Prabhu Bank Preference Shares: NPR 5 Billion Issue Approved for Institutional Investors

13th April 2026, Kathmandu

The Prabhu Bank Preference Shares announcement has attracted significant attention in the banking and capital market sector of Nepal.

Prabhu Bank Preference Shares

Prabhu Bank has decided to issue NPR 5 billion worth of preference shares, marking a major step toward strengthening its capital base and attracting institutional investment.

This decision was finalized during the board of directors meeting held on Chaitra 27, 2082. The move reflects a strategic shift intended to enhance long-term financial stability and ensure compliance with evolving regulatory requirements in April 2026.

Overview of Prabhu Bank Preference Shares Issue

The Prabhu Bank Preference Shares issuance will be carried out through a private placement method. Unlike an IPO, this issuance targets institutional investors rather than the general public, allowing the bank to secure large-scale funding efficiently.

Key Details of the Issue:

• Total Issue Size: NPR 5 billion
• Number of Units: 5 crore units
• Face Value per Share: NPR 100
• Instrument Type: Perpetual Non-Cumulative Preference Shares
• Dividend Rate: 8.50%

This structured financial instrument is specifically designed to provide fixed returns to investors while helping the bank strengthen its Tier-1 capital, which is the core measure of a bank’s financial strength.

What Are Preference Shares?

To understand the impact of the Prabhu Bank Preference Shares, it is helpful to define how this asset class functions. Preference shares are a type of equity that combines features of both debt and common stock.

Characteristics of Preference Shares:

• They offer fixed dividend rates, similar to interest on a bond.
• Holders have priority over ordinary shareholders during dividend payments and liquidation.
• They usually do not carry voting rights in general meetings.
• They can be perpetual, meaning they have no fixed maturity or redemption date.

In this specific case, the shares are perpetual and non-cumulative. This means there is no fixed period for the bank to buy them back, and if the bank skips a dividend in a loss-making year, that dividend is not carried forward to the next year.

Dividend Structure Explained

The Prabhu Bank Preference Shares come with an 8.50% dividend rate. However, because they are non-cumulative, specific conditions apply to these payouts.

Key Payout Conditions:

• Dividends are paid only when the bank generates sufficient distributable profit.
• There is no accumulation of unpaid dividends; if a dividend is missed, it is lost for that period.
• There is no legal guarantee of a dividend during loss-making years, protecting the bank’s core capital during downturns.

This structure carefully balances the risk for institutional investors while providing the bank with a flexible capital buffer.

Private Placement Strategy

The bank has opted for a private placement method for issuing these shares. This is a common practice for large financial institutions looking to raise capital quickly without the extensive marketing and administrative costs associated with a public offering.

Benefits of Private Placement:

• Speed: Faster capital raising compared to a public issue.
• Targeted: Direct approach toward sophisticated institutional investors like insurance companies and mutual funds.
• Complexity: Lower regulatory hurdles compared to a retail public issue.
• Flexibility: Greater ease in structuring the terms of the instrument.

Approval Process and Next Steps

Although the board has approved the Prabhu Bank Preference Shares issuance, several regulatory milestones must be cleared before the funds are collected.

Required Approvals:

• Special General Meeting (SGM): Shareholders must formally vote to approve the new share class.
• Nepal Rastra Bank (NRB): The central bank must verify that the instrument meets Tier-1 capital criteria.
• Regulatory Clearances: Final filings with the Securities Board of Nepal (SEBON) or relevant authorities.

Strategic Importance for Prabhu Bank

The issuance plays a crucial role in the long-term growth strategy of the bank. By boosting its capital adequacy ratio, Prabhu Bank creates more “room” to expand its loan portfolio and invest in digital transformation.

Key Benefits for the Bank:

• Strengthens the core capital adequacy ratio (CAR).
• Supports aggressive business and branch expansion.
• Enhances overall financial resilience against market shocks.
• Attracts stable, long-term institutional investment.

Impact on the Banking Sector of Nepal

The issuance of Prabhu Bank Preference Shares reflects a broader trend where Nepali banks are exploring hybrid financial instruments. As the economy matures, traditional equity and debt are being supplemented by more complex tools.

Market Implications:

• Increased adoption of hybrid instruments across the industry.
• Growing influence of institutional investors in bank governance.
• Diversification of funding sources beyond simple deposits.
• Overall strengthening of the national financial system’s resilience.

What This Means for Investors

Since these shares are offered via private placement, retail investors cannot participate directly. However, the move is indirectly beneficial for common shareholders, as a stronger capital base often leads to higher stability and better long-term performance for the bank’s stock.

For eligible institutional investors, such as retirement funds and insurance firms, the Prabhu Bank Preference Shares offer a stable dividend potential with lower risk compared to common equity, making them ideal for long-term liability matching.

Conclusion

The Prabhu Bank Preference Shares issuance of NPR 5 billion is a landmark financial move in the banking sector of Nepal. By offering an 8.50% dividend through a private placement structure, the bank is focusing on high-level capital strengthening. As the process moves through the SGM and NRB approval stages, it will be closely monitored as a precedent for other major banks looking to diversify their capital structures in the year 2083.

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