Second quater analysis 2071

A Comparative Analysis of Commercial Banks

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2nd Quarterly Financial High-lights of 2070/71 fiscal year


Net Profit:Following the election of the sec-ond Consistent Assembly, a new ray of hope has arisen for a stable political environment in spite of numerous challenges. Though the country is still in political transi-tion phase with many challenges, the business environment has come to witness some improve-ment compared to the environment a few years back.

In spite of meagre improvement in business environment, the lack of harmony between the political parties, ineffective and inefficient use of the budget, increasing trade deficit and growing inflation still present obstacles for the growth of business environment.

In midst of this entire scenario, the banking industry, which is very much vital for industrial growth, has performed better in this sec-ond quarter compared to the corre-sponding quarter. The banking sec-tor was able to make an increment of 18.33 percent in its net profit compared to the corresponding quarter of the previous fiscal year.The anticipation for the improve-ment in earnings was expected for the fiscal year 2070/71 by the banking professionals, analysts and investors as there was excess liquidity in the market.

Thanks to the high gap between the interest charged on loan and advance, and deposits, the banks’ net interest income has increased compared to the corresponding period a year back. Apart from it, the increase of credit demand from the private sector , especially the industrial production sector, con-struction sector, wholesale and retail sector, transportation, com-munications, and public services sector in spite of the fragile eco-nomic condition, also backed the banking sector, in coming out with

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a such favorable growth.

The total net profit of the entire banking sector stood at NPR 9.40 billion for the second quarter of fis-cal year 2070/71 compared to NPR 7.94 billion of the corresponding fiscal year second quarter. Dur-ing the review period, Nabil Bank Limited yet again was able to stand out among the rest of the commer-cial banks as the commercial bank with the highest net profit.

(Figure in ‘000’)

Banks Net Profit (Rs.)

Market Share (In %)

Rank

NABIL 1,066,956 10.97% 1NIBL 940,392 9.67% 2RBB 717,881 7.38% 3EBL 679,119 6.98% 4SCB 633,311 6.51% 5

Figure: Net Profit of Top Five Com-mercial Banks (Figure in ‘000’)

Banks Net Profit (Rs.)

Market Share

(In %)

Rank

NABIL 1,066,956 10.97% 1

NIBL 940,392 9.67% 2EBL 679,119 6.98% 3SCB 633,311 6.51% 4HBL 544,488 5.60% 5

Figure: Net Profit of Top Five Com-mercial Banks excluding Government Banks

Compared to the corresponding second quarter of FY 2069/70, the market share of the top five commercial banks have drasti-cally decreased to 41.52 percent from 48.02 percent. Among the top five, NABIL and NIBL have come to experience more than two percent drop in their market share compared to corresponding sec-ond quarter of FY 2069/70 while the market share of the rest has dropped in between 1 to 2 percent.

The growing competition from the new commercial banks and the noticeable increase in the number of banking and finan-




cial institution have saturated the market share, which a few years back used to above 50 percent, for these top banks.

In spite of the diversification of market share, not all commercial banks have been able to tap it as evident from the fact that during the review period there were banks with negative growth also. BOK, KBL, CTBNL, JBNL and KIST showed a dismal performance with negative growth rate in profit.

(In %)

Banks Change in Net Profit(Increase)

Banks Change In Net Profit (Decrease)

NBL 570.79 BOK -17.25MBL 518.89 KBL -36.39CZBIL 134.18 CTBNL -64.83GBIME 117.56 JBNL -82.12SBL 112.12 KIST -185.74

Figure: Change in Net Profit of Top Five Commercial Banks

The oldest bank of Nepal, Nepal Bank Limited, came to make the highest net profit compared to the rest this quarter. The bank’s net profit increased by 570.79 percent, which was mainly attributed to its operational income and write back of huge chuck of bad loans. Whereas KIST Bank continued with its degrading performance as its profit decreased by 185.74 per-cent.

Compared to the prior quarterly reports, we observe that the new commercial banks have not ranked in the top position in this quarter. As the most of the new commer-cial banks’ provision for loss has increased, their growth figure has come down a notch. JBNL and CTBNL, which use to be in the top five, this quarter, have fallen under the least five owing to the foreign exchange loss and high provisions for loss. Similarly, the growth rate of CBL and CENTURY also de-creased to 57.10 percent and 1.28 percent respectively from that of

three digit growth figure. While, MEGA was the only one among the five new commercial banks to maintain a healthy growth of 98.41 percent.

As we can also see in the table above, the top net profit earning banks have not appeared there which suggest that these banks’ ca-pacity of earning profit is at satura-tion point and their growth rate is static.

Operating Profit Before Provision:Operating profit before provision is a very crucial indicator that helps to know the real strength of the banks as this index shows the real profit earned by the banks dur-ing the review period.

During the review period, total operating profit before provision of the commercial banks grew by 12.84 percent to NPR 16.71 billion as compared to the corresponding second quarter of the previous fi-nancial year, which proved to be a satisfactory growth.

Followed by the good growth in operational income, the decrease in provision and increase in write back have also lent a positive hand in this quarter’s growth.

This quarter too, NABIL Bank Limited has the highest operating profit before provision among all the banks during the review pe-riod i.e. NPR 1.90 billion, which is 16.17 percent of total operating profit before provision of banking industry. In terms of growth, Jana-ta Bank Limited along with Kist Bank limited came in the bottom of the list with negative figures of -45.71 percent and -43.96 per-cent respectively. Whereas Nepal Bangladesh Bank had the highest growth rate of 83.89 percent.

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Banks Operatng Profit Be-fore Provi-sion (Rs.)

Market Share

Rank

NABIL 1,904,933 16.17% 1NIBL 1,552,082 13.17% 2ADBL 1,106,625 9.39% 3EBL 1,102,734 9.36% 4SCB 1,042,239 8.85% 5

Figure: Operating Profit Before Provi-sion of Top Five Commercial Banks

(In %)

Banks Change in Oerating Profit (In-crease)

Banks Change in Oerat-ing Profit (De-crease)

NBB 83.89 KBL -12.16 NICA 75.85 BOK -13.50 CBL 57.51 NCC -28.93 CEN-TURY

52.85 KIST -43.96

MBL 48.06 JBNL -45.71 Figure: Change in Operating Profit Before Provision of Top Five Commer-cial Banks

Deposits:Being an intermediary, the bank-ing sector needs to act as a bridge to collect the money from one party with excess money and de-livery this money to another with shortage. While doing so, collect-ing deposit becomes the one of the primary functions of banks.

Deposit is one of the main sources of fund available for commercial banks to mobilize for different pur-poses to make profit. Higher the deposit, higher will be the chance of making profit by mobilizing de-posits in different profitable sec-tor. So every bank has their own strategy to attract deposit from the government, other institutions and general public. The deposit of com-mercial banks as of the fiscal year 2070/71 increased by 20.96% com-pared to the previous fiscal year.

Owing to the election and the timely full budget this time, the market came to witness excess li-

quidity which has forced Nepal Rastra Bank to use reserve repo tool to absorb the surplus funds in the market. Since September, NRB has issued reserve repo for 15 times. Attributed by such factor, the banks were at ease to collect deposit even at less interest rate in this second quarter compared to the corresponding quarter. This quarter growth figure was near 2 percent higher than that of the FY 2069/70 second quarter figure of 19 percent.

The overall deposit of the bank-ing sector was NPR 1095.66 billion at the end of the second quarter of fiscal year 2070/71. The banks have mobilized this large deposit at a higher interest spread in the market which has eventually led to higher returns.

This quarter too, Rastriya Bani-jaya Bank had the largest amount of deposits among all the com-mercial banks as larger portion of government deposits are attracted by this bank, whereas Nabil Bank Ltd led the race among non-gov-ernmental banks. During the re-view period, new commercial banks like Century and Civil still maintained higher deposit growth rate like in the previous quarters. While the merger of BOAN and NICA has resulted in NICA with the second highest growth figure.


Banks Total De-posits (Rs.)

Market Share

Rank

RBB 97,006,591 8.85% 1NIBL 71,990,337 6.57% 2NABIL 68,868,332 6.29% 3

ADBL 64,966,086 5.93% 4NBL 64,325,548 5.87% 5

Figure: Total Deposits of Top Five Commercial Banks

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(In %)

Banks Change in Deposit (Increase)

Banks Change in De-posit (De-crease)

CEN-TURY

75.04 PCBL 10.46

NICA 73.64 SCB 8.03

CBL 68.02 NBL 6.46NBB 56.91 SBI 4.34ADBL 44.46 KIST -7.53

Figure: Change in Deposits of Top Five Commercial Banks

Loans and Advances:Another function of commercial banks is to mobilize deposit funds to deficit party in the form of loans and advances and also to make investment in productive sectors. That will yield healthy revenue.So, accessing the economic situa-tion; they make different strategy to increase their loan portfolio.

Compared to the corresponding fiscal year’s second quarter sce-nario, where the loan and advance growth was higher than deposit, the outcome is just opposite this quarter. The loan and advance were slightly lower than deposit as it increased by 18.20 percent, to tally at NPR 815.89 billion during the review period.

Though the banking lending rate has come down a notch - thanks to the prolonged surplus funds in the financial system of late, the political turmoil mainly posed hin-drance in loan floatation. As the business fraternities are still re-luctant to take large scale of loan citing the political scenario, the banks are not able to flow the ex-cess liquidity they possess in the form of loan.

Among all commercial banks, Ag-riculture Development Bank Ltd has the largest loan and advance portfolio amounting NPR 52.69 billion whereas the merged entity NICA bank had the highest growth

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figure in loan and advance. Simi-larly, new banks like Century and Civil, still maintained the aggres-siveness in their lending. On the other hand, most of the old banks had meager growth, and even neg-ative growth, which can be seen in the table below.This shows that old banks are facing a stiff competition in the market.


Banks Total Loan & Advanc-es (Rs.)

Market Share

Rank

ADBL 52,698,805 7.05% 1NIBL 52,250,959 6.99% 2

RBB 52,177,829 6.98% 3NABIL 51,393,936 6.87% 4EBL 47,965,162 6.41% 5

Figure: Total Loans & Advances of Top Five Commercial Banks

(In %)

Banks Change in Loan and Advances (Increase)

Banks Change In Loan and Advances (Decrease)

NICA 78.46 GRAND 12.55CEN-TURY

71.13 NIBL 12.49

CBL 56.34 KBL 12.18MBL 35.76 NBL 0.61SANI-MA

32.15 KIST -9.73

Figure: Change in Loan and Advances of Top Five Commercial Banks

Investment:Rastriya Banijaya Bank Limited has the highest investment i.e. NPR 37.21billion. Basically these investments are made on risk-free assets like treasury bills, govern-ment bonds, foreign bonds, invest-ment on equity share, etc.

( In Rs )

Banks Investmemt (Rs.)RBB 37,210,960SBI 23,416,626NABIL 16,735,930NBL 15,786,192ADBL 15,506,890

Figure: Total Investment of Top Five Commercial Bank.




(In %)

Banks Change in Real Estate Loan (High)

Banks Net interest Spread (Low)

GRAND 18.43 SBI 4.00PCBL 16.22 EBL 3.75SBL 14.25 CEN-

TURY3.04

CZBIL 13.25 MEGA 2.68SRBL 12.19 ADBL 0.97

Figure: Investment in Real Estate Loan/Total Provision of Top and Least Five Commercial Banks

Cost of Fund, Net Interest Spread and Net Interest In-come:The impact of excess liquid-ity continued to be witnessed in banks’ interest rate and loan rate in this quarter, too. Both the rate has come down this quarter as com-pared to the second quarter of the previous fiscal year. However, the ratio of decrement in deposit rate is higher than that of the loan rate which is attributed to lowered cost of fund and increased net interest spread and net interest income of the banking industry.

The average cost of fund that stood around 6.09 percent in the second quarter of the previous financial year came down to 5.67 percent in the second quarter of FY 2070/71 which is near 7 percent decline. Likewise, their average net inter-est spread has also improved dur-ing the review period as it stands at 4.60 percent as compared to the rate of 4.37 percent in the second quarter of the corresponding fiscal year. Decrease in the cost of fund and rise in the net interest spread has positively affected the net profit of the banking sector which can be seen from the increment in profit.

During the review period, Net In-terest Income of banking industry

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In comparison to the prior quar-ters’ figures, the commercial banks exposure to real estate loan has decreased in this quarter. In ac-cordance to Nepal Rastra Bank directives, out of the 31 commer-cial banks in the country, none have made higher exposure in es-tate loan i.e. above 20%. However, among the existing commercial banks Grand Bank had the high-est percentage of loan exposure in the real estate i.e. 18.43 percent, followed by PCBL with 16.22 percent Agriculture Development Bank had the lowest exposure i.e. 0.97%. As the real estate busi-ness remains less attractive sector to invest, the commercial banks have diminished their exposure to the sector as average banking real estate exposure has decreased to 8.03% compared to 10% of the previous year.

But there have been significant growth in loan portfolios of com-mercial banks like margin type loan, term loan, overdraft and others. The highest growth was observed in margin type loan by 46 percent which has attributed to high turnover in the second-ary market of Nepal in the recent days. Similarly, term loan record-ed the second highest growth with 35 percent. The increase in term loan signals that more loans were given to long-term project like project financing for hydropower projects, industrial projects and other manufacturing and service sectors. This shows that now the banks are focusing on long-term business by funding these kind of projects which automatically help in the sustainable growth of the economy.




amplified by 11.36 percent com-pared to the second quarter of FY2069/70; it is mainly attributed to the low cost of fund and high net interest spread. Overall Net inter-est Income stood at NPR 21.50 bil-lion.

(In %)

Banks Cost of Fund (Low)

Banks Cost of Fund (High)

CBL 7.98 NBL 4.23CTBNL 7.57 EBL 3.89GRAND 7.24 NABIL 3.61SANIMA 6.91 RBB 3.08JBNL 6.76 SCB 1.73

Figure: Cost of Fund of Top and Least Five Commercial Banks

Looking at the cost of fund list, most of the new banks have high-er cost whereas as the old banks which are negligibly impacted by the liquidity scenario of the mar-ket have less cost of funds due to their strong position in the market. Among all the banks, Standard Chartered Bank Ltd still has the lowest cost of funds i.e. 1.73 per-cent and Civil Bank Ltd had the highest cost of fund with 7.98%.

(In %)

Banks Net interest Spread (High)

Banks Net interest Spread (Low)

SCB 8.31 NCC 3.18 ADBL 8.07 KBL 3.11 NABIL 8.00 PCBL 2.93 EBL 6.93 MBL 2.89 SRBL 6.74 JBNL 2.35

Figure: Net Interest Spread of Top Five Commercial Banks

During the review period, SCB had the highest net interest spread of 8.31 percent whereas Janata Bank Ltd had the lowest i.e. 2.35 percent. Similarly, NIC Asia Bank Limited had the highest change in net interest income of 81.42 percent whereas KIST Bank had the negative net interest income growth figure of 24.82 percent.

(In %)

Banks Changein Net Interest (Increase)

Banks Change in Net Interest (Decrease)

NICA 81.42 BOK -3.79NBB 58.21 NCC -11.57

NBL 41.06 LBL -17.94RBB 38.94 KBL -18.47SRBL 31.96 KIST -24.82

Figure: Change in Net Interest Income of Top and Least Five Commercial Banks

Loan Loss Provision, Write Back and Net Write Back:Loan loss provision is set aside by the banks to get safeguard from the possible loan default risk. The reg-ulatory body, Nepal Rastra Bank (NRB), has directed the banks to mandatorily maintain 1 percent provision of each loan and has also set directives to increase the pro-vision from 25 percent to 100 per-cent depending upon the state of the loan. In the second quarter of FY 2070/71, overall provision for possible losses decreased by 26.10 percent to stand at NPR 3.59 bil-lion compared to NPR 4.86 billion in the second quarter of the cor-responding period of FY 2069/70. The decreasing loan loss provision amount indicates that the banks were able to minimize the default-ers in this quarter.


Banks Total Provision (Rs.) (In-crease)

Banks Total Provision (Rs.) (De-crease)

ADBL 795,218 SBI 46,588

KIST 566,941 EBL 39,702

NABIL 489,489 NCC 31,675

RBB 316,517 MEGA 31,316

NIBL 287,548 SANI-MA

26,772

Figure: Total Provision of Top Five Com-mercial Banks

The recovering of the bad debt was impressive in the second quarter of FY 2071/70 as the write back in-

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creased by 25.61 percent to stand at NPR 2.60 billion only. The write back from possible losses figure is satisfactory compared to the FY 2069/70 second quarter figure of NPR 2.07 billion.

( Figure in ‘000‘ )

Banks Write back (Rs.)GBIME 71,642 PCBL 17,649 SBI 16,246 NCC 9,925 NMB (1,149)

Figure: Total Write Back from Possible Losses of Top Five Commercial Banks

In spite of the decline in provision figure and incline in write back fig-ure, the net write back of overall banking industry still stood at neg-ative figure of NPR 993.25 mil-lion. However, the decrease of net write back figure by 64.44 percent as compared to the second quarter of the previous quarter indicates that banking industry as a whole was able to minimize the default-ers’ risk.

Having said so, the negative fig-ure still suggest that write back amount is less than that of loan loss provisioned during this review period, which means that there is still room for improvement as NPR 1.80 billion on net basis was provisioned for possible losses af-ter deducting write back amount of the overall banking industry.

Non Performing Loan (NPA):

Non-performing loan generally gives us the idea of how good or bad the overall bank’s loan port-folio is. Non-performing loans are simply those loans whose install-ments are either not paid at all or whose installments are paid late.

During the review period, the non-performing loan of the commercial banks was higher than the previous fiscal year. Average non-perform-ing loan increased to 2.96 percent from 2.66 percent in the second

quarter. The increase of figure sug-gests that the riskiness of overall loan portfolio of banks is expand-ing, which will automatically de-grade the banking environment. But, the improvement in provision should also be taken into consider-ation before coming to a final con-clusion as it may directly impact the NPL of the banking sector.

Out of 31 commercial banks, only three banks’ NPA remained above 5 percent which is regarded riskier according to the NRB directives. Here on the list two of the govern-ment banks’ i.e. ADBL and NBL, NPA is more that 5 percent which suggest that still these bank loan portfolios are in risky state. Kist Bank had the highest NPA among all commercial bank with worst performance this quarter.

(In %)

Banks NPA (Most)

Banks NPA (Least)

KIST 17.54 CEN-TURY

0.91

ADBL 6.05 SCB 0.63

NBL 5.83 EBL 0.60RBB 4.92 SBI 0.32GRAND 4.29 SANI-

MA0.10

Figure: NPA of Top Five Commercial Banks

Credit Deposit (CD) Ratio:As per the NRB directives, the commercial banks can use up to 80 percent of the deposit amount in form of credit flow. But look-ing at the list, none of the banks has come to maintain or are on par with set ceiling. In addition, the average CD ratio of the banking industry has decreased to 73.73 percent in this quarter compared to 75.56 percent of the previous fiscal year’s second quarter. The average figure is still far below the optimum capacity set by NRB. Es-pecially the older banks like HBL, SCB, Nepal Bank, Rastriya Bani-jaya Bank, ADBL and NBB have

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with the growth in profit; this is mainly due to increase in capital size by commercial bank compared to the last year’s second quarter.

(In Rs)

Banks EPS (Rs.) (Most)

Banks EPS (Rs.) (Least)

EBL 75.41 CEN-TURY

7.02

NABIL 70.03 CBL 3.40SCB 62.04 CTBNL 1.46NIBL 45.36 JBNL 1.23HBL 39.46 KIST -9.94

Figure: EPS of Top Five Commercial Banks

Similarly, the annualized average return on equity was 17.46 percent compared to 19.55 percent of the previous fiscal year’s second quar-ter. Despite the growth in profit, the ROE is less than the prior fiscal year’s second quarter figure. This figure depicts that the banks has not been able to use its increased equity in better growth prospect. However, it is to be noted that the return is still way higher than the interest rate they provide. ROE is one of the best financial perfor-mance indicators of a company. Among the commercial banks, Nepal Bank Limited has highest ROE i.e. 133.49% whereas Kist Bank Limited’s annualized ROE is negative i.e. 11.88%.

(In %)

Banks ROE (Most)

Banks ROE (Least)

NBL 133.49 ADBL 5.75 EBL 28.85 CBL 3.28 NABIL 28.30 JBNL 1.18 SCB 24.11 CTBNL 0.69 SBI 23.16 KIST -11.88

Figure: ROE of Top Five Commercial Banks

The annualized average return on assets was 1.26 percent compared to 1.28 percent of previous year which shows the quality of assets holding is more or less static.

(In %)

less than 70% CD ratio which sug-gests that either these banks are not looking for expansion or they are not finding suitable investment opportunity; in both cases these banks are keeping large chunk of deposit money idle.

(In %)

Banks CD Ratio (Most)

Banks CD Ratio (Least)

MEGA 79.85 HBL 69.51CEN-TURY

79.75 ADBL 69.09

PCBL 79.19 NBB 60.50EBL 78.38 NBL 60.30SANI-MA

78.38 RBB 52.90

Figure: CD Ratio of Top Five Commer-cial Banks

Earnings per Share (EPS), Return on Equity (ROE) and Return on Assets (ROA):Earning per share and Return on Equity are generally important fi-nancial indicators for sharehold-ers as it shows the performance of company from the bird-eye view. Higher the EPS, ROE and ROA higher will be the performance of the company in terms of investors’ point of view.

Earnings per share allow us to com-pare different companies’ power to make profit per share. During the review period, the annualized av-erage EPS of commercial banks was NPR 23.65 which is 12.80 percent higher than the previous year’s second quarter. Out of 31 commercial banks only 12 banks were able to earn above industry average.During the review peri-od, Everest Bank Limited had the highest annualized EPS i .e. NPR 75.41 whereas Kist Bank Limited had the lowest annualized EPS of negative NPR 9.94.

As we can observe that, the growth of EPS is very less in comparison

Banks ROA (Most)

Banks ROA (Least)

NABIL 2.74 CEN-TURY

0.41

SCB 2.72 CBL 0.32NIBL 2.52 JBNL 0.14GBIME 2.46 CTBNL 0.11EBL 1.98 KIST -0.86

Figure: ROA of Top Five Commercial Banks

Price to Earnings Ratio, Price to Book Ratio and Net worth:The P/E ratio generally gives the idea of what the investors’ senti-ment is towards the company. It simply signifies the market’s will-ingness to pay for the company’s earnings. The higher the P/E ratio the more the market is willing to pay for the company’s earnings. The investors take the P/E ratio as a tool to measure the price of companies’ stock. If the P/E ratio stands around 10-15 then it is re-garded as correctly valued as per international standard; above it, it is taken as overpriced and under it, it is taken as underpriced. The P/E ratio also indicates the market has high hopes for this stock’s future and has bid up the price.

Drive by the election result, the secondary market came to wit-ness surge in this quarter which have attributed to high growth in P/E ratio of the banking industry. The overall average P/E ratio of the banking industry was 33 times compared to 17.28 times of pre-vious fiscal year second quarter which indicates that the price of commercial banks in the second-ary markets is highly overpriced. Out of 31 commercial banks, only four companies’ P/E ratios were above the average level. With the formation of Nepali Congress-led government, the market has hoped for betterment of stock market and the political situation of the coun-try which has motivated investors

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to pay higher price for the scrips of the commercials banks and even scrips of other sectors. (Note: the stock price of 14th January 2014 was taken to calculate the P/E ra-tio of commercial banks )

Price-to-book ratio is another ratio which is used to find undervalued securities. It is just a ratio of the market price of a company’s shares (share price) over its book value of stock. Janata Bank Limited had a highest P/B ratio of 245.84 times whereas GBIME had the lowest P/B ratio of 11.22 times.

(In Times)

Banks PE Ratio (Most)

Banks PE Ratio (Least)

JBNL 245.84 PCBL 21.08CTBNL 147.71 CZBIL 20.13KBL 36.07 NCC 19.21

LUBL 35.25 GBIME 11.22GRAND 32.21 KIST -23.54

Figure: P/E ratio of Top Five Commer-cial Banks

(In Times)

Banks P/B ratio (Most)

Banks P/B Ratio (Least)

NBL 35.93 GRAND 2.57NABIL 8.71 NCC 2.52SCB 7.58 LUBL 2.16EBL 7.39 CTBNL 2.04SBI 6.94 ADBL 1.73

Figure: P/B ratio of Top Five Commer-cial Banks

( In Rs )

Banks NET WORTHEBL 299.07ADBL 289.96SCB 257.30NABIL 254.76NICA 241.92

Figure: Net worth of Top Five Com-mercial Banks

Base Rate:Looking at the base rate of the banks, Standard Chartered Bank Nepal Limited shall be the bank to get the cheapest loan from as its base rate is the lowest among

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commercial banks whereas Civil Bank Limit¬ed may be the most expensive one, according to the base rate data of all commercial banks of Nepal.

SCB’s base rate stood at 5.15 per cent, followed by NABIL with 6.07 per cent, whereas Civil Bank’s base rate stood at 10.61 per cent. Seven banks have a base rate lower than 8 per cent, where-as ten banks are in between 8 to 9 per cent, nine banks between 9 to 10 per cent, and the rest above 10 per cent.

The base rate came into ef-fect from mid-January, 2013. The base rate alone may not be enough for a bank to provide cheap loans. But the base rate gives an idea of the minimum in-terest rate that bank could charge on lending. Banks cannot extend loans to borrow¬ers below the base rate now, as it is expected to make credit pric¬ing more transparent. The central bank has now made it mandatory for all the commercial banks to fix lending rates based on the base rate that will set the floor for credit rates and give borrowers a basic idea on how cheap they can get credit from banks. However, banks can add a minimum premium on the base rate depending on the qual-ity of collateral, and the risk of the loan and the borrower. Banks may not add any premium if a borrower has safe collateral like government bonds and if it is for priority sec¬tors identified by the government.

The base rate will ensure the sta¬bility of the monetary mar-ket in the current volatile situ-ation when the interest rates are fluctuating, and could attain the sustainabil¬ity and long-term sta-bility of the financial system.

(In %)

Banks Base Rate (Low)

Banks Base Rate (High)

SCB 6.80 Sanima 10.36RBB 6.81 Grand 10.53EBL 7.04 CIVIL 10.91NIBL 7.80 Century 11.07NABIL 7.80 ADBL 12.35

Figure: : Base Rate of Least Five and Top Five Commercial Banks

Conclusion:Even with a very challenging busi-ness environment, the commercial banks still have come out to publish an amazing growth figure. With the growth figure of 18.22%, the commercial banks have yet again made a statement that with good regulatory framework, the indus-try can make best of it even in the worst condition. Supported by the high gap between deposit and loan interest rate, from the beginning, the commercial banks were able to keep their cost to minimum and net interest spread to maximum, help-ing in a way to post a significant profit growth.

The timely full budget and NRB’s flexible monetary policy of lower-ing the CRR and SLR ratio to 5% and 12% respectively have also helped to sustain a positive growth of the banking industry. The banks currently have more funds to in-vest in sectors that yield higher re-turns. However, the lack of politi-cal harmony has kept the business communities in wait and watch situation for business expansion, which has been the main obstacles in loan floatation for banks.

Further, as the country is in the process of drafting a new constitu-tion, the business fraternities are closely watching over the feder-alism system that the country is going to opt. This is surely going to have direct impact on the ex-pansion strategies of the business houses, which again will affect



the loan expansion strategy of the banking sector.

Other worrying factors for the banking industry are the sluggish economic condi¬tion, widening trade deficit, high inflation rate, unfavorable busi¬ness environ-ment, lack of implementation and smooth transition in big projects, delay in the decision making pro-cess that are not only creating ob-stacles in businesses expansion but also narrowing the investment op-portunity.

Along with these, the presences of financial institutions are high

in numbers, triggering a very stiff competition among the BFIs. This unfavorable and crowded scenario is creating unhealthy practices and increasing defaulters in banks which are a troubling sign for the profitability of banks in the long run.

In spite of all these, the central bank has been very helpful to guide the banking sector of Nepal to cope up with heightening com-petition among the existing bank-ing institutions in the small market place like Nepal. NRB has promot-ed merger of BFIs with an aim to

create a positive impact in the long term for the banking industry.

After the successful merger of NIC Bank and Bank of Asia Nepal limited into NIC Asia Bank Ltd, Global IME and CTBNL are in the final process of merger, which can be taken as another major develop-ment. This surely will give positive message to overall banking system and energize more banks to merge and become strong entities rather than being a fish in a pond.

11


Annex

2nd Quarterly Financial Highlights of 2070/71 fiscal year(Figure in ‘000’)

Particulars 2nd Quarter 2070/71

2nd Quarter 2069/70

Difference (In figure)

% Change

Total Net Profit (In Rs.) 9,399,661.61 7,943,439.70 1,456,221.91 18.33%Total Operating Profit Before Provision (In Rs.) 16,710,192.18 14,808,396.51 1,901,795.67 12.84%Total Net Interest Income (In Rs.) 21,501,675.39 19,308,014.94 2,193,660.45 11.36%Total Deposits (In Rs.) 1,095,667,487.43 905,803,708.97 189,863,778.46 20.96%Total Loans and Advances (In Rs.) 815,892,218.85 690,291,848.29 125,600,370.56 18.20%Total Investment (In Rs.) 229,175,195.15 196,160,292.66 33,014,902.49 16.83%Total Provision (In Rs.) 3,595,551.72 4,865,154.56 -1,269,602.84 -26.10%Write back from possible losses (In Rs.) 2,602,296.79 2,071,788.58 530,508.21 25.61%Net Write back (In Rs.) -993,254.93 -2,793,365.98 1,800,111.05 -64.44%Average CD ratio 73.73% 75.56% -1.83% -2.43%Average Non Performing Loan 2.96% 2.66% 0.30% 11.10%Average Cost of Fund 5.67% 6.09% -0.42% -6.90%Average Net Interest Spread 4.60% 4.37% 0.23% 5.19%Annualized Average Earning Per Share (EPS) (In Rs.)

23.65

20.97 2.68 12.80%

Annualized Average Return on Equity (ROE) 17.46% 19.55% -2.09% -10.71%Annualized Average Return on Asset (ROA) 1.26% 1.28% -0.02% -1.70%Annualized Average Price-to-Earning (P/E ratio in Times)

33.00

17.28

15.72 90.98%

Average Price to Book Ratio (P/B ratio in Times) 4.59

2.54

2.04 80.25%

Average Net worth (In Rs.) 155.10

146.72

8.38 5.71%

12



Annexure

Paid up capital(Figure in Rs ‘000’)

ADBL 9,636,800RBB 8,588,972NIBL 4,146,708NBL 3,965,524NABIL 3,047,168GBIME 2,780,858HBL 2,760,000SBI 2,650,206PCBL 2,574,446MBL 2,478,795MEGA 2,330,000NICA 2,311,552SANIMA 2,217,600NBB 2,210,335CZBIL 2,101,840JBNL 2,060,000SCB 2,041,672SRBL 2,015,000NMB 2,000,000GRAND 2,000,000CBL 2,000,000CTBNL 2,000,000KIST 2,000,000EBL 1,921,239BOK 1,920,212SBL 1,813,554LUBL 1,729,728LBL 1,694,081KBL 1,603,800NCC 1,470,000CENTURY 1,126,000

Reserve(Figure in Rs ‘000’)

ADBL 6,271,829NABIL 4,715,876NIBL 3,817,069EBL 3,585,724HBL 3,320,963NICA 3,280,583SCB 3,211,595BOK 1,634,905NBB 1,634,199SBI 1,607,795LBL 1,164,474KBL 1,127,739GBIME 982,736NCC 971,923SBL 930,663PCBL 687,179SRBL 661,221MBL 638,099NMB 633,716LUBL 515,271CZBIL 514,346SANIMA 400,798GRAND 368,555MEGA 288,469CENTURY 178,208CTBNL 109,384JBNL 74,858CBL 72,144KIST -326,635NBL -3,572,653RBB -6,598,604

Deposit(Figure in Rs ‘000’)

RBB 97,006,591NIBL 71,990,337NABIL 68,868,332ADBL 64,966,086NBL 64,325,548EBL 59,922,282HBL 59,767,196SBI 56,445,871SCB 40,026,409NICA 38,441,092GBIME 36,975,765SBL 31,409,472MBL 31,114,276BOK 29,317,628LBL 28,190,101KBL 27,401,862PCBL 26,946,730SRBL 25,329,556CZBIL 24,185,687NBB 23,700,171NMB 22,093,652NCC 22,017,329GRAND 19,938,669SANIMA 19,889,934KIST 19,403,762CBL 18,485,816MEGA 15,091,596JBNL 14,902,031CENTURY 14,285,979LUBL 12,542,863CTBNL 10,684,864

Loan and Advances(Figure in Rs ‘000’)

ADBL 52,698,805NIBL 52,250,959RBB 52,177,829NABIL 51,393,936EBL 47,965,162HBL 43,957,460NBL 38,903,204SBI 32,325,616NICA 31,838,531GBIME 30,116,182MBL 25,270,091SCB 25,116,489BOK 24,834,223SBL 24,720,104PCBL 23,323,936LBL 21,907,110KBL 21,510,540CZBIL 20,417,313SRBL 20,129,918NCC 17,607,686NMB 17,413,134SANIMA 17,170,783NBB 15,982,227KIST 15,875,132GRAND 15,389,593CBL 15,293,024MEGA 13,723,096JBNL 12,949,560CENTURY 12,337,231LUBL 11,044,999CTBNL 10,248,346

13



Net Write Back(Figure in Rs ‘000’)

GBIME 71642PCBL 17649.07SBI 16246NCC 9925NMB -1149NBL -12683RBB -17105MBL -20418SANIMA -25812MEGA -27252NBB -32646BOK -35499EBL -39682SCB -48348SRBL -54508CENTURY -56399LUBL -60812LBL -63173JBNL -70899CTBNL -73436NIBL -74791GRAND -91145NICA -107187CZBIL -116108CBL -118149SBL -161965HBL -184946KBL -200366NABIL -244830KIST -429256ADBL -449131

Net Profit(Figure in Rs ‘000’)

NABIL 1,066,956NIBL 940,392RBB 717,881EBL 679,119SCB 633,311HBL 544,488GBIME 532,806ADBL 460,079SBI 459,045NICA 385,355PCBL 310,147NBB 271,122NBL 262,219BOK 250,474SBL 242,774CZBIL 236,461SRBL 205,832MBL 204,037NMB 203,884SANIMA 194,367MEGA 166,366NCC 159,935LBL 145,823GRAND 94,393LUBL 68,698KBL 61,775CENTURY 39,532CBL 33,983CTBNL 14,556JBNL 12,653KIST -198,801

Net Worth(Figure in Rs )

EBL 299.07ADBL 289.96SCB 257.30NABIL 254.76NICA 241.92HBL 220.32NIBL 192.05BOK 185.14NBB 173.93KBL 170.32LBL 168.74NCC 166.12SBI 160.67SBL 151.32GBIME 135.34SRBL 132.81NMB 131.09LUBL 129.79PCBL 126.69MBL 125.74CZBIL 124.47GRAND 118.43SANIMA 118.07CENTURY 115.83MEGA 112.38CTBNL 105.47JBNL 103.63CBL 103.61RBB 100.00KIST 83.23NBL 9.91

CD Ratio(Figure in %)

MEGA 79.85CENTURY 79.75PCBL 79.19EBL 78.38SANIMA 78.38NICA 77.39CTBNL 77.15JBNL 76.75SBI 76.64NABIL 76.52 GBIME 76.06 SRBL 75.84 LBL 75.81 CBL 75.78 KIST 75.64 LUBL 75.63 CZBIL 75.46 SBL 75.40 BOK 75.39 KBL 74.79 MBL 74.29 NCC 74.15 NIBL 73.78 NMB 73.64 GRAND 70.91 SCB 70.72 HBL 69.51 ADBL 69.09 NBB 60.50 NBL 60.30 RBB 52.90

14



ROE(Figure in %)

NABIL 28.30 SCB 24.11 NIBL 22.38 GBIME 22.07 EBL 28.85 PCBL 19.97 NBB 14.10 MEGA 13.53 SANIMA 14.81 NICA 13.78 HBL 18.68 CZBIL 18.08 NMB 14.46 BOK 14.50 SBI 23.16 SRBL 15.41 SBL 17.68 RBB 16.72 NCC 12.69 LBL 10.46 LUBL 7.94 KBL 9.65 GRAND 7.97 NBL 133.49 ADBL 5.75 MBL 13.09 CENTURY 6.25 CBL 3.28 JBNL 1.18 CTBNL 0.69 KIST -11.88

P/E Ratio(Figure in Times)

JBNL 245.84CTBNL 147.71KBL 36.07LUBL 35.25GRAND 32.21SBI 32.19SCB 31.45MEGA 31.18LBL 30.32ADBL 30.02SANIMA 29.98NABIL 29.49EBL 29.31NBL 26.73NBB 25.48BOK 24.69NICA 24.41HBL 22.56SBL 22.41MBL 22.35NIBL 22.27SRBL 21.78NMB 21.23PCBL 21.08CZBIL 20.13NCC 19.21GBIME 11.22KIST -23.54CBL 0.00RBB 0.00CENTURY 0.00

ROA(Figure in %)

NABIL 2.74 SCB 2.72 NIBL 2.52 GBIME 2.46 EBL 1.98 PCBL 1.96 NBB 1.85 MEGA 1.81 SANIMA 1.66 NICA 1.66 HBL 1.64 CZBIL 1.62 NMB 1.55 BOK 1.46 SBI 1.45 SRBL 1.44 SBL 1.32 RBB 1.26 NCC 1.16 LBL 0.92 LUBL 0.89 KBL 0.87 GRAND 0.80 NBL 0.70 ADBL 0.59 MBL 0.58 CENTURY 0.41 CBL 0.32 JBNL 0.14 CTBNL 0.11 KIST -0.86

15

Disclaimer:

The views expressed on this document are a general guide to the views of Share Sansar. Use or distribution of this document by any other person is prohibited. Copying any part of these materials without the written permission of Share Sansar is prohibited. Care has been taken to ensure the accuracy of content but no responsibility is accepted for any errors or omissions herein. The information and opinions in these materials have been complied or arrivedat based upon information obtained from sources believed to be reliable and in good faith. Share Sansar accepts no liability for any damages or any loss or damages of any kind arising from any use of the information herein.

BASE RATE(Figure in %)

CBL 10.61 KIST 10.56 ADBL 10.52 CTBNL 10.51 CENTURY 10.20 NCC 9.96 GRAND 9.92 JBNL 9.63 SANIMA 9.54 LUBL 9.42 LBL 9.32 PCBL 9.26 SBL 9.14 NMB 9.11 KBL 9.01 MEGA 8.98 SRBL 8.98 MBL 8.84 NICA 8.69 NBL 8.55 GBIME 8.46 SBI 8.31 BOK 8.25 NBB 8.22 CZBIL 7.88 HBL 7.87 NIBL 7.07 EBL 6.77 RBB 6.28 NABIL 6.07 SCB 5.15


Education

Second quater analysis 2071