Necessary Information for Share Investment

1
Necessary Information for Share Investment

• In
• Nepal Development Bank Limited (NDBL)
• October, 2007

2
Contents

• NDBL- Profile
• NDBL Background
• Main Objectives
• Board and Management
• Board of Directors
• Management Team
• Capital Structure
• Ownership Structure
• Institutional Strength of NDBL

3
Contents (contd..)

• NDBL s Performance
• Past Performance
• Present Status
• Awards Certificates for Better Performance
• New Initiatives
• Comparative Financial Position
• Comparative Profitability Position
• Comparative Financial Indicators

4
Contents (contd..)

• Real Effective Accumulated Loss
• Future Plan and Strategy (As Per Capital Plan)
• Major Assumptions (As Per Capital Plan)
• Financial Projections (As Per Capital Plan)
• Synergy between Activities of Commercial Banks
  and NDBL
• Rationale for Acquiring Stake in NDBL
• Conclusion

5
Abbreviations

• NDBL -Nepal Development Bank Limited
• BAFIA -Bank Financial Institution Act
• IDBI -Industrial Development Bank of
  India Limited
• ADFIAP -Association of Development Financing
  Institutions in Asia and the Pacific
  
• ISO -International Organization for
  Standardization
• CEO -Chief Executive Officer

6
Abbreviations (contd..)

• NRB -Nepal Rastra Bank
• EPF -Employees Provident Fund
• NABIL -Nepal Arab Bank Limited
• NIDC -Nepal Industrial Development
  Corporation
• DGM -Deputy General Manager
• NCSL -Nepal Cooperative Society Limited
• GTEIC -Global Trading Engineering
  Investment Company Pvt. Ltd.

7
Abbreviations (contd..)

• RBSSL -Rastriya Bahuuddeshyia Sahakari
  Sanstha Ltd.
• SOL -Single Obligor Limit
• NPA -Non Performing Assets
• NBA -Non Banking Assets
• RWA -Risk Weighted Assets
• ABBS -Any Branch Banking System
• RBS -Rastriya Beema Sansthan

8
NDBL - Profile

• Established under the Company Act, 1997 in March
  19, 1998.
• First national level development bank.
• Operation commenced since January 31, 1999 as per
  Development Bank Act, 1996 and now as per BAFIA,
  2006.
• Subscription services agreement with IDBI on
  July 7, 2003.
• Member of ADFIAP.
• First ISO Certified Development Bank.

9
NDBL - BACKGROUND

• Initially established by the team of following
  prominent personalities of the country
• Ex-Assistant Minister, Mr. Uttam Bahadur Pun
• Ex-Finance Minister, Mr. Bharat Bahadur Pradhan
• Ex-Minister, Mr. Bimal Man Singh
• Ex-Secretary, Nepal Government, (Late) Mr. Prithu
  Narsingh Rana
• Ex-Deputy Governor, NRB, Mr. Lekh Nath Bhusal
• Ex-Administrator (CEO),EPF, Mr. Sansar Bhakta
  Shrestha
• Prominent Business Entrepreneurs, Mr. Rajendra
  Lal Shrestha
• A Class Contractor Builder, Engineer Deepak
  Man Sherchan
• Advisors
• Ex-Governor/Chairman of NABIL, Mr. Satendra P.
  Shrestha
• Banking Financial Expert/Ex-CEO of NIDC, Mr.
  Amrit N. Regmi

10
Main Objectives

• To cater the demand of medium long term finance
  for the industrial, commercial, agricultural,
  tourism, infrastructure sectors other services
  by offering various banking facilities.
• To mobilize its resources in the form of fixed,
  saving other short-term deposits with
  competitive interest rates.

11
Board and Management

• Board consisting of nine (9) members headed by
  the Chairman governs NDBL.
• Managed by a team of competent experienced
  professionals including Managing Director (CEO),
  DGM, Sr. Manager, and Heads of Functional
  Departments.
• Manpower Strength 85 (13 Officer 72
  Non-Officer).

12
Board of Directors

• Mr. Uttam Bahadur Pun - Chairman
• Mr. Om Karandas Shrestha - Director
• Mr. Amar Gurung (Rep. NCSL) - Director
• Mr. J. K. Ray (IDBI) - Director
• Mr. Khem N. Dhungana (NCSL) - Director
• Dr. Kiran Raj Joshi (GTEIC Pvt. Ltd.) - Director
• Mr. Bhakta Bdr. Rai (RBSSL) - Director
• Mr. Lava Raj Joshi (Profess. Spec.) - Director

13
Management Team

• Mr. Prabhu K.M. Pradhan Officiating CEO
• Mr. Khadga Gurung - Sr. Manager
• Mr. Purna Pd. Sharma - Manager
• Mr. Shankar Pd. Kalikota - Dy. Manager
• Mrs. Sarala Pradhan - Dy. Manager
• Mr. Hari Krishna Subedi - Asst. Manager

14
Capital Structure

• Authorized Capital NRs. 1,260 Million
• Issued Capital NRs. 1,060 Million
• (a) Ordinary Share NRs. 640 Million
• (b) Preference NRs. 420 Million
• Paid Up Capital NRs. 246.2 Million
• (After Full Allotment
• of 11 Right Share) NRs. 320 Million

15
Ownership Structure

• Shareholders Holdings
• Before Rt. Issue After Rt.
  Issue
• Pvt. Sector Promoters 31 26.40
• Institutional Promoters 22 15.60
• Nepal Rastra Bank 10
  6.50
• Employees Provident Fund
  5 3.25
• Rastriya Beema Sansthan
  5 3.25
• Nepal Cooperative Society Ltd.
  2 2.60
• Foreign/Local Fin. Inst. 17 22.10
• IDBI 10 13.00
• Nepal Cooperative Society Ltd.
  7 9.10
• General Public 30 35.90

16
Institutional Strength of NDBL

• Technology driven bank
• Member of ADFIAP and Associated with
  Regional/Global banks
• Equity participation from IDBI
• Member of VISA International
• Sub-agent of Western Union Money Transfer
• ISO 9001 2000 Certified Development Bank

17
NDBLs Performance

• Past Performance
• Established by the promoters comprising prominent
  personalities like Former Minister, High Level
  Officials, Professionals and Pioneer
  Entrepreneurs of the country.
• Pioneered in project financing with the sole
  objective of creating world class infrastructure
  and long term productive assets.
• Initially extended loans to big projects viz.,
  health, education, tourism etc. and no Single
  Obligor Limit.

18
NDBLs Performance (contd..)

• Present Status
• Capital adequacy problems because of very low
  equity base of NPR 160 million.
• Raised NPR 86.199 million additional shares
  through 11 right share issues.
• Despite of all odds, maintained its liquidity and
  generated net profit of NPR 78.831 million in F/Y
  2004-05.
• Reduced NPA to 12 and NBA to 3 of Total Assets.
  Now a cleaner balance sheet.

19
NDBLs Performance (contd..)

• Awards Certificates for Better Performance
• ADFIAP Development Award 2004 for
  infrastructure development.
• ADFIAP Best Website Award 2007 for its best
  website.
• International Leadership Star for Quality Award
  2007.
• ISO 90012000 Standard certified by Moody
  International Certification Ltd., U.K.

20
NDBLs Performance (contd..)

• New Initiatives
• Already gone ahead with futuristic technology
  driven banking in mind and introduced many new
  areas of commercial banking services.
• VISA Electron Debit Card/Prepaid/Travel/Gift
  Cards
• Gold Cards in near future
• ATM Services (365 Days Banking)
• Western Union Money Transfer (Remittance)
• Foreign Exchange Buying Selling/TC Sales
• US Account
• D/D T/T Sales (opening Nostro Account in IDBI)
• Any Branch Banking System (ABBS)
• Non-Stop Counter Service

21
NDBLs Performance (contd..)

• Comparative Financial Position (Rs. In Million)
• Liabilities 2004-05 2005-06 2006-07
• Share Capital 160 160 246
• Accu. Loss (220) (381) (445)
• Borrowings 0 27 0
• Deposits 1631 1538 1312
• Other Liabilities 15 8 10
• Total 1586 1352 1123
• Provisional

22
NDBLs Performance (contd..)

• Comparative Financial Position (Rs. In Million)
• Assets 2004-05 2005-06 2006-07
• Cash Bank 295 506 310
• Investment 134 128 124
• Loans/Advances 763 551 581
• Fixed Assets 14 22 13
• NBAs 216 64 39
• Other Assets 164 81 56
• Total 1586 1352 1123

23
NDBLs Performance (contd..)

• Comparative Profitability Position (Rs. In
  Million)
• Profit Loss 2004-05 2005-06 2006-07
• Interest Income 117 109
  110
• Interest Exps. 115 100
  93
• Net Intt. Income 2
  9 17
• Other Income 3 2
  5
• Total Opt. Income 5 11
  22
• Staff Expenses 15 20
  19
• Overhead Exps. 33 30
  35
• Opt. Profit bef. Prov. (43) (39) (32)
• Net Profit (Loss) 79 (161) (63)

24
NDBLs Performance (contd..)

• Comparative Financial Indicators (Rs. In
  Million)
• NPA NBA 2003-04 2004-05 2005-06 2006-07
• Total Loan 1532 842 624 644
• Total NPA 480 69 64 76
• NPA/Loan 38 20 10 12
• NBA (Net) 78 216 64 39
• NBA/Assets 3 14 5 3
• Provisional

25
NDBLs Performance (contd..)

• Real Effective Accumulated Loss Rs. 445
  Million
• Loan Loss Provision Rs. 63
  Million
• NBA Loss Provision Rs. 99
  Million
• Investment Equalization/Provision Rs. 12
  Million
• Extra Provision as per NRB Rs. 71 Million
• Sub-Total Rs.245 Million
• Interest Suspense Rs. 53
  Million
• Expected Profit on Sale/Dev. of NBAs Rs. 6
  Million
• Sub-Total Rs.304 Million
• Real Loss Rs.141 Million
• Notional Rev. Reserve (based on rep. cost)
  Rs. 87 Million
• Total Real Effective Accumulated Loss Rs. 54
  Million
• For an established bank this loss is very
  minimal. It is manageable
• once 2-3 NBAs are realised and some base capital
  is increased.

26
Status of Loan Advance (2063/064)

• Classification No. Loan (Rs.mil.)
  Remarks Prov.
• Performing
• Good 157 467 73 months 1
• Sub-Standard I 6 101 16 Res./Restr.
  12.5
• Sub-total 163 568 89
• Non-Performing
• Substandard II 2 40 6 3-6
  months 25
• Doubtful 0 0 0 6-12
  mths. 50
• Bad 11 36 5 12 months 100
• Sub-total 13 76 11
• Total 176 644 100
• Note All provisional only.

27
Status of Loan Advance (2063/064)
(contd..)

• Rs.000
• Loan Outstanding 623,746
• Loan Disbursed 533,858
• Loan Recovered 497,703
• Transfer To NBA 16,053
• Closing Balance 643,846
• Interest Recovered 80,247

28
Status of Loan Advance (2063/064) (contd..
)

• Types of Loan Rs.000
• Term loan 117,473
• Foreign employment loan 282
• Working capital loan 373,331
• Fixed deposit receipts 550
• Loan against dollar deposit 4,700
• Hire purchase loan 983
• Home loan 90,011
• Retail loan 44,653
• Education loan 1,863
• Bridge gap loan 10,000
• Total 643,846

29
NDBLs Performance (contd..)

• Future Plan and Strategy
• Thrust on Recovery of NPAs NBAs will continue,
• The Bank will be putting more efforts in
  increasing the Capital Base,
• It has a target to increase its base capital and
  run a full fledged commercial bank in future,
• Mobilize Low Cost Deposits,
• Increase Fee-Based Business,
• Focus on Retail Lending and Direct Investment in
  Real Estate Development (permissible only for the
  development bank) to achieve higher growth in
  profitability level.

30
NDBLs Performance (contd..)

• Future Plan and Strategy (as per Capital Plan)
• In addition to the subscription of unsubscribed
  portion (Rs.73.8 million), with the additional
  equity capital injection of Rs. 160 million the
  bank can maintain the minimum capital adequacy
  ratio as follows (Rs. In
  Million)
• Particulars 2006-07 2007-08
• Core Capital / RWA -24.54 10
• Total Capital Fund / RWA -21.91 11

31
NDBLs Performance (contd..)

• Major Assumptions (as per Capital Plan)
• Additional equity capital injection of Rs. 160
  million apart from the subscription of
  unsubscribed rt. share Rs. 73.8 million in the
  first half of F/Y 2007-08.
• 50 of NBA value Rs. 137.9 million is to be
  realized in F/Y 2007-08 50 in F/Y 2008-09.
• 40 of interest suspense is to be realized.
• 100 relaxation from NRB.

32
NDBLs Performance (contd..)

• Financial Projection (as per Capital Plan)
  (Rs. In Million)
• Capital Liabilities 2063-64 2064-65
• Share Capital 246 480
• Reserve Funds (445) (381)
• Deposits 1312 1419
• Other Liabilities 10 17
• Total Capital Liabilities 1123 1535
• Actual/Provisional

33
NDBLs Performance (contd..)

• (Rs. In Million)
• Assets 2063-64 2064-65
• Cash Bank 310 614
• Investment 124 106
• Loans Advances 581 762
• Fixed Assets 13 11
• Non-Banking Assets 39 5
• Other Assets 56
  37
• Total Assets 1123 1535

34
NDBLs Performance (contd..)

• (Rs. In Million)
• Profit Loss 2063-64 2064-65
• Interest Income 103 129
• Interest Expenses 93 85
• Net Interest Income 10 44
• Other Income 12 14
• Operating Expenses 54 59
• Operating Profit Before Prov. (32) (1)

35
NDBLs Performance (contd..)

• (Rs. In Million)
• Profit Loss (contd..) 2063-64 2064-65
• Operating Profit Before Prov. (32) (1)
• Prov. For Possible Losses 61 (4)
• Operating Profit (93) 3
• Non-Operating Income/Loss 3 0
• Loan Loss Prov. Written-Back 27 68
• Net Profit (Loss) (63) 71
• Accumulated Loss 463 412

36
Synergy between Activities of Commercial Bank and
NDBL

• NDBL is opening savings, non-interest bearing,
  fixed deposit account, etc.
• Provides retail consumer financing loan.
• Foreign exchange buying selling, remittance,
  draft, ABBS, VISA debit cards etc.
• Activity infrastructure wise NDBL is like a
  full fledged commercial bank.
• It has a target to increase its base capital and
  run a full fledged commercial bank in future.

37
Rationale for Acquiring Stake in NDBL

• Requirement of investment is very minimal.
• No tedious long time consuming process of
  getting new license for opening a bank.
• The investor will get already established (almost
  10 years old) bank with modern technology driven
  banking infrastructure.
• It can start generating income right from day one
  after share investment.
• In addition to the stake holding, it will have
  management and business control. It can frame
  business strategies independently.

38
Rationale for Acquiring Stake in
NDBL (contd..)

• NDBLs established set up is capable of handling
  high business volume and its technology platform
  is robust enough to provide world class services
  to large number of customers both inside
  outside Nepal.
• Despite having all the requisite infrastructure,
  NDBL is constrained to develop its business on
  account of very low capital base.
• If the strategic partner acquires stake with its
  own management team, all the problems will get
  resolved at one stroke. Capital adequacy
  requirement norms of 11 will be complied and
  there will be complete relaxation of NRBs
  conditions. Then, the bank can pursue high growth
  path for higher dividend capital gain.
• NDBLs NPA level at present is very low and the
  real effective accumulated losses are also
  manageable.

39
Rationale for Acquiring Stake in
NDBL (contd..)

• Nepal is poised for high growth in coming years
  as investors from all over the world are showing
  keen interest for investment in infrastructure
  development including hydropower.
• Remittance business is the main fuel for Nepalese
  Banking Financial Sector and it is witnessing a
  healthy growth. The stake holder can gear up to
  tap this business soon in a significant way.
• Fee based activities and income there from can be
  multiplied easily.
• Market price is more than the face value (as on
  Aug. 8 NPR 166) and it will further appreciate
  once the strategic partner takes the stake with a
  team of management of its own.

40
Rationale for Acquiring Stake in
NDBL (contd..)

• Strategic partner will be in no way the looser.
• Even with the overall adverse business climate,
  the banks in Nepal are making huge profits.
• Even the erstwhile loss making public sector
  banks are now showing large profits due to
  availability of cheap resources by charging
  comparatively high interest while lending thereby
  making a high margin.

41
Conclusion

• High potentiality of revival and restructuring of
  the bank in a short time and one can run a full
  fledged commercial bank increasing its capital
  base.
• With the increase in investment opportunities in
  Nepal under the present improved political
  environment, the increase of Strategic Partners
  stake holdings in the bank with a management
  team for its day to day operation will be very
  timely and justifiable.
• A stiff entry barrier for new players.
• Strategic partner can have a stake in NDBL by
  investing very small amount compared to the
  investment required for new entrants.