How did Development Banks perform in the first quarter amidst the pandemic? Which companies fared the best?

There is no doubt that the whole world has faced a serious economic downturn in a 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 are no exception in this difficult time as the economic activities were halted for an extended period of time. From the last quarter, we have seen the banks allocating the increased amounts of gross profits in provisions to make sure the bank won’t have to face serious problems if the loans are not cleared by their clients.

There are different classes of banks in Nepal. However, we will be analyzing the financial performance of “B” class financial institution; Development Bank in this article. There are currently 17 development banks 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. 29.41 crores. Kamana Sewa Bikas Bank Limited (KSBBL) comes in second place in terms of profit which amounts to Rs. 20.01 crores. The third position is secured by Mahalaxmi Bikas Bank Limited (MLBL) 15.97 crores. 6

Out of 17 banks, 3 banks reported negative net profit whereas 6 banks reported a decline in net profit.

Distributable profit:

When we observe the distributable profit, Muktinath Bikas Bank Limited (MNBBL) topped the list with Rs. 15.21 crores of profit. Kamana Sewa Bikas Bank Limited (KSBBL) has secured the second position with Rs. 7.43 crores as distributable profit. The third position is secured by Jyoti Bikas Bank Limited (JBBL) with a distributable profit of Rs. 4.35 crores.

We can see that the banks have set aside most of their profits to reinvest rather than distribute dividends which are one way to promote growth in the future.

Out of 17 Development Banks, 5 banks have reported negative distributable profit.

Paid-Up Capital:

Muktinath Bikas Bank Limited (MNBBL) has the highest paid-up capital amounting to Rs. 4.32 Arba among all the development banks. Jyoti Bikas Bank Limited (JBBL) has the second-highest paid-up capital amounting to Rs. 3.49 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. 1.91 Arba. MLBL is followed by Muktinath Bikas Bank Limited (MNBBL) with a reserve of Rs. 1.76 Arba. Lumbini Bikas Bank Limited (LBBL) has secured the third position with a reserve of 1.65 Arba.

Out of all the development banks, 10 banks have reported below industry average reserve amount.

Deposit from customers:

In this B-class institution, Muktinath Bikas Bank Limited (MNBBL) has topped the list with a total deposit of Rs. 63.84 Arba. This list is followed by Garima Bikas Bank Limited (GBBL) with a total deposit of Rs. 48.62 Arba. Jyoti Bikas Bank Limited (JBBL) has secured the third position with a total deposit of Rs. 40.41 Arba.

The overall development bank has collected a total deposit of Rs. 3.63 Kharba.

Loans and Advances:

Till Q1 2077/2078, total loans and advances of development banks stood at Rs. 2.91 Kharba. The average loan stood at Rs. 17.13 Arba.

Muktinath Bikas Bank Limited (MNBBL) has disbursed the highest amount of loans which amounts to Rs. 51.99 Arba. Following the list, Garima Bikas Bank Limited (GBBL) has disbursed a total loan of Rs. 38.76 Arba. Jyoti Bikas Bank Limited (JBBL) has disbursed a loan of Rs. 31.29 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. 59.06 crores. Mahalaxmi Bikas Bank Limited (MLBL) has the second-highest net interest income amounting to Rs. 42.57 crores. MLBL is followed by Kamana Sewa Bikas Bank Limited (KSBBL) which has reported a net interest income of Rs. 38.15 crores.

Out of 17 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. 21.98 crores. MNBBL is followed by Kamana Sewa Bikas Bank Limited (KSBBL) with a total comprehensive income of Rs. 21.76 crores. Mahalaxmi Bikas Bank Limited (MLBL) has reported the third-highest total income which amounts to Rs. 15.97 crores.

Key Ratios:

Annualized Earnings per share:

Kamana Sewa Bikas Bank Limited (KSBBL) topped the list in terms of EPS amounting to Rs. 31.51 per share. Excel Development Bank Limited (EDBL) has the second-highest EPS with Rs. 27.83 per share. Similarly, Muktinath Bikas Bank Limited (MNBBL) stands at the third position with an EPS of Rs. 27.21 per share.

Out of 17 commercial banks, 3 banks have reported negative EPS and 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. 162.28 per share. This is followed by Lumbini Bikas Bank Limited (LBBL) with a net worth per share of Rs. 160.98 per share. Likewise, Sahara Bikas Bank Limited (SHBL) reported a net worth of Rs. 155.48 per share making it the third-highest.

The average net worth per share comes at Rs. 133.46 when we factor in all the net worth per share of all the banks.

Price to Earnings per share:

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, Kamana Sewa Bikas Bank Limited (KSBBL) has the lowest P/E ratio of 7.08 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 10.86 times which could be the second-best deal. This is followed by Excel Development Bank Limited (EDBL) with a P/E of 11.07 times.

The average P/E of the industry is 22.60 times. Out of 17 banks, 8 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 the lower valuation.

Non-Performing Loan:

A 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 an NPL of 0.12%. This is followed by Miteri Development Bank Limited (MDB) with an NPL of 0.22%. Jyoti Bikas Bank Limited (JBBL) has the third-lowest NPL of 0.65%.

Out of 17 banks, 7 banks have reported below industry average NPL for this quarter.

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 Capital Adequacy ratio (CAR), Corporate Development Bank Limited (CORBL) has the highest CAR of 55.48%. This is followed by Green Development Bank Limited (GRDBL) with CAR of 37.94%.

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

Wrapping Up

Pertaining to difficult times, development banks certainly faced a lot of challenges to smoothen operations and remain profitable. Nevertheless, looking at the financials, the downfalls have been minimal than anticipated. 

The medical community worldwide is hopeful of eradicating (or at least confining) the Covid-19 pandemic, thanks to increasing success in vaccine trials. With this, the world economy may not go as bad as it already did. If Nepal follows suit, things are bright for the overall economy.