Commercial banks compromised their profit as they set side huge amount for loan provisions! Find out commercial banks' performance this year!

Every disaster can be an opportunity. Every difficult time brings out new innovation. The coronavirus pandemic has hit every sector very hard. The banking sector is no different. However, the banking sector did not come up with a lot of innovations during the pandemic. Customer service is one segment of Nepali banking that has always been criticized. This could have been a great opportunity for banks to come up with alliances, third party collaboration, integration with startups to make banking convenient for customers. However, Nepali banks only focused on e-banking throughout the pandemic and did not make a substantial effort to broaden the banking reach to present and prospective customers.

The financial performance of banks is the reflection of how the year has gone so far. Let us find out how Nepali banks have performed this year amidst the pandemic.  

• Profit for the period:

As per the net profit of fourth quarter of FY 2076/77, Rastriya Banijya Bank (RBB)  is in the lead with a net profit of Rs 4.45 arba. Similarly, Nabil Bank Limited (NABIL) has the second-highest net profit of Rs 3.57 arba in the same quarter. In the third position, Agricultural Development Bank (ADBL) has a net profit of Rs 3.47 arba. The bank with the least net profit is Civil Bank Limited (CBL) whose net profit amounts to Rs 46 crore.

The industry average net profit of the 27 commercial banks is Rs 2.01 arba.

All commercial banks except five have reduced net profit this year compared to the same quarter of last year. Banks have set aside a significant amounts for impairment charges due to the pandemic, therefore, reflected a negative change in profit in their financial statement.

*GBIME, KBL and CZBIL this year profit figure excludes profit of merged/acquired entities till merger/acquisition date of then Janata Bank, Deva Bikas Bank and Sahayogi Bikas Bank respectively.

The total net profit for the year is Rs 54.32 arba whereas that for the last year of the same quarter was Rs 65.40 arba. The overall industry net profit has increased by only 11% i.e. 4.55 arba.

Distributable profit:

As per the distributable profit of a fourth quarter of 2076/77, Nabil Bank Limited (NABIL)   is in the lead with a profit of Rs 3.04 arba. Similarly,  Nepal Bank Limited (NBL) has the second-highest net profit of Rs 2.21 arba in the same quarter. In the third position, Global IME Bank Limited (GBIME) has a net profit of Rs 1.73 arba.

All banks except Prime Commercial Bank Limited have shown a negative change in distributable profit. Similarly, 26 out of 27 commercial banks’ distributable profit has decreased. The major reason behind the unfavorable profit figure is the postponement of loan payment that was due in Chaitra, 2076 by the commercial banks. Nepal Rastra Bank has asked commercial banks to consider the rescheduling of loan payment for borrowers.  

*GBIME and KBL this year distributable profit figure includes the distributable profit of merged/acquired entities of then Janata Bank and Deva Bikas Bank respectively till merger/acquisition date.

Impairment charge/(reversal) for a loan and other losses:

Banks have set aside a certain amount in loan loss provision and have delayed loan repayment of several borrowers. A total of Rs 17.46 arba of amount has been shown in an impairment charge for a loan and other losses. Nepal Investment Bank has the highest impairment charge for a loan and other losses with Rs 1.88 arba followed by Global IME Bank and NMB Bank with Rs 1.74 arba and Rs 1.61 arba respectively.

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 are Global IME Bank Limited (GBIME) with Rs 18.98 arba capital and Nepal Investment Bank (NIB) with Rs 14.25 arba paid-up capital.

Note: ADBL’s paid-up capital stands at Rs 14.44 arba which includes Rs 9.55 arba from ordinary shares and Rs 5.43 arba from irredeemable preference share.

• Reserve and surplus:

With an industry average of Rs 7.21 arba, nine banks stand above the average benchmark of Rs 7.21 arba in their reserve fund. The total reserve and surplus of all commercial banks is at Rs 1.94 kharba which was Rs 1.86 kharba last year in the same quarter.

In terms of reserves and surplus, Nepal Bank Limited (NBL) has maintained its lead with a reserve and surplus of Rs 17.11 arba. Nabil Bank Limited (NABIL) has maintained the second position with Rs 15.70 arba reserve and surplus fund.  Rastriya Banijya Bank (RBB) is in the third position with reserve and surplus of Rs 14.44 arba. 

• Deposits:

In average, commercial banks have collected Rs 1.24 kharba as a deposit. Only 13 banks are above the average deposit collection.

As of the fourth quarter of FY 2076/77, Rastriya Banijya Bank Limited (RBB) stands on top with total deposits worth Rs 2.30 kharba Global IME Bank Limited (GBIME) has second-highest deposits of Rs 2.12 kharba. Similarly, the bank is followed by NIC Asia Bank Limited (NICA) with the collected deposit of Rs 2.01 kharba respectively. Civil Bank Limited (CBL) has the lowest deposit collection of Rs. 57.51 arba only.

Banks had to decrease their interest rates on deposit. Coronavirus pandemic has hit a lot of businesses that have taken a loan from several banks. Commercial banks needed to decrease the interest rates on loans to lessen the impact of the pandemic on several businesses and corporate houses so, depositors had to compromise with a lower interest rate on their deposits during the pandemic.

• Loans and advances:

In today’s context, the concern of investor simply does not rest upon which bank has more loans. The nature of loan portfolio equally matters. As shown in the figure, the top position in loans and advances is occupied by Global IME Bank Limited (GBIME)  with credit disbursement worth Rs 1.89 kharba. NIC Asia Bank Limited (NICA) has a loan and advances portfolio of Rs. 1.60 kharba. Rastriya Banijaya Bank (RBB) has the loan portfolio of Rs 1.50 kharba. Similarly on the other end of the rope, stands Civil Bank Limited (CBL) with the lowest loan and advances portfolio of Rs. 51.51 arba.

The industry average loan disbursed is Rs 1.03 kharba. 13 commercial banks have the loan portfolio above Rs 1.03 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 in order 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 Rastriya Banijaya Bank (RBB) with an income of Rs 9.32 arba followed by Global IME Bank Limited (GBIME) with an income of Rs 8.19 arba and NICA Bank Limited (NICA)  with an income of Rs 7.60 arba.

The industry average net interest income stands at Rs 4.77 arba. 10 out of 27 commercial banks are above the industry average in terms of net interest income.

• Total comprehensive income:

Nabil Bank Limited (NABIL) has also the highest comprehensive income of Rs 4.59 arba.  NICA Bank Limited (NICA) has the second-highest comprehensive income of Rs 3.30 arba. Global IME Bank Limited (GBIME) has the third-highest comprehensive income of Rs 3.15 arba.

Major indicators:

• Earnings per share:

Rastra Banijaya Bank (RBB) becomes the bank to serve investors with the highest annualized EPS of Rs 49.45 per share. Nabil Bank Limited (NABIL) has the second-highest EPS of Rs 35.32 per share. Agricultural Development Bank Limited (ADBL) in the third position with annualized EPS of Rs 32.88 per share. Civil Bank Limited (CBL) stays at the bottom with an earning of Rs. 5.71 per share.

*GBIME, KBL, and CZBIL this year EPS figure excludes profit of merged/acquired entities till merger/acquisition date of then Janata Bank, Deva Bikas Bank, and Sahayogi Bikas Bank respectively.

The average EPS of 27 commercial banks stands at Rs 19.68. 9 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 267.50 which belongs to Nepal Bank Limited (NBL). Rastriya Banijya Bank (RBB) is in the second position with Rs 260.38. NABIL Bank Limited (NABIL) has the third-highest net worth per share as of Q4 of FY 2076/77 i.e. Rs 255.72. Civil Bank Limited (CBL) has the least net worth of Rs 125.85 per share.

The industry average net worth stands around Rs 171.25 per share. 9 companies have net worth more than the industry average.

• P/E ratio:

Nepal Bank Limited (NBL) has the least PE ratio of 10.99 times. It is followed by Agricultural Development Bank Limited (ADBL) with PE ratio of 11.71 times. 14 commercial banks have a P/E ratio lower than the industry average of 17.02 times. The PE ratios are not the recent ratios rather the ratios for quarter-end.

Nepalese banks have both opportunities and threats in this pandemic. A bigger question is how will banks sustain with the same number of employees and the same salary level while a key factor remittance related fees will be absent in the upcoming quarter. Similarly, Nepalese banks have an opportunity to promote services such as cash delivery, easy access to cash deposits, and create web-based secured software for internal bank related works and help the country by investing in highly productive sectors.

Finally, the table below provides a full picture with major indicators of the 27 commercial banks as of the fourth quarter of FY 2076/77: