Comparative Analysis of Development Banks in Q2 FY 2080/81: Profits, Capital, and Ratios Unveiled

The second-quarter reports for the ongoing fiscal year 2080/81 have been disclosed by 15 development banks, providing a comprehensive overview of their financial status. Among them, Karnali Development Bank (KRBL) stands as the sole exception, as it has yet to release its report. This analysis will particularly delve into assessing the financial performance of Development Banks of Nepal, a "B" class financial institution, based on the unaudited 2nd quarterly report of the 2080/81 fiscal year.

NEPSE currently lists a total of 16 development banks, each falling into distinct categories - National-level banks and Regional-level banks. Our focus lies specifically on scrutinizing the performance of B-class financial institutions within this framework, drawing insights from the disclosed second-quarter reports.

Net profit:

As per the quarterly report, Garima Bikas Bank Limited (GBBL) has reported the highest net profit for the period amounting to Rs. 51.26 Crores. Muktinath Bikas Bank Limited (MNBBL) comes in second place in terms of profit which amounts to Rs. 42 Crores.

The third position is secured by Shine Resunga Development Bank (SHINE) with a net profit of Rs. 37.12 Crores. In terms of growth in Net profit, Jyoti Bikas Bank (JBBL) has obtained a growth margin of 190.73% for the Q2 of FY 80/81.

Coming towards the regional level, Green Development Bank (GRDBL) has reported the highest growth in net profit of 346.81% while Excel Development Bank (EDBL) reported the highest decline in net profit of 400.69% in the Q2 of FY 80/81.

Paid-up capital:

Muktinath Bikas Bank Limited (MNBBL) has the highest paid-up capital amounting to Rs. 7.05 Arba among all the development banks. Garima Bikas Bank Limited (GBBL) has the second-highest paid-up capital amounting to Rs. 5.67 Arba.

On the other hand, Narayani Development Bank Limited (NABBC) has the lowest paid-up capital of Rs. 26.25 Crores.

Reserve and surplus:

The reserve is the amount that is retained by the company from its profits to promote future growth.

Lumbini Bikas Bank Limited (LBBL) has reported the highest reserve and surplus which amounts to Rs. 2.73 Arba. LBBL is followed by Muktinath Bikas Bank Limited (MNBBL) with a total reserve of Rs. 2.61 Arba. Garima Bikas Bank Limited (GBBL) has secured the third position with a reserve of 2.58 Arba.

Whereas, Narayani Development Bank Limited (NABBC) and Saptakoshi Development Bank (SAPDBL) have reported negative reserves and surplus.

Deposits from Customers:

In B-class institution, Muktinath Bikas Bank Limited (MNBBL) has topped the list with a total deposit of Rs. 1.12 Kharba. This list is followed by Garima Bikas Bank Limited (GBBL) with a total deposit of Rs. 78.58 Arba. 

The overall development bank has collected a total deposit of Rs. 5.65 Kharba.

Loans and Advances to Customers:

Till Q2 2080/2081, total loans and advances of development banks stood at Rs. 4.59 Kharba. The average loan stood at Rs. 30.59 Arba.

Muktinath Bikas Bank Limited (MNBBL) has disbursed the highest amount of loans which amounts to Rs. 96.30 Arba. Following the list, Garima Bikas Bank Limited (GBBL) has disbursed a total loan of Rs. 63.91 Arba. Jyoti Bikas Bank Limited (JBBL) has disbursed a loan of Rs. 50.81 Arba which puts it in third place.

Net interest income:

Net Interest Income is the core business revenue which is calculated by subtracting the cost related to the deposits from the income from loans and advances.

In terms of Net interest income, Muktinath Bikas Bank Limited (MNBBL) tops the list with a total of Rs. 2.08 Arba. Garima Bikas Bank Limited (GBBL) has the second-highest net interest income amounting to Rs. 1.80 Arba. GBBL is followed by Jyoti Bikas Bank Limited (JBBL) which has reported a net interest income of Rs. 1.12 Arba.

Out of the 15 banks, 8 banks have reported above-industry-average net interest income.

Provisions for the period (Impairment/Reversal):

Banks have set aside a certain amount in loan loss provision and have delayed the loan repayment of several borrowers. A total of Rs 3.19 Arba has been shown in an impairment charge for a loan and other losses.

In the National Level, Muktinath Bikas Bank Limited (MNBBL) has the highest impairment charge for a loan and other losses with Rs. 78.63 Crores. Jyoti Bikas Bank Limited (JBBL) also has higher provisions amounting to Rs. 54.75 Crores.

In the regional level, Miteri Development Bank Limited (MDB) and Sindhu Bikas Bank (SINDU) have reported the lowest impairment charges for this period.

Earnings per share:

Garima Bikas Bank Limited (GBBL) topped the list in terms of EPS amounting to Rs. 18.06 per share. Kamana Sewa Bikas Bank Limited (KSBBL) has the second-highest EPS with Rs. 15.78 per share.

Net worth per share:

The highest net worth per share is reported by Lumbini Bikas Bank Limited (LBBL) with Rs. 177.84 per share. This is followed by Mahalaxmi Bikas Bank Limited (MLBL) with a net worth per share of Rs. 154.04 per share. Similarly, Excel Development Bank Limited (EDBL) reported a net worth of Rs. 152.08 per share.

The average net worth per share comes at Rs. 127.45 per share when we factor in the net worth per share of 15 banks.

P/E Ratio:

The P/E ratio tells investors what they are paying for each rupee of earnings of the firm. The lower the ratio, the better the deal.

In terms of the P/E ratio, Garima Bikas Bank Limited (GBBL) has the lowest P/E ratio of 21.37 times. Meanwhile, Corporate Development Bank Limited reported the highest P/E of 110.11 times from the regional level.

One should always check the fundamentals of the company and if they find the bad fundamentals then there is a reason for the lower valuation. Also, the PE is calculated as per the quarter-end closing price of the respective companies. In today's date, the price differs in the secondary market.

Non-Performing Loans:

Non-performing loan indicates the risk of credit provided by the bank to its clients. A higher NPL indicates that the bank might be at risk.

In terms of NPL, Sindhu Bikas Bank Limited (SINDU) has the lowest ratio with an NPL of 1.05%, and on the other hand, Narayani Development Bank Limited (NABBC) has reported the highest NPL of 27.75%.

Capital Adequacy Ratio (CAR):

In terms of the Capital Adequacy ratio (CAR), Corporate Development Bank Limited (CORBL) seems to have reported the highest CAR of 44.77%, while Narayani Development Bank Limited (NABBC) has the lowest CAR of 9.46%.

CAR is the ratio of a bank's capital in relation to its risk-weighted assets and current liabilities.

Others:

Cost of Funds, CD Ratio, Base Rates, and Interest Spread:

Cost of Funds: The term cost of funds refers to how much banks and financial institutions spend in order to acquire money to lend to their customers. The lower the cost of funds, the better because it ultimately reduces the cost of banks. As per reports, Green Development Bank Limited (GRDBL) has the highest Cost of Funds at 9.32%, whereas Excel Development Bank Limited (EDBL) has the lowest cost of funds at 7.44%.

CD Ratio: The CD ratio refers to the credit-deposit ratio in banking parlance. It tells how much of the money banks have raised in the form of deposits has been deployed as loans. Similarly, Narayani Development Bank Limited (NABBC) has reported the highest CD ratio of 91.20%, whereas Miteri Development Bank Limited (MDB) has reported the lowest CD ratio of 65.86%.

Base Rate and Interest Spread:

Base rate is defined as the minimum interest rate set by the NRB below which banks are not permitted to lend to their customers. Narayani Development Bank Limited (NABBC) reports the highest base rate of 17.64%, and Excel Development Bank Limited (EDBL) has the lowest base rate of 10.22%.

Likewise, the net interest rate spread represents the variance between the interest rate disbursed to depositors and the interest accrued from loans extended to consumers by a bank. Among the majority of development banks, a consistent interest spread rate of 4.59% has been upheld, with the highest reported at 4.60%.

Finally, the table below provides a full picture of the major indicators of development banks as of the second quarter of FY 2080-2081.