How Did Development Bank Perform Amid Liquidity Crunch In Second Quarter? A Detailed Study Of The Major Indicators

It is without a doubt that Financial Institutions are facing a difficult time with the liquidity to provide extended loans. Due to the monetary policy lowering the interest rate bar for financial institutions, their core business revenue might be hampered. We observed the effect of lowering the interest rate bar in the previous quarter. However, we have been seen most of the financial institutions have been able to cope with the current liquidity issues with various strategies in their arsenal.

There are different classes of banks in Nepal. However, we will be analyzing the financial performance of “B” class financial institution; Development Banks in this article. There are currently 16 listed development banks in NEPSE.

Out of 16 development banks, 8 banks belong to National level banks and the rest of the 8 banks belong to the regional level bank. However, Saptakoshi Development Bank Limited (SAPDBL) has not reported its Q2 report to date.

So, let’s dissect the performance of B-class financial institutions.

Net Profit:

As per the quarterly report, Muktinath Bikas Bank Limited (MNBBL) has reported the highest net profit for the period amounting to Rs. 60.24 crores. Garima Bikas Bank Limited (GBBL) comes in second place in terms of profit which amounts to Rs. 49.3 crores. The third position is secured by Mahalaxmi Bikas Bank Limited (MLBL) with a net profit of Rs. 45.63 crores. 

Out of 15 banks, 2 banks reported negative net profit whereas 8 banks reported a decline in net profit compared to the corresponding quarter of the previous year.

Paid-Up Capital:

Muktinath Bikas Bank Limited (MNBBL) has the highest paid-up capital amounting to Rs. 5.66 Arba among all the development banks. Jyoti Bikas Bank Limited (JBBL) has the second-highest paid-up capital amounting to Rs. 4.27 Arba.

Reserve and Surplus:

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

Mahalaxmi Bikas Bank Limited (MLBL) has reported the highest reserve and surplus which amounts to Rs. 2.62 Arba. MLBL is followed by Lumbini Bikas Bank Limited (LBBL) with a reserve of Rs. 2.25 Arba. Garima Bank Limited (GBBL) has secured the third position with a reserve of 2.13 Arba.

*Reserve and Surplus include Share Premium, Retained Earnings, and Reserve.

Deposit from customers:

In B-class institution, Muktinath Bikas Bank Limited (MNBBL) has topped the list with a total deposit of Rs. 99.35 Arba. This list is followed by Garima Bikas Bank Limited (GBBL) with a total deposit of Rs. 65.75 Arba. Jyoti Bikas Bank Limited (JBBL) has secured the third position with a total deposit of Rs. 48.25 Arba.

The overall development bank has collected a total deposit of Rs. 4.40 Kharba. 

Loans and Advances:

Till Q2 2078/2079, total loans and advances of development banks stood at Rs. 4.00 Kharba.

Muktinath Bikas Bank Limited (MNBBL) has disbursed the highest amount of loans which amounts to Rs. 87.05 Arba. Following the list, Garima Bikas Bank Limited (GBBL) has disbursed a total loan of Rs. 58.71 Arba. Jyoti Bikas Bank Limited (JBBL) has disbursed a loan of Rs. 47.74 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. 1.53 Arba. Garima Bikas Bank Limited (GBBL) has the second-highest net interest income amounting to Rs. 1.17 Arba. GBBL is followed by Jyoti Bikas Bank Limited (JBBL) which has reported a net interest income of Rs. 91.85 crores.

Total Comprehensive Income:

In terms of total comprehensive income, Muktinath Bikas Bank Limited (MNBBL) reported the highest total comprehensive income which amounts to Rs. 59.27 crores. MNBBL is followed by Mahalaxmi Bikas Bank Limited (MLBL) with a total comprehensive income of Rs. 45.63 crores. Garima Bikas Bank Limited (GBBL) has reported the third-highest total income which amounts to Rs. 43.61 crores. 

Key Ratios:

Earnings per share:

Mahalaxmi Bikas Bank Limited (MLBL) topped the list in terms of annualized EPS amounting to Rs. 27.30 per share. Garima Bikas Bank Limited (MLBL) has the second-highest annualized EPS with Rs. 24.97 per share. Similarly, Kamana Sewa Bikas  Bank Limited (KSBBL) stands at the third position with an EPS of Rs. 21.87 per share.

Net worth per share:

The highest net worth per share is reported by Mahalaxmi Bikas Bank Limited (MLBL) with Rs. 178.4 per share. This is followed by Lumbini Bikas Bank Limited (LBBL) with a net worth per share of Rs. 168.68 per share. Likewise, Garima Bank Limited (GBBL) reported a net worth of Rs. 154.14 per share making it the third-highest.

Price to Earnings per share (Quarter End):

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, Mahalaxmi Bikas Bank Limited (MLBL) has the lowest P/E ratio of 19.59 times. This means that you are paying Rs. 19.59 for every Rupee of earning of Mahalaxmi Bikas Bank Limited. Shangrila Development Bank Limited (SADBL) reported a P/E of 23.98 times which could be the second-best deal. This is followed by Garima Bikas Bank Limited (GBBL) with a P/E of 24.13 times.

However, one should always check the fundamentals of the company and if they found the bad fundamentals then there is a reason for the lower valuation.

(Investors are requested to factor in the current market price while calculating the PE ratio)

Non-Performing Loan:

Non-performing loan indicates the risk of credit the bank provided to their clients. Higher NPL indicates that the bank might be at risk.

In terms of NPL, Muktinath Development Bank Limited (MNBBL) has the lowest ratio with an NPL of 0.26%. This is followed by Garima Bikas Bank Limited (GBBL) with an NPL of 0.96%. 

Out of 8 banks National Level Bank, 4 banks have NPL lower than average. And out of 7 Regional Level Bank, 4 banks reported NPL lower than the industry average.

One should calculate the industry average in terms of their own analysis model. 

NOTE: Investors should always look at the trend of NPL rather than just a one-quarter figure. Increasing NPL suggests that the banks are losing focus on loan underwriting.

Capital Adequacy Ratio:

In terms of the Capital Adequacy ratio (CAR), Corporate Development Bank Limited (CORBL) has the highest CAR of 103.89%. This is followed by Narayani Development Bank Limited (NABBC) with a CAR of 30.90%.

Finally, the table below shows provides a full picture of major indicators of 15 development banks as of the second quarter of FY 2078-2079.