Know which commercial bank is cost efficient & which one is costlier (based on Q3 of FY 2073/74)

- ShareSansar, June 25, 2017  on Company Analysis , Exclusive , Featured , Financial Analysis , Latest , Stock Market

Major fundamental indicators of companies like Earnings per Share (EPS), Dividend per share (DPS), Networth per share, Return on Equity (ROE) and Return on Assets (ROA) are not sufficient to find out the true financial position of the company since they do not provide transparent data on the expenses. Therefore, by analyzing major expenses of the banks (i.e. staff expenses) to its paid up capital, revenue, total operating income and total expenses are compared to know which commercial bank is more cost efficient and which one is costlier. (The study also includes staff bonus in while studying staff expenses in some headings.)

The analysis shows that all three government-owned commercial banks have more staff expenses than any other commercial banks. Agricultural Development Bank Limited , Nepal Bank Limited and Rastriya Banijya Bank Limited  have the highest staff expenses. Number of branches, number of staffs and business expansion are also some important factors responsible for increased staff expenses. On the other hand, Nepal Investment Bank as lowest staff expenses which is the main reasons behind stable growth in profit of the company though there is huge increment in the paid up capital, number of branches, number of staffs and business expansion.

  1. Staff Expenses as compared to Total Operating Income :


The average staff expense of commercial bank is 21.69% of the total operating income (excluding the staff bonuses). The above data shows staff expenses for government-owned banks are the highest (more than 35% of total operating income). Altogether, the staff expenses of 8 commercial banks are more than average staff expenses of the commercial banking industry.

  1. Staff Expenses (and Bonus) as compared to Total Operating Income:


Out of total operating income, staff expenses including bonus coverage is more than 27% on average. Staff expense of Agricultural Development Bank covers 47.25% of the total operating income of the bank whereas staff expense of Rastriya Banijya Bank covers 41.73% of its total operating income. The staff expense of Nepal Investment Bank covers only 16.02% of the total operating income, which is the lowest expense coverage among all the commercial banks.

  1. Total Expenses (excluding Interest Expenses) in terms of total revenue:


On average, commercial banks spend around 17.91% of their total revenue as expenditure. This expenditure does not include interest expenses. Under this heading as well, government banks top the list. Nepal Investment Bank and Prime Commercial Bank are the most cost-efficient commercial banks under this heading.

  1. Staff Expenses to Total Expenses


The staff expense of commercial (including bonus) as compared to the total expenses is 19.48% on average. Staff expense of ADBL covers a massive 86.39% share of its total expenses and Rastriya Banijya Bank covers 73.79% out of their total expenses. This shows that government-owned banks have soaring staff expenses due to huge number of staffs and their beneficiary facilities.

  1. Staff Expenses in terms of Capital:


As of the end of Q3 in the FY 2073/74, the staff expenses of Agricultural Development Bank Limited (ADBL) covers 37.15% of the total paid up capital and staff expenses of Nepal Bank Limited (NBL) covers 24.63% of its total paid up capital. 22 commercial banks spend less than average of total paid up capital whereas 6 banks cover more than average staff expenses when compared to their paid up capital.

Which bank is cost-efficient and which banks are costlier?

What this data shows is that the government-owned banks are costlier than all private sectors banks. Agricultural Development Bank, Nepal Bank and Rastriya Banijya Bank have a major chunk of their incomes going towards managing their expenses. In the long run, this may affect the ability of the banks to provide returns to the shareholders unless the costs are minimized.

On the other hand, commercial banks like Prime Commercial Bank, Nabil Bank, Sanima Bank and Nepal Investment Bank have consistently been able to keep their expenses down in terms of their revenue and total expenses.

– Sijan Bajracharya

– Jashma Sainju