Sanima Bank Ltd.: A Fourteen - Year Financial Performance Review (Q4 2069/70 - Q4 2082/83)

Background of Sanima Bank Limited (SANIMA)

Sanima Bank Ltd. (SANIMA) is one of the prominent commercial banks in Nepal. It was established in 2004 A.D. Sanima Bank is promoted by a group of prominent and dynamic Non-Resident Nepalese (NRNs) businesspersons. The bank initially commenced operations in 2004 as a National Level Development Bank. Since February 2012, Sanima Bank has been functioning as an "A" Class Commercial Bank with its registered office at 'Alakapuri', Naxal, Kathmandu.

Sanima Bank will start its operations as the 32nd commercial bank of the country from Wednesday Feb 15, 2012 (Falgun 3, 2068 B.S.). Afterward, the bank is operating as one of the most competitive commercial bank. Currently, the bank is serving the nation thorough its 106 full-fledged branches and 28 extension counters spread from all 7 provinces across the country by employing 1,219 staff (As of Annual report 2081/82) nationwide. As of Q4 2082/83, banks total’s assets stood at Rs. 291.21 billion. At the same time, total equity stood at Rs 27.59 billion.

How has SANIMA emerged over the period and role as a national level player in own class? Let’s look at its ups and downs on financial performance during this journey (Q4 2069/70 to Q4 2082/83) of 14 years.

Balance Sheet Analysis

Assets

The overall asset size of SANIMA has increased by 13.25 times, from Rs. 21.97 billion to Rs. 291.21 billion. The proportion of Loans and Advances to Customers to Total Liabilities and Equity remained around the same level at 68.67% in the base year to 67.25% in Q4 2082/83. Below are the major asset indicators over the review period.

1. Cash and Cash Equivalents

Cash and cash equivalents increased from Rs. 1.68 billion to Rs. 18.96 billion. Holding cash and cash equivalents above regulatory requirement is generally not considered efficient for banks. In this regard, SANIMA has an excess position due to higher liquidity in the market.

2. Loans and Advances to Customers

The bank has remarkably expanded its core lending business. Loans and advances increased by 12.98 times, from Rs. 15.09 billion as of Q4 2069/70 to Rs. 195.88 billion by Q4 2082/83. Over the fourteen - year period, the bank achieved remarkable growth in business expansion.

3. Property and Equipment

Property and Equipment initially stood at Rs. 46.94 crore and showed an increasing trend and reached Rs. 1.34 billion in Q4 2082/83. This category may also include certain non-banking properties.

4. Total Assets

Total assets increased with higher growth during the initial years. Although the growth rate slowed in recent years, assets continued to grow steadily. Overall, SANIMA's asset base expanded by 13.25 times, increasing from Rs. 21.97 billion in Q4 2069/70 to Rs. 291.21 billion in Q4 2082/83.

Liabilities

Total liabilities (excluding equity) stood at Rs. 19.54 billion in Q4 2069/70. They increased by 13.49 times, reaching Rs. 263.62 billion by Q4 2082/83. Deposits from customers, the bank's core liability, grew at a median annual growth rate of 13.57%, increasing from Rs. 17.78 billion to Rs. 249.11 billion. Meanwhile, total liabilities and equity combined increased from Rs. 21.97 billion to Rs. 291.21 billion. The major liability trends are discussed below.

1. Deposits from Customers

Deposits from customers increased at a median annual growth rate of 13.57%. Within total liabilities (excluding equity), deposits accounted for 91% of total liabilities in Q4 2069/70, increased to 95% by Q4 2082/83. This indicates that the bank remains highly dependent on customer deposits and may need to diversify its funding sources by utilizing other financial instruments.

2. Other Liabilities

Other liabilities are steadily increasing throughout the review period. From Q4 2069/70 to Q4 2082/83, they increased by 14.10 times. This category reached its highest level in recent review period, which is in increasing trend.

3. Total Liabilities

Total liabilities followed a pattern similar to customer deposits, recording a median annual growth rate of 16.73%. Since deposits constitute the largest portion of liabilities, total liabilities closely tracked deposit growth.

4. Equity Analysis

Total equity of SANIMA increased at a median annual growth rate of 13.28%. During the same period, share capital grew at a median annual rate of 10%, while reserves increased at a median annual rate of 23.85%.

Profit and Loss Analysis

1. Interest Income and Expenses

Interest income and interest expense represent the bank's core revenue-generating activities and the cost of funding those assets, respectively. Interest income declined after reaching its peak of Rs. 21.61 billion in Q4 2079/80. Thereafter, both interest income and interest expense decreased steadily. By Q4 2082/83, interest income had fallen to Rs. 16.60 billion.

During the declining interest rate environment, SANIMA’s net interest income continued to increase. Although the interest spread rate narrowed, the bank appeared to have successfully expanded its lending business.

2. Net Fees and Commission Income

Another positive aspect of SANIMA is the steady growth in its net fees and commission income. SANIMA earned Rs. 1.49 billion in Q4 2082/83, representing a significant increasement of 63.99 times over review period.

3. Operating Profit and Net Profit

Operating profit reflects the bank's profitability before taxation and provisioning, while distributable net profit represents earnings attributable to shareholders.

SANIMA recorded its highest-ever net profit of Rs. 3.55 billion in Q4 2082/83. Overall, the bank has maintained a steady growth trend in net profits. Over the review period, the bank has achieved media growth rate of 30.27 percent in net profits.

4. Expenses

Interest expense remains the bank's largest expense and is considered the primary direct cost in the banking industry. This expense has shown a declining trend. However, persistently lower interest expenses may make it more challenging for the bank to retain depositors' funds. Other operating expenses have remained at a moderate level.

Personnel expense of SANIMA is in increasing trend. Tax liability is directly related to profit. Rising profit increases tax liability of SANIMA.

Trends in Key Performance Indicators

Earnings Metrics

Earnings Per Share (EPS)

The bank's Earnings Per Share (EPS) has experienced considerable stable over the past ten fiscal years, reflecting bank’s strength to absorb external shock. The profitability remain relatively stable.

EPS remained above Rs. 15 and in increasing trend from 2080/81. A sharp decline from Rs. 34.17 in 2072/73 to Rs. 18.85 in 2073/74 represents the higher decline in earnings performance during the review period.

The bank recorded an stable recovery with EPS rising to Rs. 28.04 on 2075/76 from Rs. 18.85 in 2073/74, the trend fluctuating with lower spread in the series. As of Q4 2082/83, EPS reached Rs. 24.92.

Q4 2082/83 closed with Distributable EPS of Rs. 20.85, indicating that profitability has stable compared to the last year, it is ascending to the peak achieved in 2082/83.

Overall, the long - term trend suggests that the bank has successfully stabilizing profitability even in the various earnings shock.

Efficiency Measures

Return on Equity (RoE)

RoE broadly mirrors the movement in EPS. The ratio declined sharply to 14.35% during Q4 2073/74 due to weak profitability. It rebounded to 18.85% in Q4 2075/76, afterward RoE is in declining trend this is because of equity stably increasing meanwhile profit is fluctuating and profit growth rate is not significant.

FY2082/83 recorded 13.23%, reflecting improved earnings generation from shareholders' equity. Although current returns not a remarkable own previous level but can say the bank has restored a healthy profitability profile.

Return on Assets (RoA)

RoA followed a similar trajectory. It achieved highest RoA 2.06 on Q4 2075/76 deep the lowest at 0.98% on Q4 2081/82.  The ratio recovered afterward, in Q4 2082/83 recorded 1.22%, the highest level in the last five years. This indicates the bank retaining good return on asset and efficiency in utilizing total assets to generate profits.

Valuation Multiples

Price-to-Earnings (P/E) Ratio

The exceptionally high 31.17 times P/E in Q4 2070/71 was primarily driven market sentiment and stock price in ascending trends as well as SANIMA's earnings were also on an upward trend. This ratio should not be evaluated in isolation; it should be compared with industry peers.

Over the last five years, the P/E ratio has fluctuated between 12 and 20 times, suggesting relatively stable market valuation.

Price-to-Book (P/B) Ratio

The P/B ratio remained close to 1.67 times in Q4 2079/80 lower in over review period. A marginaly increase to 1.86 times on Q4 2082/83. Since then, the ratio has stabilized below 3 times.

Q4 2082/83 recorded 1.86 times, median pb ratio of SANIMA stay at 2.31 times. The ratio increased to 1.86 times in Q4 2082/83, both the share price and net worth have shown an increasing trend. Indicating the market continues to value the bank well above its book value, reflecting positive investor expectations.

Health Indicators

The Capital Fund to Risk-Weighted Assets Ratio never exceeded 16%. SANIMA's risk-weighted assets did not fluctuate significantly over the period indicating smoot and efficient assets management capacity on such assets. It stood at 13.1% in Q4 2082/83.

The NPL ratio has shown a consistent upward trend over the review period. In last ten year, it increased from 0.01% in Q4 2073/74 to 2.87% in 2082/83, indicating gradual deterioration in loan quality. This ratio increased in recent years with higher rate, this is a matter of concern.

The cost of funds declined significantly from the peak level 8.27% in Q4 2079/80 to 3.51% in Q4 2082/83, reflecting easing interest rates and lower deposit costs. Similarly, Base Rate declined from 10.15% to 4.91% just over the last four years.

Interest Spread remained at lower side, SANIMA median spread rate 3.98% in study base year it was 4% to 3.39% the most recent review period, indicating compliance with NRB directives and increasing competition. This may put pressure on profit margins.

Dividend History

The bank's dividend history demonstrates that shareholder returns have closely followed its earnings performance. Dividend payouts weakened significantly during periods of lower profitability. Profitability may be affected by economic or policy shocks, business slowdown or higher NPL provisioning. SANIMA has distributed median total dividends of 14.15 percent. Another aspect of SANIMA didn’t leave shareholder hand empty based on the fourteen-year reviewed period.

Data: The data for this article has been taken from SS Pro by ShareSansar.