Decline in Interest Income But Higher Loan Imbursement and Higher Net Profit (Deep Dive Into Performance of Commercial Banks in First Quarter)

Despite many speculations in the market as to how the bank's profitability will play out in the quarters to come because of the low-interest-rate environment and bad loans that might occur, banks have reported improved profitability indicators yet in this quarter.

In this article, we will be focusing mainly on the profitability and business volume indicators of commercial banks and do a comparative analysis. So, let's dive into the numbers.

• Profit for the period:

As per the net profit of the first quarter of FY 2078/79, NIC Asia Bank Limited (NICA) is in the lead with a net profit of Rs 1.18 Arba. Similarly, both Nabil Bank Limited (NABIL) and Global IME Bank Limited (GBIME) has the second-highest net profit of Rs 1.11 Arba each in the same quarter. The bank with the least net profit is Bank of Kathmandu Limited (BOKL) whose net profit amounts to Rs 25.34 crores.

The industry average net profit of the 27 commercial banks is Rs 67.10 crores.

All commercial banks except 4 have increased net profit this year compared to the same quarter of last year. 

The total net profit for the quarter is Rs 18.11 Arba whereas that for the last year of the same quarter was Rs 14.91 Arba. The overall industry net profit has increased by 21.49%.

Paid-up capital:

Paid-up capital refers to the amount of money that commercial banks have received from their shareholders through the exchange of shares in the primary market.

The bank with the highest paid-up capital is Global IME Bank Limited (GBIME) with Rs 21.63 Arba capital and NMB Bank Limited (NMB) with Rs 16.33 Arba paid-up capital. 

* ADBL capital doesn't include 5.43 Arba irredeemable noncumulative preference shares.

• Reserve and surplus:

With an industry average of Rs 9.30 Arba, 10 banks stand above the average benchmark of Rs 9.30 Arba in their reserve fund. The total reserve and surplus of all commercial banks are at Rs 2.51 Kharba.

In terms of reserves and surplus, Nepal Bank Limited (NBL) has maintained its lead with a reserve and surplus of Rs 21.53 Arba. Rastriya Banijya Bank (RBB) has maintained the second position with Rs 21.05 Arba reserve and surplus fund. Nabil Bank Limited (NABIL) is in the third position with a reserve and surplus of Rs 20.37 Arba. 

• Deposits from Customers:

On an average, commercial banks have collected Rs 1.53 kharba as a deposit. 13 banks are above the average deposit collection.

As of the first quarter of FY 2078/79, NIC Asia Bank Limited (NICA) stands on top with total deposits worth Rs 2.78 kharba, Global IME Bank (GBIME) has the second-highest deposits of Rs 2.67 kharba. Similarly, the bank is followed by Rastriya Banijya Bank Limited (RBB) with the collected deposit of Rs 2.41 kharba respectively. Nepal Bangladesh Bank Limited (NBB) has the lowest deposit collection of Rs. 77 Arba.

• Loans and advances to Customers:

The top position in loans and advances is occupied by NIC Asia Bank Limited (NICA) with credit disbursement worth Rs 2.64 kharba. Global IME Bank Limited (GBIME) has a loan and advances portfolio of Rs. 2.51 kharba. Nabil Bank Limited (NABIL) has a loan portfolio of Rs 2.07 kharba. Similarly on the other end of the rope, Standard Chartered Bank Nepal Limited (SCB) has the lowest loan and advances portfolio of Rs. 68 Arba.

The industry average loan disbursed is Rs 1.41 Kharba. 12 commercial banks have a loan portfolio above Rs 1.41 Kharba.

The loan disbursement among banks will probably see a new modality in the upcoming quarter. For instance, new loans for sectors that might be affected by the second wave of coronavirus pandemic might not be entertained by the banks. Moreover, banks will have to focus on agricultural loans to support the government’s initiative to commercialize agriculture sectors. New startups will have to rethink their business model before presenting an application for a loan in banks. Banks might support a lot of hotels, restaurants, consultancies, and public transportation by rescheduling their loan payment.

• Net interest income:

Net interest income is the net earnings of commercial banks through their core business of collecting deposits and lending loans. The bank with the highest net interest income is NIC Asia Bank Limited (NICA) with an income of Rs 2.78 Arba followed by Rastriya Banijya Bank Limited (RBB) with an income of Rs 2.35 Arba and Global IME Bank (GBIME) with an income of Rs 2.33 Arba.

The industry average net interest income stands at Rs 1.34 Arba. 11 out of 27 commercial banks are above the industry average in terms of net interest income.

• Total comprehensive income:

Nabil Bank Limited (NABIL) has the highest comprehensive income of Rs 1.45 Arba. NIC Asia Bank Limited (NICA) and Rastriya Banijya Bank Limited (RBB) has the second-highest comprehensive income of Rs 1.05 Arba. NMB Bank Limited (NMB) has the third-highest comprehensive income of Rs 1.04 Arba.

Major indicators:

• Earnings per share (Annualized):

Rastra Banijya Bank (RBB) becomes the bank to serve investors with the highest annualized EPS of Rs 41.26 per share. NIC Asia Bank Limited (NICA) has the second-highest EPS of Rs 40.84 per share. Siddhartha Bank Limited (SBL) is in the third position with annualized EPS of Rs 34.62 per share. Bank of Kathmandu Limited (BOKL) stays at the bottom with an earning of Rs. 10.50 per share.

The average EPS of 27 commercial banks stands at Rs 22.52. 12 commercial banks still provide EPS higher than that of the industry average.

• Net worth per share:

The highest net worth per share among these commercial banks is Rs 306.66 which belongs to Rastriya Banijya Bank (RBB). Nepal Bank Limited (NBL) is in the second position with Rs 270.44. Nabil Bank Limited (NABIL) has the third-highest net worth per share as of Q1 of FY 2078/79 i.e. Rs 247.31. Century Commercial Bank Limited (CCBL) has the least net worth of Rs 124.95 per share.

The industry average net worth stands around Rs 180.08 per share. 10 companies have a net worth more than the industry average.

• P/E ratio:

Mega Bank Nepal Limited (MEGA) has the least PE ratio of 13.21 times. It is followed by Siddhartha Bank Limited (SBL) with a PE ratio of 13.26 times. 17 commercial banks have a P/E ratio lower than the industry average of 21.15 times.

(The PE ratios are not the recent ratios rather the ratios for the quarter-end. Please look at the current market price to calculate the recent P/E ratio)

• Non-Performing Loan:

In today’s context, the concern of investors simply does not rest upon which bank has more loans. The nature of the loan portfolio equally matters. Sanima Bank Limited (SANIMA) reported the lowest NPL of 0.11% in terms of asset quality. This is followed by Everest Bank Limited (EBL) with an NPL of 0.13%. 

Rastriya Banijya Bank (RBB) has reported the highest NPL of 3.01%. Since RBB is not tradeable, Nepal Investment Limited (NIBL) seems to have the highest NPL of 2.27%. 

• Capital Adequacy Ratio

In terms of the Capital Adequacy ratio (CAR), Nepal Bank Limited (NBL) seems to have reported the highest CAR of 16.42%. This is followed by Standard Chartered Bank Nepal Limited (SCB) with a CAR of 16.09%.

When we look at the indicators of banks, the overall picture doesn't seem so bad after the second wave of the pandemic. Since the central bank applied the expansionary monetary policy to limit the effect of a pandemic on the whole economy, banks had to provide loans at a cheaper rate which could be one of the reasons for lower interest income. However, the banks have disbursed a huge amount of loans, indicating that the investments in the economy are increasing. Since the allocation of provision has also been declining significantly, it might be quite safe to say that the banks have been able to disburse good loans.

Finally, the table below provides a full picture with major indicators of the 27 commercial banks as of the first quarter of FY 2078/79: