result of Capital
Adjustment by Swap Ratio. In contrast, the banks currently have a net worth per share of Rs. 184.28 and Rs. 157.18 respectively. 

Business

After the acquisition, the bank will collect the highest deposit and forward the highest loans in the industry. The second quarterly figures of the current fiscal year show that the banks together would earn Rs. 317,504 million in deposits and forward Rs. 300,774 worth of loans in Q2.

The acquisition is believed to have a positive impact on the deposit and lending figures.

Profitability, Earnings, and EPS

After the acquisition, the Annual Profit of the bank is expected to be more than Rs. 6 billion, the highest in the industry.

In the second quarter of the fiscal year 2078/79 alone, their combined net profit totals a staggering Rs. 2,993 million. Based on the second quarter's net profitability figure, the earnings per share of the combined bank is Rs. 26.21.

The EPS is expected to rise due to Capital Adjustment by Swap Ratio.

The Capital Fund to RWA according to current estimates will be 13.62%, which will support business growth.

Branches and Extension Counters

The acquisition of Nepal Bangladesh Bank will result in a wider network to support business growth.

Immediately after the joint operation, there will be 16 extension counters and 235 branches with 2,301 employees. The bank will also have 292 ATM terminals and 16 lakh plus customers, making it one of the leading banks in the nation.

The banks are looking for more branch networks to increase business volume.

The workforce will likely increase from crude estimates in order to add more business. The banks have determined that the HR cost of NBB will increase by 50% at least. The company will be posted with the challenge to make an appropriate HR integration plan.

Market Trend

NABIL gained around 295% from the lowest point before the Covid-19 pandemic hit the country. Being the leader in investor interest and size, NABIL is one of the major market movers.

However, as the overall market itself went on a much-anticipated correction, the stock has been losing from its high on November 03, 2021. 

Unadjusted Candlestick Chart, NABIL, Daily

As of writing, NABIL is 26% below the high in the adjusted chart. Unadjusted charts (which do not consider the increase in the number of shares after bonus listing) are often deceptive.

Bonus Adjusted Candlestick Chart, NABIL, Daily