Summarized in 5 Minutes: Performance of Development Banks in Second Quarter; A Look at Major Metrics

There is no doubt that the whole world has faced a serious economic downturn in global pandemic. In Nepal most of the industries have been seriously hit because of the lockdown as they were closed for more than 3 months. Financial Institutions is no exception in this difficult time as the economic activities were halted for extended period of time. Due to the monetary policy lowering the interest rate bar for financial institutions, their interest income declined leading to lower profitability. However, some financial institutions have somehow managed to improve the profitability in this time.

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 18 listed development banks in NEPSE out of which only 16 development bank data is presented here. So, let’s dissect the performance of B-class financial institution.

(NOTE: Sahara Bikas Bank Limited (SHBL) and Tinau Mission Development Bank Limited (TMDBL) have not published their Q2 report yet because they are in merger process which is why they are not mentioned in this current article)

Net Profit:

As per the quarterly report, Muktinath Bikas Bank Limited (MNBBL) has reported the highest net profit for the period amounting to Rs. 61.55 crores. Garima Bikas Bank Limited (GBBL) comes at the second place in terms of profit which amounts to Rs. 39.35 crores. Third position is secured by Kamana Sewa Bikas Bank Limited (KSBBL) 39.00 crores. 

Out of 16 banks, 1 bank reported negative net profit whereas 6 banks reported decline in net profit compared to corresponding quarter of previous year.

Distributable profit:

When we observe the distributable profit, Muktinath Bikas Bank Limited (MNBBL) topped the list with Rs. 52.55 crores of profit. Kamana Sewa Bikas Bank Limited (KSBBL) has secured the second position with Rs. 27.19 crores as distributable profit. The third position is secured by Garima Bikas Bank Limited (GBBL) with a distributable profit of Rs. 25.23 crores.

Out of 16 Development Banks, 10 banks has reported their net profit below industry average.

Paid-Up Capital:

Muktinath Bikas Bank Limited (MNBBL) has the highest paid-up capital amounting to Rs. 4.81 Arba among all the development banks. Jyoti Bikas Bank Limited (JBBL) has second highest paid-up capital amounting to Rs. 3.49 Arba.

Reserve and Surplus:

Reserve is the amount which 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. 2.10 Arba. MLBL is followed by Lumbini Bikas Bank Limited (LBBL) with a reserve of Rs. 1.86 Arba. Garima Bikas Bank Limited (GBBL) has secured third position with a reserve of 1.55 Arba.

Out of all the development banks, 9 banks have reported below industry average reserve amount.

Deposit from customers:

During the pandemic, people did not have much expenses to bear which increased their disposable income. Those income were directly, deposited into the bank which has led to increased liquidity.

In this B-class institution, Muktinath Bikas Bank Limited (MNBBL) has topped the list with a total deposit of Rs. 74.87 Arba. This list is followed by Garima Bikas Bank Limited (GBBL) with a total deposit of Rs. 53.05 Arba. Jyoti Bikas Bank Limietd (JBBL) has secured third position with a total deposit of Rs. 44.75 Arba.

The overall development bank has collected a total deposit of Rs. 3.76 Kharba. 

Loans and Advances:

Till Q2 2077/2078, total loans and advances of development banks stood at Rs. 3.00 Kharba. The average loan stood at Rs. 20.04 Arba.

Muktinath Bikas Bank Limited (MNBBL) has the disbursed the highest amount of loans which amounts to Rs. 58.27 Arba. Following the list, Garima Bikas Bank Limited (GBBL) has disbursed a total loan of Rs. 44.16 Arba. Jyoti Bikas Bank Limited (JBBL) has disbursed a loan of Rs. 34.49 Arba which puts it in the 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. 1.16 Arba. Mahalaxmi Bikas Bank Limited (MLBL) has the second highest net interest income amounting to Rs. 84.84 crores. MLBL is followed by Garima Bikas Bank Limited (KSBBL) which has reported a net interest income of Rs. 84.26 crores.

Out of 16 banks, 8 banks have reported above industry average net interest income. 

Total Comprehensive Income:

In terms of total comprehensive income, Muktinath Bikas Bank Limited (MNBBL) reported the highest total comprehensive income which amounts to Rs. 64.28 crores. MNBBL is followed by Garima Bikas Bank Limited (GBBL) with a total comprehensive income of Rs. 44.88 crores. Kamana Sewa Bikas Bank Limited (KSBBL) has reported the third highest total income which amounts to Rs. 39.42 crores. 

Key Ratios:

Annualized Earnings per share:

Kamana Sewa Bikas Bank Limited (KSBBL) topped he list in terms of EPS amounting to Rs. 30.71 per share. Muktinath Bikas Bank Limited (MNBBL) has the second highest EPS with Rs. 25.59 per share. Similarly, Excel Development Bank Limited (EDBL) stands at the third position with an EPS of Rs. 24.49 per share.

Out of 16 commercial bank, 9 banks have reported above industry average EPS.

Net worth per share:

The highest net worth per share is reported by Mahalaxmi Bikas Bank Limited (MLBL) with Rs. 168.37 per share. This is followed by Lumbini Bikas Bank Limited (LBBL) with net worth per share of Rs. 164.01 per share. Likewise, Corporate Development Bank Limited (CORBL) reported net worth of Rs. 153.87 per share making it the third highest.

The average net worth per share comes at Rs. 135.20 per share when we factor in all the net worth per share of al the banks.

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 P/E ratio, Kamana Sewa Bikas Bank Limited (KSBBL) has the lowest P/E ratio of 7.98 times. This means that you are paying Rs. 7 for every Rupee of earning of Kamana Sewa Bikas Bank Limited. Mahalaxmi Bikas Bank Limited (MLBL) reported a P/E of 12.13 times which could be the second-best deal. This is followed by Jyoti Bikas Bank Limited (JBBL) with a P/E of 12.81 times.

The average P/E of the industry is 28.40 times. Out of 16 banks, 12 banks have a below industry average P/E which could possibly indicate that those banks are relatively cheaper than their competitors.  

However, one should always check the fundamentals of the company and if they found the bad fundamentals then there is a reason for 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 Bikas Bank Limited (MNBBL) has the lowest ratio with NPL of 0.30%. This is followed by Miteri Development Bank Limited (MDB) with NPL of 0.48%. Jyoti Bikas Bank Limited (JBBL) has the third lowest NPL of 0.68%.

Out of 16 banks, 15 banks have reported below industry average NPL for this quarter. However, this is mainly because NABBC alone has massive NPL which led to increase in average number. One should calculate industry average in terms of thier own analysis model. 

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

Capital Adequacy Ratio:

In terms of Capital Adequacy ratio (CAR), Corporate Development Bank Limited (CORBL) has the highest CAR of 84.45%. This is followed by Green Development Bank Limited (GRDBL) with CAR of 36.51%.

Finally, the table below shows provides a full picture with major indicators of 17 development banks as of the fist quarter of FY 2077-2078.