Banks and Financial Institutions (BFIs) can now issue perpetual non-cumulative preference shares in order to raise additional capital.
By amending a unified directive on Thursday, Nepal Rastra Bank (NRB) has come up with the new rule. The BFIs however need to meet 12 different conditions in order to use the facility.
According to the NRB, the share-issuing BFIs need to fix the payment period in advance, while only the institutional buyers can purchase this type of shares. The dividend to the shareholders can be distributed only out of the profits earned in the current year, but not from the reserve profit account or any other funds.
The commercial banks must maintain 8.5 percent of their primary capital to issue such loans. At a time when many banks have been struggling to maintain capital adequacy as directed by the NRB, the new provision is expected to help them increase their capital base.
