Nepal’s Securities Board has approved a new type of bank share for the first time. On Mangsir 5, the board allowed Nabil Bank to issue Perpetual Non-Cumulative Preference Shares (PNCPS).
Nabil Bank can now issue 5 crore shares, each priced at Rs 100, totaling Rs 5 billion. The bank will offer an 8% dividend on these shares, which will be sold through a circular method. NIC Asia Capital will manage the sale.
What does non-cumulative mean?
“Non-cumulative” means that the bank will pay dividends only in profitable years. If the bank makes a loss or does not have distributable profits, no dividends will be paid for that year. This makes these shares different from regular cumulative preference shares where missed dividends are carried forward.
According to the Nepal Rastra Bank, these shares might be converted into the founder group’s ordinary shares in the future. Dividends will be paid only in profitable years, and not in loss-making years or from accumulated profits. This is why they are called non-cumulative preference shares.
Globally, similar shares are used to strengthen banks’ capital structures, especially after the 2007–2009 financial crisis. Nepal is issuing them for the first time. The board has amended the Securities Issuance and Distribution Directive, 2074, allowing only banks and financial institutions approved by the central bank to issue this type of instrument.
These shares will also be listed on the secondary market, so institutional investors can trade them later. Shareholder rights will be defined in the company’s prospectus. In case of liquidation, these shares are paid after ordinary shares but before deposits and supplementary capital.
This instrument can strengthen banks during pressure times, reduce financial risk, and help maintain stability in the financial system. It also provides investors with a new investment opportunity. However, since the shares are non-cumulative and perpetual, institutional investors should carefully read the prospectus and Risk Disclosure Statement and ensure they can handle the associated risks before investing.
