Is it worth bidding in BOK auction ? In-depth analysis of the company

In order to increase the percentage of promoter holding in the company, Bank of Kathmandu is currently auctioning 61, 58,067 units of promoter shares to the general public. The auction is first of its kind in Nepalese banking history. The promoter-public ratio currently stands at 45.64:54.36. The ongoing auction will soar the promoter ratio to 51% thus complying the central bank’s regulation.  

Bank of Kathmandu is the bank formed after the merger of two commercial banks namely: Bank of Kathmandu and Lumbini bank Limited at a swap ratio 1:0.83. The merged company was named as “Bank of Kathmandu Lumbini Ltd” however the name was revised to “Bank of Kathmandu Ltd.” by the company’s 22nd AGM.   The merged company started its operation from 2073/3/24.

Share Capital

Bank of Kathmandu currently has a paid up capital of Rs 5.62 Billions. The bank is expected to give a handsome dividend in order to meet the capital requirement. The history of Capital and the future projections of the bank has been shown in the chart. 

The projection shows that the company is under no plan of providing stock dividend for the next couple of years. However, the shareholders will probably receive a cash dividend out of the net profit in those years. 

Reserves and Surplus
It is the liquid asset held by the bank in order to meet the future payments and emergency needs. It is normally built from the undistributed portion of the company’s earnings. A pictorial representation of past record and future projection is shown below.

The company is expecting a decent increment in its reserve in the upcoming years. The reserve is expected to fall a little in the year 2074/75 which clearly shows the company’s bonus declaration plan. However, the reserves are expected to rise by   approx. 16 and 17.33 percent resp. 

Deposit
Deposits are the liabilities for a bank and banks needs to pay an interest upon it. However, it is the funds coming from the deposits that a bank lends and earns profit. Higher the deposit, higher will be the banks capacity to disburse loans. Bank of Kathmandu has expected a growth of 16 percent per annum in deposits for the FY 2075/76 and 2076/77. The successful effect of merger can be noticed upon analyzing the graph. The company not only maintained the deposit but also showed a decent growth in the following years after merger. Bank of Kathmandu had CAGR of approx. 12 percent in the deposits. Thus, Investors can rely on the company’s projections based on the past record. 
  
 

Loan and advances
BFIs basically make money by lending money at a rate higher than the cost of the money they lend. More specifically, banks collect interest on loans and pay interest on debts. Lending being a primary source of income for BFIs, Increase in lending is always considered as a positive signal. 
Looking at the company’s growth in lending, an investor can easily get excited. The amount of loans have continuously been rising over the years. The merger of two banks has created a synergy which can easily be noticed in the graph.  Bok has projected an average 14 percent growth in the upcoming years. Seeing the growth history, Investors can rely on the company’s projection.  

Key Ratio Projections

Analyzing the company’s past performance, growth and the future projections the auction looks lucrative for long term investors. Unlike Nib and Nabil Promoter shares this shares cannot be freely traded in the stock market. However, investors looking to park their fund for long term should bid for the shares. The bidders can grab the shares at a low rate and enjoy the return provide by the company in the coming years. 
The promoter shares of bok was last traded for Rs. 270 in the stock market.