See the performance of commercial banks based on the indicators often ignored by investors

The publication of commercial bank’s quarterly report has boosted up confidence among the investors. The traders in secondary market have already transacted the scrips of these commercial banks based on the indicators such as net profit, EPS and the upcoming dividend. However, with the accelerating competition among commercial banks, it has become a necessity for investors to consider other indicators too. Some of these indicators are:

1. Deposit and Lending:

The loanable fund crisis and the paid up capital requirement have contributed to the competition among commercial banks to increase the deposit and loan portfolio. In this context, the focus of commercial bank should be on enhancing new resource avenues and disbursing loan to highly productive sectors.

As of the third quarter reports of FY 2074/75, the three banks with highest deposit collection are:

a) Rastriya Banijya Bank with deposit worth Rs 153.15 arba

b) NIC Asia Bank with deposit worth Rs 133.70 arba

c) Nepal Investment Bank with deposit worth Rs 130.03 arba

As of the third quarter report of FY 2074/75, the three banks with highest loan disbursed are:

a)Nepal Investment Bank with loan worth Rs 118.86 arba

b) Rastriya Banijya Bank with loan worth Rs 112.81 arba

c) NIC Asia Bank with loan worth Rs 109.03 arba

 2. Interest expenses and net interest income

Commercial banks established with the purpose of mobilizing deposits of the clients pay cost as interest to these clients from whom deposit has been collected. This results commercial banks to incur several expenditures in terms of interest paid.

The three banks that have contributed highest in the aspect of interest expenses for third quarter as of FY 2074/75 are as follows:

a) NIC Asia Bank with an interest expense worth Rs 6.43 arba

b) Global IME Bank with an interest expenditure worth Rs 5.67 arba

c) Nepal Investment Bank with an interest expense worth Rs 5.60 arba

Along with deposit collection, these 28 commercial banks are required to be equally competitive in terms of loan disbursement. The three banks with the highest amount of loan portfolio are:

a) Rastriya Banijya Bank with net interest income worth Rs 6.20 arba

b) Nepal Bank Limited with net interest income worth Rs 4.59 arba

c) NABIL Bank Limited with net interest income worth Rs 4.51 arba

3. Capital Adequacy Ratio (CAR):

Capital Adequacy Ratio is the ratio of the capital of bank to the risk. Central bank in Nepal imposes CAR to commercial banks in order to ensure the banks can absorb a reasonable amount of loss. As of CAR Framework, 2015, commercial banks are required to maintain CAR of 11%. There are no such banks that have been unable to maintain the CAR above 11% as of third quarter 2074/75. This means banks can absorb the risk of loss if they face any kinds of unforeseen situations in the near future.

 However, three banks with highest CAR as of the recent quarterly reports are:

a) Standard Chartered Bank with CAR of 22.68%

b) Civil Bank Limited with CAR of 21.95%

c) Agriculture Development Banks with CAR of 20.76%

4. Non-performing assets (NPA):

Non-performing assets refers to the ratio of non-performing loans to total loans. This refers to those loans that are in default. If the borrower fails to make the repayment of loans for 90 days, it is considered as Non-performing assets.

As of the third quarter of FY 2074/75, the banks with least NPL are:

a) Nepal State Bank of India with NPA of 0.13% and loan portfolio of Rs 74.05 arba

b) Sanima Bank with NPA of 0.17% and loan portfolio of Rs 64.32 arba

c) Standard Chartered Bank with NPA 0.21% and loan portfolio of Rs 46.41 arba

5. Loan Loss Provision (LLP):

When commercial banks are involved in credit disbursement, there are potential loan losses involved with the loan disbursed. Thus, in order to cover up these potential loan losses, a certain amount is set aside as provision for loan loss. The unified directive of NRB sets aside 1% LLP to pass loans, 25% LLP to Sub-standard loans, 50% LLP to doubtful loans and finally 100% LLP to Loss loans.

As of third quarter of 2074/75, the banks with highest LLP re:

a) Nepal State Bank of India with LLP of 858.31%

b) SANIMA Bank with LLP of 689.32%

c) Standard Chartered Bank with LLP of 573.19%

6. Cost of fund:

Cost of fund is the rate paid by borrower of loan in return to financing service provided by bank through loan disbursement. 

The top three banks with least cost of funds are:

a) Rastriya Banijya Bank Limited with cost of fund of 2.14%

b) Nepal Bank Limited with cost of fund of 2.97%

c) Standard Chartered Bank with cost of fund of 3.80%

Banks with highest Cost of funds are:

a) Century Commercial Bank Limited with cost of fund of 8.88%

b) Civil Bank Limited with cost of fund of 8.81%

c) Kumari Bank Limited with cost of fund of 8.67%

7. CD Ratio:

CD ratio has become an important indicator in the current scenario, given the ongoing loanable fund crisis. CD ratio provides an estimate of how much a bank lends out of the deposits collected from the clients. The current CD ratio set by NRB is in the ratio of 80:20 to all commercial banks. All the 28 commercial banks have a CD ratio around 70% as of the third quarter of FY 2074/75.

8. Base Rate

Base rate is the minimum rate set by Nepal Rastra Bank below which banks are not allowed to lend its customers. The base rate is imposed in order to promote transparency in the credit market and help potential loan clients obtain loan at the lowest possible cost. The banks with lowest base rate are:

a) Rastriya Bank with base rate of 6.20%

b) Nepal Bank Limited with base rate of 7.11%

c) Standard Chartered Bank with base rate of 7.20%

NRB has opened its gateway for foreign loans to the commercial banks. Similarly, these banks are also required to open branches in all the local bodies. Do you think the commercial banks will be able to match up the performance and meet the requirement set by NRB in the next quarter? Please forward your opinions in comment section below.

Also Read:

Commercial Bank's deposit increase by Rs 9 arba, where lending increases only by 4 arba

Know which commercial banks are most successful in utilizing assets (loans) in generating net profit

See the performance of all 28 commercial banks as per their financial statement of Q3 FY 2074/75

 (Disclaimer:  Any kind of information that is provided in the article should not be used as a sole advice or recommendation by investors in order to design their investment portfolio. So, before taking steps for any kind of the information, the investors are required to base their judgment on their own financial analysis, appropriateness of the information and seek independent financial advice. The information of the company has been taken from the authorized sources such as website of the company, NEPSE, financial reports and press releases of the companies so, any changes not updated in these may differ in the analysis.)