Interest Amount of Rs. 13.33 Arba Is Yet To Be Received by Commercial Banks; A Second Quarter Comprehensive Analysis of Major Indicators for all 22 Commercial Banks

All 22 commercial banks have unveiled their second quarter report of the current fiscal year 2079/80.

Despite many speculations in the market as to how the bank's profitability will play out in the quarters to come because of the Lower Credit Expansion, Liquidity Shortage, Higher Treasury Bill rates, and inflation rates, Banks have reported slight improved profitability indicators yet in this quarter. 

Keeping all the speculation aside, in this article, we will be focusing mainly on the profitability and business volume indicators of commercial banks as of Q2 of Fiscal year 2079/80 and doing a comparative analysis. So, let's dive into the numbers.

Note: Out of the previous 26 commercial banks in Nepal, Prabhu Bank acquired Century Commercial Bank at a swap ratio of 1:1. In the same vein, Nepal Investment Bank and Mega Bank started joint integrated transaction at a Swap Ratio -100:90, Global IME and Bank of Kathmandu also merged at a swap ratio of 1:1 and, Kumari Bank and NCC Bank started joint transaction in the name of 'Kumari Bank Limited'.

Upon the joint transaction of above mentioned all commercial banks, the total number of A class banks is reduce to 22. And the listed number of commercial banks would be 21. (RBBL is not listed on NEPSE)

On the other hand, Himalayan Bank signed MoU to acquire Civil Bank at a swap ratio of 100:80.28 and Laxmi Bank and Sunrise Bank also signed MoU for merger recently. 

Net profit:

As per the net profit of the second quarter of FY 2079/80, Nabil Bank Limited (NABIL) is in the lead with a net profit of Rs.3.42 Arba with a growth of 56.78% as compared to the same quarter of last fiscal year. Similarly, NIC Asia Bank Limited (NICA) also reported net profit of Rs. 3.27 Arba with a growth of 36.39%, hence it stands in the second position to accumulate higher profits for the second quarter. In the third position, Global IME Bank Limited (GBIME) has a net profit of Rs 2.78 Arba. Also, Everest Bank Limited (EBL) reported highest growth in net profit by 89.05% in this quarter. 

Out of 22 commercial banks, the net profit of the newly merged banks - GBIME, NIMB and KBL is not compared with the second quarter of the relevant quarter. Since, Prabhu Bank conducted an amalgamation in the nature of acquisition with Century Commercial Bank, the net profit of PRVU is taken into consideration for this analysis. 

On the other hand, Agricultural Development Bank Limited (ADBL) reported net loss of Rs. 13 Crores. In the same vein, Citizens Bank International Limited (CZBIL) net profit declined by 32.15 in the second quarter of F.Y 2079/80.

Profit for the period:

Transfer to Regulatory Reserve:

All scheduled commercial banks are required to transfer the margin specified by Nepal Rastra Bank to the disclosed profits (before making adjustments/provisions for dividends) to Reserve Fund in accordance with instructions from NRB. The commercial banks have transferred a total of Rs. 13.33 Arba to regulatory reserves as of the second quarter of FY 79/80. In simple language, it indicates that the interest installment due date for loans and advances has accrued but that the banks have not yet received the interest amount.

Likewise, if there is a delay in the payment of interest income then the banks have to set the specified amount to the regulatory reserves. Also, the amount transferred to the regulatory reserves cannot be distributed as a dividends to shareholders of the respective bank. As per the report, NIC Asia Bank has the highest amount towards the transfer to regulatory reserves amounting to Rs. 1.53 Arba. The bank did not propose dividends to the shareholders for the Fiscal Year 2078/79.

On the other hand, transfer from regulatory reserve means the accrued interest which was not received in the previous quarter has been received in this quarter.

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 the highest paid-up capital is Global IME Bank Limited (GBIME) with Rs 35.77 Arba capital,  Nepal Investment Mega Bank Limited (NIMB) with Rs. 34.13 Arba and Nabil Bank Limited (NABIL) with Rs. 27.06 Arba paid-up capital. 

Note: ADBL Capital includes Rs 5.43 Arba irredeemable non-cumulative preference shares.

Reserve and surplus:

With an industry average of Rs 11.69 Arba, 9 banks stand above the average benchmark of Rs 11.69 Arba in their reserve fund. The total reserve and surplus of all commercial banks are at Rs 2.57 Kharba.

In terms of reserves and surplus, Nabil Bank Limited (NABIL) has maintained its lead with a reserve and surplus of Rs 26.82 Arba, Nepal Investment Mega Bank Limited (NIMB) has maintained the second position with Rs 22.15 Arba reserve and surplus fund and  Nepal Bank Limited (NBL) is in the third position with a reserve and surplus of Rs 20.28 Arba

Deposits from Customers:

On an average, commercial banks have collected Rs 2.11 Kharba as a deposit. Only 8 banks are above the average deposit collection.

As of the second quarter of FY 2079/80,  Global IME Bank Limited (GBIME) stands on top with total deposits worth Rs 4.03 Kharba, Nepal Investment Mega Bank (NIMB) has the second-highest deposits of Rs 3.55 Kharba. Similarly, the bank is followed by Nabil Bank Limited (NABIL) with the collected deposit of Rs 3.47 kharba respectively. Civil Bank Nepal Limited (CBL) has the lowest deposit collection of Rs. 94.71 Arba.

Loans and advances to Customers:

The top position in loans and advances is occupied by Global IME Bank Limited (GBIME)  with credit disbursement worth Rs 3.63 kharba. Nepal Investment Mega Bank (NIMB) has a loan and advances portfolio of Rs. 3.17 kharba. Nabil Bank Limited (NABIL) has a loan portfolio of Rs 3.15 kharba. Similarly on the other end of the rope, Standard Chartered Bank Nepal Limited (SCB) has the lowest loan and advances portfolio of Rs. 81.04 Arba.

The industry average loan disbursed is Rs 1.86 Kharba. 7 commercial banks have a loan portfolio above Rs 1.86 Kharba.

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 the highest net interest income is Nabil Bank Limited (NABIL) with an income of Rs 7.838 Arba followed by Global IME Bank Limited (GBIME) with an income of Rs 6.54 Arba and  NIC Asia Bank Limited (NICA) with an income of Rs 6.30 Arba.

Provisions for the period (Impairment/Reversal):

Banks have set aside a certain amount in loan loss provision and have delayed the loan repayment of several borrowers. A total of Rs 16.37 Arba of amount has been shown in an impairment charge for a loan and other losses. Agricultural Development Bank Limited (ADBL) has the highest impairment charge for a loan and other losses with Rs 2.18 Arba followed by Nabil Bank Limited (NABIL) with a total of Rs. 1.89 Arba. In the same vein, NIC Asia Bank Limited (NICA) has the reversal of impairment charge for a loan and other losses of Rs. 48 Crores.

* - Reversal and + Provision

Major indicators:

Earnings per share:

NIC Asia Bank Limited (NICA) becomes the bank to serve investors with the highest annualized EPS of Rs 56.61 per share. Standard Chartered Bank Nepal Limited (SCB) has the second-highest EPS of Rs 37.19 per share. Rastriya Banijya Bank Limited (RBBL) is in the third position with annualized EPS of Rs 34.68 per share. Agricultural Development Bank Limited (ADBL) stays at the bottom with a negative earning of Rs. 4.43 per share.

The average EPS of 22 commercial banks stands at Rs 19.75. Only 9 commercial banks 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 251.63 which belongs to Agricultural Development Bank Limited (ADBL). NIC Asia Bank Limited (NICA) is in the second position with Rs 243.97. Nepal Bank Limited (NBL) has the third-highest net worth per share as of Q2 of FY 2079/80 i.e. Rs 238.02. Civil Bank Limited (CBL) has the least net worth of Rs 135.96 per share.

The industry average net worth stands around Rs 175.50 per share. 8 companies have a net worth more than the industry average.

P/E Ratio:

Laxmi Bank Limited (LBL)  has the least PE ratio of 11.02 times. It is followed by NMB Bank Limited (NMB) with a PE ratio of 11.88 times. 

(The PE ratios are not the recent ratios but rather the ratios for quarter-end. Please look at the current market price to calculate the recent P/E ratio)

Capital Adequacy Ratio (CAR):

In terms of Capital Adequacy ratio (CAR), Civil Bank Nepal Limited (CBL) seems to have reported the highest CAR of 16.08%. This is followed by Standard Chartered Bank Nepal Limited (SCB)  with a CAR of 14.91%. CAR is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities.

Non-Performing Loan:

In today’s context, the concern of investors simply does not rest upon which bank has more loans. The nature of the loan portfolio equally matters. Nepal SBI Bank Limited (SBI) reported the lowest NPL of 0.47% in terms of asset quality. SBI is followed by Everest Bank Limited (EBL) with an NPL of 0.55%. 

Agricultural Development Bank Limited (ADBL) has reported the highest NPL of 4.52%, followed by Himalayan Bank Limited (HBL) with an NPL of 3.77%

Others:

Cost of Funds: The term cost of funds refers to how much banks and financial institutions spend in order to acquire money to lend to their customers. The lower the cost of funds, the better because it ultimately reduces the cost of banks. As per reports, Civil Bank Limited (CBL) has the highest Cost of Funds of 9.49%, whereas Rastriya Banijya Bank Limited (RBBL) the lowest cost of funds of 7.05%.

CD Ratio: The CD ratio refers to the credit-deposit ratio in banking parlance. It tells how much of the money banks have raised in the form of deposits has been deployed as loans. Likewise, Kumari Bank Limited (KBL) has reported highest CD ratio of 89.58%, whereas Standard Chartered Bank Nepal Limited (SCB) has the lowest CD ratio of 78.6%.

Base Rate and Interest Spread:

Base rate is defined as the minimum interest rate set by the NRB below which Commercial banks are not permitted to lend to their customers. Kumari Bank Limited (KBL) reports highest base rate of 11.73%, and Standard Chartered Bank Nepal Limited (SCB) has lowest base rate of 9.67%.

Similarly, the net interest rate spread is the difference between the interest rate a bank pays to depositors and the interest rate it receives from loans to consumers. Here, Nabil Bank Limited (NABIL) has the highest interest spread of 4.48%, whereas Agricultural Development Bank Limited (ADBL)) has the lowest interest spread of 3.74% for the second quarter of FY 2079/80.

Also, As per NRB instructions, commercial banks need to maintain spread rate to 4 from existing 4.4%  by the end of the current FY 2079/80.

Cost of Funds, CD Ratio, Base Rates and Interest Spread: 

Finally, the table below shows provides a full picture of major indicators of 22 commercial banks as of the second quarter of FY 2079-2080.