First Quarter in a glimpse: Here's how commercial banks faced and survived the pandemic

For the last 7 and a half months, every sector of the economy has faced a serious downturn due to the global pandemic. Those businesses having strong balance sheet positioning and strategy survived this downturn, however not fully. Talking about a specific industry which is a backbone of the country; banking, there was speculation in the market as to how would the banking industry recover their loans since businesses were shut down all over the country due to lockdown imposed by the government to contain the virus.

So, let's dive into their financial performance and how the industry performed in the first quarter of the new fiscal year 2077/2078.

Net Profit:

As per the quarterly report published by all the companies; Global IME Bank Limited (GBIME) has reported the highest net profit of Rs. 1.05 Arba. Global IME is followed by Nabil Bank limited (NABIL) with a net profit of Rs. 1.03 Arba. NIC Asia Bank Limited (NICA) has secured the third position with a net profit of Rs. 1.02 Arba.  Civil Bank Limited (CBL) has reported the least profit amounting to Rs. 9.66 crores.

Surprisingly, out of 27 commercial banks, 19 banks have reported a decline in their net profit in Q1 of FY 2077/2078 compared to the corresponding quarter of the previous year.

This quarter’s total profit for the industry stood at Rs. 14.51 Arba which was Rs. 15.84 Arba in the corresponding quarter of the previous year. This is a decrease of 8.40%.

Distributable Profit:

In terms of the distributable profit, Nabil Bank Limited (NABIL) leads the way with a profit of Rs. 1.20 Arba. Similarly, NMB Bank Limited (NMB) has the second-highest distributable profit amounting to Rs. 51 crores. The third position is secured by Standard Chartered Bank Nepal Limited (SCB) with a profit of Rs. 34 crores.

*Rs in arba

Out of  27 banks, 6 banks have reported a negative distributable profit in this quarter.

Impairment Charge/Reversal for a loan and other losses:

If the borrowers don’t repay the loan amount to the bank after 90 days of the expiration date of the loan, the bank set aside a certain amount of money as provisions from their revenue. In total Banks have set aside Rs. 2.85 Arba as provisions. Nepal Investment Bank Limited (NIB) tops the list in Q1 as it has set aside 62 crores worth of impairment charges which is followed by Global IME Bank Limited (GBIME) which has set aside Rs. 51 crores. Agricultural Development Bank (ADBL) has set aside Rs. 31 crores worth of impairment charges.

*Rs in Arba

Paid-up Capital:

Paid-up capital is the amount of money that the company has received from its shareholders through the exchange of shares in the primary market.

Global IME Bank Limited (GBIME) leads the way in terms of paid-up capital with a total of Rs. 18.97 Arba. Agricultural Development Bank Limited (ADBL) has the second-highest paid-up capital amounting to Rs. 14.98 Arba. Similarly, the list is followed by NMB Bank Limited (NMB) with a total of Rs. 14.44 Arba.

*Rs in Arba

(*ADBL capital includes 5.43 Arba irredeemable noncumulative preference shares)

Reserve and Surplus:

Out of 27 commercial banks, 12 banks have stood above the industry average benchmark of Rs. 7.29 Arba in their reserve fund. Combining the reserve of all the commercial banks the amount adds up to Rs. 1.96 Kharba.

In terms of the reserve funds, Nabil Bank Limited (NABIL) leads the list with a total of Rs. 16.87 Arba in this quarter. Similarly, Rastriya Banijya Bank (RBB) has the second-highest reserve fund amounting to Rs. 15.27 Arba. Agricultural Development Bank Limited (ADBL) has the third-highest reserve fund with a total amount of Rs. 13.92 Arba.

*Rs in arba

Deposit from Customers:

On average, banks have collected a total of Rs. 1.31 Kharba of deposit from customers. Only 11 banks out of 27 have reported above-average deposit collection for Q1.

As of the first quarter of FY 2077/2078, Rastriya Banijya Bank Limited (RBB) has reported the highest deposit amounting to Rs. 2.38 Kharba. The list is followed by NIC Asia Bank Limited (NICA) and Global IME Bank Limited (GBIME) with a total of Rs. 2.31 Kharba and 2.24 Kharba respectively.

*Rs in arba

Loans and Advances:

Combining all the bank's loan portfolio, till Q1 of FY 2077/2078, they have disbursed a total of Rs. 29.90 Kharba worth of loans. The averaged figures stand at Rs. 1.07 Kharba.

In terms of loan distribution, Global IME Bank Limited (GBIME) has the highest loans out of all banks which amounts to Rs. 1.95 Arba. GBIME is followed by NIC Asia Bank Limited (NICA) which has a total loan portfolio of Rs. 1.89 Kharba. Similarly, Nabil Bank Limited (NABIL) has the third-highest loan portfolio of Rs. 1.57 Kharba.

*Rs in arba

However, one has to always look into the quality of loans while analyzing, rather than just looking at the growth of loans/loans itself.

 Net Interest Income:

Net interest income is the total earnings of the bank after deducting the cost for a deposit from the income collected from the loan disbursement. The bank with the highest net interest income is Global IME Bank Limited (GBIME) with a total of Rs. 2.59 Arba. The bank is followed by NIC Asia Bank Limited (NICA) and Rastriya Banijya Bank Limited (RBB) with a total of Rs. 1.98 Arba and Rs. 1.87 Arba respectively.

Out of 27 banks, 13 banks have reported above industry average income in Q1 of this fiscal year.

*Rs in arba

Total Comprehensive Income:

In terms of comprehensive income, Siddhartha Bank Limited (SBL) leads the way with a total of Rs. 1.22 Arba. NIC Asia Bank Limited (NICA) has the second-highest income with a total of Rs. 1.20 Arba. Similarly, Nabil Bank Limited (NABIL) has a total comprehensive income of Rs. 1.16 Arba.

*Rs in arba

Key Indicators

Annualized Earnings per share (EPS)

NIC Asia Bank Limited (NICA) tops the list with the highest EPS in this quarter among all the banks with Rs. 42.03 per share. Nabil Bank Limited (NABIL) has the second-highest EPS of Rs. 41.03 per share. Rastriya Banijya Bank Limited (RBB) is in the third position with an EPS of Rs. 36.84 per share. Civil Bank Limited (CBL) reported the least EPS of Rs. 4.83 per share.

Out of 27 commercial banks, 9 banks have reported above industry average EPS in this quarter.

Net Worth per share:

The highest net worth per share is reported by Agricultural Development Bank Limited (ADBL) with Rs. 302.61 per share. This is followed by Nepal Bank Limited (NBL) with a net worth per share of Rs. 273.49. Similarly, Rastriya Banijya Bank Limited (RBB) has the third-highest net worth per share of Rs. 269.59 per share.

Out of all the banks, only 9 banks have surpassed the above-average industry net worth per share.

Price to Earnings Ratio:

P/E ratio clarifies investors what they are paying against the earnings of the company. The higher the ratio, the expensive the deal in terms of the earnings. Nepal SBI Bank Limited (SBI) has the highest P/E ratio of 46.12 times. This is followed by Everest Bank Limited (EBL) with a P/E of 45.19 times.

Out of 26 banks (Excluding RBB), 17 banks have reported below industry average P/E Ratio.

NOTE: P/E ratio doesn’t factor in the growth of the company. So, investors need to keep in mind that in some cases, a higher ratio can indicate that the company has higher growth and investors are willing to pay a premium for a stock for its future growth.

Non-performing Loan:

This indicator tells what portion of loans the company has declared as bad loans. in terms of NPL, Himalayan Bank Limited (HBL) has reported the lowest NPL of 0.00%. This is followed by Everest Bank Limited (EBL) with an NPL of 0.22%. Similarly, Nepal SBI Bank Limited (SBI) has reported the third lowest NPL of 0.25%. The highest NPL is reported by Rastriya Banijya Bank Limited (RBB) of NPL of 4.10%.

Out of all the banks, 15 banks have reported above-average Nonperforming loans in this quarter.  

Capital Adequacy Ratio:

In terms of Capital Adequacy Ratio (CAR) Agricultural Development Bank Limited (ADBL) has reported the highest CAR of 20.33%. This is followed by Standard Chartered Bank Nepal Limited (SCB) with CAR of 20.23%.

NOTE: Regulatory requirement of CAR is 11% as instructed by Nepal Rastra Bank (NRB).

Finally, the table below provides a full picture with major indicators of the 27 commercial banks as of the first quarter of FY 2077/2078. 

(*Rs in arba for Loans, Deposits, Capital, Reserve, NII, Imaparment, Net Profit)

Wrapping Up

Covid-19 pandemic affected economies all around the world. Many businesses in the international arena struggled to even keep standing during a crisis of this scale. 

Thus, looking at the worldwide scenario, the banks and financial institutions in Nepal managed to somehow keep things intact and even remain profitable. As Anil Keshari Shah, CEO of Nabil Bank eloquently says, the primary focus during this time was survival, then revival, and then only can financial institutions think about growth. 

Furthermore, with successful Covid-19 vaccine tests reported recently, it can be safely said that the economy will only recover from now on. If we look at the capital market of Nepal, NEPSE gained the highest turnover in its history and the index is at a 4-year high. Investors clearly see some light at the end of this tunnel. 

Are the bad times already behind us? Can banks and financial institutions get back on "being in business?" Only time will tell.