ICRA Nepal [ICRANP] has assigned IPO Grade 4+ to Kamana Sewa Bikas Bank. Grade point indicates below average fundamentals to the proposed 15% right share issue.
Kamana Sewa Bikas Bank had got approval for issuance of Rs 309.42 million of right share. It is going to issue 3,094,154.78 unit of equity shares at the face value of Rs 100 to its existing shareholder at par. The bank had proposed the right share to meet the minimum regulatory paid up capital of Rs 2,500 million for national level class B Development Bank.
The assigned grading takes into account KSBBL’s adequate track record in banking, demonstrated ability to achieve healthy growth (CAGR, Compounded Annual Growth Rate ~21% over last four years vs. ~19% for banking industry). The scale advantages the bank could reap going forward being a national level development bank. Comfortable capitalization profile, experienced management team, diversified franchise (40 branches and one head office across 14 districts) with rapid branch expansion plans of management remain positive for incremental growth prospects of KSBBL. The grading also considers the highly granular portfolio of KSBBL among peers reducing concentration risks. The grading also factors in the adequate profitability indicators reported by KSBBL in the past (average return on net worth remained ~18% in past five years vs. ~14% for industry).
KSBBL was form with merging similar size of development banks (Kamana Bikas Bank and Sewa Bikas Bank). So, the scale of operation was considerably enhanced. Kamana Bikas Bank had earlier undergone merger with Kaski Finance in June 2016. Consolidated portfolio growth for all the pre-merger entities over the years has remained healthy with CAGR ~21% over last four years ending Jul-17, but lower growth was according in FY17 compared to business (~14% vs. nineteen for industry) amidst adjustment liquidity situation. Bank’s yields stay moderate among peers (~13% for FY17) that in conjunction with snug capitalization has supported the expansion to date. KSBBL’s credit portfolio of NPR 11,925 million as of mid-Oct -17 comprised primarily of overdraft (~32% of total loans), term loans (~27%), hire purchase loans (~12%), housing loans (~12%), real estate loans (~9%), disadvantaged sector loans (~5%) and miscellaneous (~3%).
KSBBL’s reported profitability profile has remained adequate. The average return was ~18% on net-worth vs. ~14% on industry average and ~2% on return on assets over last five years.
As on mid Oct 2017, the capitalization profile of KSBBL stood much higher at 25.25% against regulatory minimum of 11% for class B banks. Hence, the proposed right offering is to meet the targeting capital requirements of NPR 2,500 million.
Kamana Sewa Bikas Bank Limited (KSBBL) is a national level development bank. It is formed by merging Kamana Bikas Bank and Sewa Bikas Bank on 4th August 2017. Prior to this merge, Kamana Bikas Bank had also undergone to merge with Kaski Finance on 20th June 2016. The corporate office of the bank is located at Pokhara, Kaski. The bank is promoted by wide range of promoters. The maximum shareholding by one promoter is 1.93% of total capital (as on mid-Oct 2017). The bank had distributed the share capital in the ratio of 51:49 among promoter and public. The Chief Executive Officer of the bank is Mr. Mahesh Prasad Kafle.
Currently, it is providing services to 14 districts through 41 branches and 16 ATMs as of mid-Oct 2017.