Are you thinking to invest in Muktinath Bikas Bank Limited (MNBBL) ? Know in detail about its performance

Company Information:

Muktinath Bikas Bank Limited is a licensed “B” class National Level financial institution by NRB established on 19th Poush 2063 B.S (3rd Jan 2007 A.D). The company is headquartered in Kamaladi, Kathmandu. The bank offers its services to different segments covering, corporates, SMEs, Agriculture Retail Business, and Microfinance.

Its business model is segregated into three parts: Modern Banking, Rural Banking and has a separate business wing named Small and Micro Banking. It has been providing its services through 137 branches with 22 ATMs across the country as of 1^st September 2020.

Financial Highlights: 

The company has been able to retain a fair amount of its profits each year increasing the possibilities for the company in the future. The reserve and surplus of the company have grown at a rate of 36.27% for the last 5 years.

In terms of deposit mix, the fixed deposit had covered around 45%, savings account covered 34%, all deposit covered 19% whereas the current account covered only about 2% at the end of FY 2019. With this, the CASA ratio for the year decreased to 36% from 62% in the year 2015.

Total loans and advances till Q4, 2020 for the company stood at Rs. 47.69 Arba. The loan for the company has increased at a compounded annual growth rate of 37.23% for the last 5 years.

Muktinath Bikas Bank Limited (MNBBL) has also been operating through its different wing named “small and micro banking” where the bank has been serving 178,178 customers till Aug 16, 2020, from 116 small and micro banking offices. Out of total outstanding loans, a little over 30% of the loans are distributed among the deprived sectors from this department.

The Net Interest Income of the company which is a core business revenue has increased at a compounded annual growth rate of 26.31% for the last 5 years. With an increase in loans and advances, the core income has also shown a healthy growth in the past years.

Despite different external factors affecting the business such as excess liquidity (low-interest environment) and unhealthy competition in the industry, the company has shown a 17.22% increment in net interest income in Q4 of FY 2020.

The company has been able to retain a fair amount of income after paying its obligations which have grown at a rate of 12.46% annually for the last 5 years. However, in the fourth-quarter report of FY 2076/2077, the net profit decreased to Rs. 65 crores; a 24.07% decline compared to the corresponding quarter of the previous year. However, this is mainly because of the higher impairment created by the company against possible bad debts.

The Net Interest Margins tells us how much the company earned from loans and advances after paying the cost to the depositors. NIM is highly sensitive to the monetary policy and the effectiveness of allocating the capital from the management.

When we look at the deposit mix, it shows that the deposit is highly concentrated in fixed deposit and savings account whereas the current account has covered a very low segment in a deposit. This shows that the company has a higher cost of funds since the savings account has a higher interest rate. This decreases the CASA ratio which has decreased to 36% in FY 2019 affecting the NIM. This effect can be seen in the decrease in Net Interest Margin of the company for the last 5 years.

The decline in earnings per share can be seen because of two main factors; a decline in net profit or an increasing number of shares. In the case of MNBBL, the net profit is seen in an increasing order but the capital of the company has increased over time increasing the number of shares. This has led to distributing the profit with a higher number of shares declining per-share earnings.

The asset allocation of the company has been without a question very much efficient. The NPL of the company has stayed below 1% for the last 5 years. Despite the uncertain event in 2020, the company has been able to maintain its NPL at just 0.37% which is lower than its competitors.

Dividend History:

Risks:

• The unprecedented situation for the business created by the COVID-19 in 2020 might have an impact on the profitability for this year
• Unhealthy competition in the financial service sector
• Collection of loans depends on the underwriting skill of the management

Future Outlook:

With an ever-increasing demand for loans from the deprived sector and other emerging sectors and the company’s interest to increase its horizon to the deprived sector, there is a huge room for the company to grow. Also, with an 11% market share in deposit and credit base in the development banking industry, the company might have an edge in terms of reach.

In recent years, the company has been having a healthy and organic growth without having to merge with other banks. This has shown the company’s ability to stand out from its competitors in every profitability indicators.

However, with the increasing loans and advances, the management’s ability to maintain asset quality is a factor that should be monitored closely. Also, with an increasing deposit, maintaining the deposit mix will play a crucial role in maintaining the cost of funds which might give some space for NIM to improve hence improving the overall profitability. This will also help the company to maintain its competitive position.