Coronavirus pandemic impacts the profit of commercial banks: Industry net profit of commercial banks increases by only Rs 4 arba compared to last year! Loan payment rescheduling impacts the distributable profit of commercial banks!

The coronavirus pandemic around has impacted normal life throughout the globe. Since 2005, remittance became a significant factor to contribute in Nepal’s GDP. The global pandemic is likely to impact developing countries like ours the most. Moreover, our major source of foreign currency i.e. remittance will see a declining trend in the upcoming months. Private and government banks have a great role to play in this pandemic. The pandemic has exposed the inefficiency in health along with education sector throughout the country. Banks and financial institutes will have to think beyond profit seeking ideology and concentrate on saving the problematic borrowers amidst the pandemic.   

• Profit for the period:

As per the net profit of third quarter of FY 2076/77, Nabil Bank Limited (NABIL)   is in the lead with a net profit of Rs 3.16 arba. Similarly, Global IME Bank Limited (GBIME) has the second highest net profit of Rs 3.15 arba in the same quarter. In the third position, Rastriya Banijya Bank (RBB) has the net profit of Rs 3.04 arba. The bank with the least net profit is Civil Bank Limited (CBL) whose net profit amounts to Rs 36 crore.

The industry average net profit of the 27 commercial banks is Rs 1.69 arba.

In the upcoming quarter, the profit and loss statement of banks can be expected to be unconvincing to investors. Nepal Rastra Bank has urged banks to be considerate towards borrowers for loan payment amidst the coronavirus pandemic. Moreover, a number of income sources of banks such as several fees, foreign currency transfer commission, ATM fees, etc will be impacted by the pandemic. Hence, investors can expect decrease in net profit of banks in the upcoming quarter However; it completely depends on banks’ efficiency to mobilize their resources to prevent themselves from going into a net loss.

The total net profit for the year is 45.70 arba whereas that for the last year of the same quarter was 41.15 arba. The overall industry net profit has increased by only 11% i.e. 4.55 arba.

Distributable profit:

As per the distributable profit of third quarter of 2076/77, Nabil Bank Limited (NABIL)   is in the lead with a profit of Rs 2.09 arba. Similarly, Standard Chartered Bank Nepal Limited (SCB) has the second highest net profit of Rs 1.31 arba in the same quarter. In the third position, Agricultural Development Bank Limited (ADBL) has the net profit of Rs 1.25 arba.

Six banks have shown negative 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.  

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 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 5.92 arba, ten banks stand above the average benchmark of Rs 5.92 arba in their reserve fund.

In terms of reserves and surplus, Nepal Bank Limited (NBL) has maintained its lead with a reserve and surplus of Rs 14.18 arba. . Rastriya Banijya Bank (RBB) has maintained second position with Rs 13.24 arba reserve and surplus fund. Nabil Bank Limited (NABIL) is in the third position with reserve and surplus of Rs 12.77 arba. 

• Deposits:

In an average, commercial banks have collected Rs 1.13 kharba as deposit. Only 13 banks are above the average deposit collection.

As of the third quarter of FY 2076/77, Global IME Bank Limited (GBIME) stands on top with total deposits worth Rs 2.01 kharba (Growth in deposits is mainly due to merger with Janata Bank Limited). Rastriya Banijya Bank Limited (RBB) is aggressively involved in collecting deposits from existing and prospective clients with deposits of Rs 2 kharba. Similarly, the bank is followed by NIC Asia Bank Limited (NICA) with the collected deposit of Rs 1.86 kharba respectively. Civil Bank Limited (CBL) has the lowest deposit collection of Rs. 49.85 arba only.

Post the lockdown, banks are expected to decrease their interest rates on deposit. Coronavirus pandemic has hit a lot of businesses that have taken loan from several banks. Commercial banks need to decrease the interest rates on loans to lessen the impact of the pandemic on several businesses and corporate houses so, depositors will have to compromise with a lower interest rate on their deposits in the upcoming quarter.

• 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) (Growth in loans and advances is mainly due to merger with Janata Bank Limited) with credit disbursement worth Rs 1.95 kharba. NIC Asia Bank Limited (NICA) has a loan and advances portfolio of Rs. 1.61 kharba. Nabil Bank Limited (NABIL) has the loan portfolio of Rs 1.49 kharba. Similarly on the other end of the rope, stands Civil Bank Limited (CBL) with the lowest loan and advances portfolio of Rs. 51.01 arba.

The industry average loan disbursed is Rs 1.01 kharba. 11 commercial banks have the loan portfolio above Rs 1.01 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 a 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 government’s initiative to commercialize agriculture sectors. New startups will have to rethink their business model before presenting application for loan in banks. Banks might support a lot of hotels, restaurants, consultancies and public transportations 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 highest net interest income is Rastriya Banijaya Bank (RBB) with income of Rs 6.97 arba followed by Global IME Bank Limited (GBIME) with income of Rs 6 arba and NICA Bank Limited (NICA)  with income of Rs 5.52 arba.

The industry average net interest income stands at Rs 3.63 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 also highest comprehensive income of Rs 3.75 arba.  Rastriya Banijaya Bank (RBB) has the second highest comprehensive income of Rs 3.22 arba. Global IME Bank Limited (GBIME) has the third highest comprehensive income of Rs 3.15 arba.

Major indicators:

• Earnings per share (Annualized):

Rastra Banijaya Bank (RBB) becomes the bank to serve investors with highest annualized EPS of Rs 44.96 per share. Nabil Bank Limited (NABIL) has the second highest EPS of Rs 41.71 per share. Everest Bank Limited (EBL) in the third position with annualized EPS of Rs 36.86 per share. Civil Bank Limited (CBL) stays at the bottom with an earning of Rs. 6.01 per share.

The average EPS of 28 commercial banks stands at Rs 22.36. 10 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 296.63 which belongs to Nepal Bank Limited (NBL). Rastriya Banijya Bank (RBB)  is in the second position with Rs 263.51. Agricultural Development Bank Limited (ADBL) has the third highest net worth per share as of Q3 of FY 2076/77 i.e. Rs 255.72. Civil Bank Limited (CBL) has the least net worth of Rs 124.64 per share.

The industry average net worth stands around Rs 170.17 per share. 8 companies have net worth more than the industry average.

• P/E ratio:

Nepal Bank Limited (NBL) has the least PE ratio of 9.25 times. It is followed by Citizens Bank Limited (CZBIL) with PE ratio of 10.67 times. 14 commercial banks have a P/E ratio lower than the industry average of 14.01 times. The PE ratios are not the recent ratios rather the ratios for quarter end.

Nepalese banks have both opportunity and threat in this pandemic. A bigger question is how will banks sustain with the same number of employees and 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 online transactions, 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 third quarter of FY 2076/77: