EXPLAINER: What happens to bank accounts, loans, and stock shares following the merger?

KATHMANDU: Which bank do you have an account with? Have any of those banks merged? Do you have accounts at both of the merged banks? Or have you obtained various types of loans from that bank? If this is the case, you may be wondering what will happen to your bank account. How will the loans taken out by both banks be handled? What happens to the merged bank’s stock?

Nepal Rastra Bank (NRB) prohibits the opening of more than one savings account in the same bank. If the customer opened savings accounts in two banks prior to the merger, the customer’s savings account should be created as one after the merger. However, money can be found in a deposit account.

The bank cannot use the funds in your account without your permission. As a result, the bank publicly requests that you close one of your two savings accounts. When a depositor does not come forwards to close an account despite public requests, the bank contacts the customer and obtains permission to close the account.

Gyanendra Prasad Dhungana, Chief Executive Officer of Nabil Bank, stated that following the acquisition of Nepal Bangladesh Bank, depositors were initially contacted via public notice to close more than one savings account, and then depositors were personally contacted to close one of the two accounts for the remaining duplicate accounts. “All that is required to adjust the savings account is the customer’s permission,” he explained.

A single customer limit should be maintained in the case of loans. Rastra Bank has set a deadline for this. Nabil Bank began integrated operations after acquiring Nepal Bangladesh Bank.

Global IME Bank, which merged with Bank of Kathmandu and began integrated operations, is also planning to send out a notice urging depositors to close duplicate savings accounts. “Right now, we’re calculating the number of duplicate accounts,” said Global IME Bank Chief Executive Officer Ratnaraj Bajracharya. “Once that number is determined, we’ll ask the customer to choose one of the two accounts to close.”

Bajracharya stated that term accounts and loans are not a problem. The check book and ATM card issued by the bank to a depositor who previously had a deposit account with the Bank of Kathmandu are still valid. “However, when a new chequebook and ATM card are issued, they are issued in the name of Global IME,” he continues. The depositor is informed of this by the bank.

Kumari Bank, which merged with NCC Bank and began integrated operations, is now working to close duplicate deposit accounts. According to Rameshraj Aryal, Chief Executive Officer of Kumari Bank, one of the duplicate accounts is being closed per the customer’s request. Rashtra Bank prohibits the same person from opening more than one savings account. ‘We are gradually giving Kumari Bank account numbers, check books, and cards to customers who had savings accounts in the previous NCC Bank,’ said Aryal.

What about loans and term deposits?

If both banks had fixed deposits prior to the merger, those accounts could be used without interruption even after the merger. According to the central bank’s instructions, the bank may open multiple fixed deposit accounts and multiple loan accounts for the same person. As a result, bankers claim that there is no issue with account adjustment in the case of fixed deposits and loans.

Assume a customer has previously obtained vehicle loans from two different commercial banks. These two banks have now merged to form one. The customer now has two vehicle loans from the same bank. In this situation, what will the bank do? In the case of fixed deposits and loans, Global IME Bank Chief Executive Officer Bajracharya stated that both accounts will function seamlessly.

A single person can open multiple term accounts and make multiple loans. Therefore, there was no problem with term accounts and loans,” he added, “in the case of loans, the conditions and interest rates that were given in the previous bank remain the same. After the maturity period of the loan has passed, the terms of the new bank will be applied.

The NRB has set a limit on the amount of credit that can be extended to a person or organisation in each sector. Because of the merger, the central bank has given the borrower three years to bring the loan within the limit if it has been disbursed in excess of the limit. “According to Rashra Bank’s instructions, a bank can lend up to a maximum of 25% of its primary capital fund to the same customer, firm, company, or mutual relationship,” Rashra Bank’s instructions stated. “If a borrower’s debt exceeds that limit due to merger, a period of three years has been given to bring it within the limit.”

The Nepal Rastra Bank has agreed that the loan taken by the bank’s founder shareholder by pledging the shares must be paid back within three years of the bank’s merger. “The founder or shareholder of the founding group who owns more than one percent of the founder shares of the organisation involved in the merger or acquisition (acquisition) has been granted an exemption to bring the loan taken within the specified limit within a maximum of three years by pledging the founder shares held by him,” the mergers and acquisitions regulations stated.

NRB’s policy allows it to make loans to multiple titles of the same customer. Therefore, there is no policy barrier for banks that have merged through mergers and acquisitions to operate more than one loan account of the same person. However, suppose the customer obtained a housing loan from two banks prior to the merger, with the interest rate set by adding a premium of 3% to the base rate in one bank and 4% to the base rate in the other. Those banks have now merged.

The same customer would then have two housing loans. In such a case, what percentage of the premium will the bank add to the base rate? NRB’s policy has failed in this case. According to experts, this is why banks and financial institutions set their own interest rates.

The bank adds the same premium to loans of the same type. However, if different premiums were set in the banks prior to the merger, the higher premium will be imposed after the bank becomes a new entity,’ said the source. ‘However, if the said customer is smart and has a good relationship with the bank, the bank may set a lower premium rate for him.’ He stated that because there are no instructions from the bank, the bank makes its own decisions.

What about outdated banking apps?

Every bank and financial institution has a mobile app these days. After the integrated transaction, the app of the entity merging through mergers and acquisitions will not run. In this case, the customer should update the new provider’s app.

According to this procedure, banks that began integrating transactions in the last week of December are now notifying their customers to update the new app. Banks have arranged for the bank to automatically ‘connect’ to the new bank’s app when the customer opens the old institution’s app that the customer was previously using to make this process easier and less complicated.

Which bank has shares in its name?

If the two banks had shares prior to the merger, the shares will be issued in the new bank’s name following the merger. If the merged transaction is completed under the name of the older of the two banks, the name will be retained, and the shares of the merging bank will also be under the same name.

The number of shares held by investors may decrease based on the share swap ratio (share swap ratio) maintained during the merger of a bank and a financial institution. For example, Nepal Investment Bank and Mega Bank, which have been conducting integrated business since December 27, have merged in a 90:100 ownership ratio. This means that those who own 100 Mega Bank shares will now receive only 90 Nepal Investment Mega Bank shares as a result of the merger.