This document provides information about a group presentation on mergers and acquisitions in the Nepali banking sector. It discusses the history of M&A in Nepal, including the first merger in 2004 and regulations introduced by the Nepal Rastra Bank starting in 2011 to encourage consolidation. Key reasons for M&A included strengthening capital bases and improving efficiency. The presentation covers benefits of M&A, elements of successful mergers, effects on stock prices, and relevant regulations regarding mergers and acquisitions.

1. Merger and
Acquisition
GROUP 3
PRESENTATION
CORPORATE FINANCE

2. Manoj Kumar Sah
Prabrity Shah
Gajendra Patel
Nirdosh Gahatraj
Bhupendra Acharya
Roshan Kumar Karki
Group 3 - Members

3. Merger
It involves the consolidation of assets, liabilities, operations, and
governance structures of the merging organizations.
The goal of a merger is often to achieve synergies, enhance market
position, increase efficiency, or pursue strategic objectives.
Merger: A merger refers to the combination of two or more separate entities,
typically companies, into a single entity.

4. In the context of Banking and Financial Institutions (BFIs), an acquisition
refers to the purchase or takeover of one BFI by another. It involves one BFI
acquiring a controlling interest in another BFI, thereby gaining control over its
operations, assets, liabilities, and governance
Reasons:
❖Strategic Expansion
❖Market Consolidation
❖Diversification
❖Gaining access to new customer segments
Acquisition

5. First Merger, In 2004 AD Laxmi Bank Ltd. with HISEF Finance
In 2011 AD (2063 BS), NRB introduced Merger Bylaws
Before that, No of BFIs 263.
BFIs Act 2063, of Article 68 & 69, encouraged all the BFIs to undergo merger as a
part of becoming more stronger.
2012/13 emerged as a successful year from the point of view of merger and
acquisition
Where two well established bank i.e. NIC and Bank of Asia Merged
2015 monetary policy has hiked paid up capital by 4 times in the monetary policy
History of M&A in Nepal

6. Nepali banking system is characterized by low volume of turnover, high-
interest rate on lending, wide interest rate spread, inefficient
management and inadequate resources to fund big projects and thus
M&A initiated.
Which objectives are,
➔To strengthen the capital base of BFIs
➔To enhance their capacity for financing mega projects
➔And consolidate banking sector
History of M&A in Nepal

7. Most merger in year 2017 (63 changed into 24)
And within in a decade no.of BFIs decreases by 120 and reached to
140
As of April 2023, Commercial Bank “21”, Development Bank “17”,
Finance Company “17”, Micro Finance “63”, Other Institutions “15” and
Infrastructure Development bank “1”.
History of M&A in Nepal

8. Strengthening the banking system.
Enhancing efficiency and cost reduction.
Improving supervision and regulations.
Encouraging competitiveness
Adressing system risks.
Why NRB undertook financial
consolidation policy?

9. Weak financial institutions
Inefficiency and operational challenges
High competition and overcrowding
Governance and risk management concerns
Regulatory compliance and supervision
What led NRB to merge financial
institutions in Nepal?

10. Synergistic Effect
Greater Value Generation
Cost and Revenue Benefits
Accessing Technology and Skills
Opportunities for Market Dominance and Growth
Benefits of M&A

11. Financial Stability
Survival and Sustainability
Increase in paid-up capital
Survive the competition
Strengthen the banking sector
In context of Nepal

12. Forceful Merger and Acquisition mostly does lead to
fulfillment of organizational objectives.
REASONS:
Achieving a competitive edge
Cost cutting
Diversification
Lowers risk
M&A and Shareholder
Wealth Maximization

13. A Clear Strategy
Effective Project Management
Open communication between stakeholder groups
Elements of successful
Merger and Acquisition

14. Nepal Rastra Bank introduced the Merger Bylaw 2068 (B.S) grounded on the
Company Act 2063(B.S) article 177, BAFIA 2063 (B.S) article 68 and 69, and
encouraged all the BFIs to undergo merger as a consolidation. Laxmi Bank, Nepal
Bangladesh Bank, and Narayani National Finance were among the few institutions to
have undergone merger process before the announcement of the bylaws.
Through the 2015 monetary policy, NRB announced a four-fold hike in the minimum
paid up capital of the commercial banks and up to twenty-four-fold increment in the
same for the development banks.
How NRB encouraged BFI to
merge through regulations?

15. This required the commercial banks to increase their paid-up capital to Rs. 8
billion while the national level development bank would have to increase to
Rs. 2.5 billion. The requirement imposed by the banking regulator has further
enhanced the conditions to foster the merger and acquisition process; the
wave of M&A, that started as early as 2011, has hit Nepali BFI sector. As of
June 2016, 96 BFIs have taken part in the merger process to become 35
(NRB, 2016).
How NRB encouraged BFI
to merge through
regulations?

17. Volatility in Stock prices
Since such deals do not happen regularly, the impact of such mergers and acquisitions is visible in
all areas of both companies. Firstly, the stock prices are affected as the news of such a merger or
acquisition is enough to create volatility in the market. Once the reasons for such a step taken by
the companies are known, that reason will act as a driving force for the stock price.
Effects of M&A on Stock Market

18. How is a target company affected by a Merger and acquisition deal?
Acquiring a company comes with a cost, which is called a premium. The acquiring
company pays the premium for the work that built the company from scratch. The stock
prices of the acquired/target company tend to rise as they receive a premium from the
acquiring company.
Effects of M&A on Stock
Market

19. How is the Acquiring company affected by a Merger and Acquisition deal?
The acquiring company gets affected differently from the target company. In a
general sense, we can see that the stock prices of the acquiring company tend
to go down as the company has to pay a premium to acquire the other company.
Effects of M&A on Stock
Market

20. Analysis of Financial Performance of BFIs before merger and after merger as per
Adhikari P. R. (2022):
Prabhu Bank Limited + Grand Bank Limited = Prabhu Bank Limited
Lumbini Bank Limited + Bank of Kathmandu Limited = Bank of Kathmandu Limited
Merged date: 2016
Impacts of Merger on
Financial Performance

21. Impacts of Merger on Financial
Performance

22. Impacts of Merger on Financial
Performance

23. Major Provisions on Merger
Chapter 21
Section 177.
Subsection (1) : Public and Private Company
(2) : Provision related to public company
(3) : Merging Procedure
(4) : Final Decision by OCR.
(5) : Assets and Liability
(6) : Monopoly or Unfair trade
Regulations regarding M&A

24. Major Provision on Acquisitions
Chapter 12:
Section 141
Sub- section 1 : Information thereof to the OCR.
(a) : Value increased by 15% (Purchasing)
(b) : Value decreased by 15% ( Selling)
Sub section 2:
a. Date and parties involve
b. Nature of Property
c. Value of Property
d. Book Value
Regulations regarding M&A

25. BAFIA Act, 2017 AD
Provision on Merger and acquisition of ( BAFIA)
Chapter 10
Section: 69
(1) : Merger between BFI
(2) Infrastructure Bank and Commercial Bank
(3) Case – NRB Persuades to Merge
Regulations regarding
M&A

26. Section 70: Application to be Submit for M A:
Sub section (1):
(a) Mutual Consent
(b) Justification for merger
(c) Latest auditor report
(d) Depositors and creditors protection
(e) Report of Movable and immovable assets
(f) Employee details
(g) Agreement Letter
(2). Joint Application
(3). Approval
Section 71: Valuation of Assets and Liabilities
Section 72: Provision on Agreement
Section 73: Provision on Approval
Regulations regarding M&A

27. Merger and Acquisition Bylawys, 2073.
(1) Mutual consent
(2) Valuation of L & A
(3) Share Swap Ratio
(4) Final Agreement
(5) Final Approval
Regulations regarding
M&A