The two financial institutions on Monday signed memorandum of understanding (MoU) to this effect. Citizens Director Pabitra Kumar Karki and NHMFL Director Sonam Lama signed the MoU.

Nepal Rastra Bank (NRB) on April 21 issued the acquisition bylaws enabling banks and financial institutions (BFIs) to go for acquisition. If materialized, Citizens’ acquisition of NHMFL will be the first of its kind in the domestic banking sector.

Citizens Chairman Pradeep Jung Pandey said the two institutions came into an agreement following three-month talks. “We intend to complete the acquisition process within this fiscal year,” he said. Citizens officials said they went for acquisition as it is easier than merger. “The beauty of the acquisition is the acquiring bank should not suspend its share transactions as per acquisition bylaws,” said Ganesh Raj Pokharel, assistant general manager of the bank (operation and IT). The bank has also initiated talks with other financial institutions to acquire them. “We are holding discussions with 3-4 financial institutions,” Pandey said.

According to Citizens officials, shareholders of Nepal Housing would receive payments in stock for selling the company. The finance company’s stock was traded at Rs 198 per share on May 13. Citizens share price closed at Rs 434 on Monday. Although NHMFL has already conducted its due diligence audit (DDA), Citizens has asked it to do it again to reconfirm its financial status. The acquisition bylaws say a DDA of the institution to be acquired has to be carried out after getting approval from its annual general meeting (AGM). Then, the two sides have to sign a MoU and take final approval from the central bank.

Although Citizens is yet to get approval from its AGM for the acquisition, Pokharel said it would not be difficult for the bank as they would hold a special general meeting for the purpose.

Citizens’ paid-up capital stands at Rs 2.10 billion, while that of Nepal Housing is Rs 220 million. As of third quarter of current fiscal year, total deposits and loans of the Citizens stand at Rs 25 billion and Rs 21.77 billion, respectively. The finance company has deposits of Rs 1.49 billion and loans of Rs 1.44 billion as of third quarter of the last fiscal.

According to NRB, none of the banks and financial institutions has formally so far applied for acquisition. An NRB official said they were holding discussions on how to ease the acquisition process if BFIs come up with an acquisition plan without getting the proposal endorsed by the AGM. “Almost all BFIs have acquired AGM approval for mergers, but not for acquisition,” said the official. “We will see what we can do to ease the acquisition process.”