KATHMANDU: Despite being touted as a miracle cure for all ailments
troubling financial institutions, mergers have failed to improve the
performance of almost a dozen financial institutions.
Among the 12 sets of mergers completed in the domestic financial sector within the last two years, only four have so far succeeded in registering profits. Likewise, share prices of half of the listed merged entities are also below face value at Nepal Stock Exchange.
“A merger does not translate to miraculous profits immediately. It takes time for the merged entity to become profitable as they have to deal with additional issues such as effectively managing human resources along with its operations,” said chief executive of Synergy Finance Rajendra Man Shakya.
Synergy Finance that was formed in November 2012 following a merger between Alpic Everest Finance, Butwal Finance and CMB Finance, has recorded a net loss of Rs 35.65 million in the second quarter of the current fiscal year.
“Problems such as low rate of loan recovery and absence of proper projects to finance remain the same even after a merger as it used to be with the concerned individual institutions before the merger,” said Shakya, who is also president of Nepal Finance Companies’ Association. “We have observed that merged companies need to be given time to recover and become profitable.”
However, Narayani National Finance, which was formed after a merger between Narayani Finance and National Finance in November, 2010, has fared well. It has earned Rs 25.74 million in the second quarter. Moreover, the company was able to earn 33 per cent more operational profit even before first year of merger was over.
But at the other end is H&B Development Bank that was formed following a merger between Himchuli Bikas Bank and Birgunj Finance in 2011. The class ‘B’ bank that was performing fairly is now in trouble due to the large scale fraud committed with the involvement of its employees.
Investors are also apprehensive about investing in shares of merged entities and their prices have taken a plunge of late. Among 10 listed merged financial institutions, share prices of only six firms are above Rs 100 — the face value.
“If the merged financial institutions are good then they will perform better and investors will also be willing to bid a higher price,” said acting president of Nepal Investors’ Forum Raj Kumar Timilsina.
Global IME Bank that was formed after merger between Global Bank, IME Financial Institution and Lord Buddha Finance, and Machhapuchchhre Bank following its merger with Standard Finance have been able to increase their profit and subsequently their share prices have also almost doubled in the past six months.
“In most cases, mergers have been taking place just to avoid the regulator’s action when the particular company’s financial health is deteriorating due to which the merger becomes forced and creates more problems,” pointed out Timilsina, adding that investors look forward to mergers between promising companies such as the ongoing merger process between NIC Bank and Bank of Asia Nepal.
According to central bank, 28 financial institutions have already got approval to merge into 13 institutions, and 24 financial institutions have received Letter of Intent (LoI) to merge into 10 institutions.
Source: The Himalayan Times, 2nd May 2013
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Among the 12 sets of mergers completed in the domestic financial sector within the last two years, only four have so far succeeded in registering profits. Likewise, share prices of half of the listed merged entities are also below face value at Nepal Stock Exchange.
“A merger does not translate to miraculous profits immediately. It takes time for the merged entity to become profitable as they have to deal with additional issues such as effectively managing human resources along with its operations,” said chief executive of Synergy Finance Rajendra Man Shakya.
Synergy Finance that was formed in November 2012 following a merger between Alpic Everest Finance, Butwal Finance and CMB Finance, has recorded a net loss of Rs 35.65 million in the second quarter of the current fiscal year.
“Problems such as low rate of loan recovery and absence of proper projects to finance remain the same even after a merger as it used to be with the concerned individual institutions before the merger,” said Shakya, who is also president of Nepal Finance Companies’ Association. “We have observed that merged companies need to be given time to recover and become profitable.”
However, Narayani National Finance, which was formed after a merger between Narayani Finance and National Finance in November, 2010, has fared well. It has earned Rs 25.74 million in the second quarter. Moreover, the company was able to earn 33 per cent more operational profit even before first year of merger was over.
But at the other end is H&B Development Bank that was formed following a merger between Himchuli Bikas Bank and Birgunj Finance in 2011. The class ‘B’ bank that was performing fairly is now in trouble due to the large scale fraud committed with the involvement of its employees.
Investors are also apprehensive about investing in shares of merged entities and their prices have taken a plunge of late. Among 10 listed merged financial institutions, share prices of only six firms are above Rs 100 — the face value.
“If the merged financial institutions are good then they will perform better and investors will also be willing to bid a higher price,” said acting president of Nepal Investors’ Forum Raj Kumar Timilsina.
Global IME Bank that was formed after merger between Global Bank, IME Financial Institution and Lord Buddha Finance, and Machhapuchchhre Bank following its merger with Standard Finance have been able to increase their profit and subsequently their share prices have also almost doubled in the past six months.
“In most cases, mergers have been taking place just to avoid the regulator’s action when the particular company’s financial health is deteriorating due to which the merger becomes forced and creates more problems,” pointed out Timilsina, adding that investors look forward to mergers between promising companies such as the ongoing merger process between NIC Bank and Bank of Asia Nepal.
According to central bank, 28 financial institutions have already got approval to merge into 13 institutions, and 24 financial institutions have received Letter of Intent (LoI) to merge into 10 institutions.
Source: The Himalayan Times, 2nd May 2013
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