Commercial Banks’ investment in Human Assets; An Important Decision

Tue, Aug 28, 2018 2:27 PM on Exclusive, Financial Analysis,

-ShareSansar

~Rishab Agrawal

One of the most important assets that a company has is its human assets generally referred to as employees of the company. The employees of a company work relentlessly to add value to the company. In turn, the company strives to provide them financial security and overall satisfaction. In this way, the company compensates for the resources it has used.

All investment made on the employees of the company is shown under staff expenses in the profit and loss account of each company. On comparing this with the total expenses, we get a view of the amount that the company has invested in its employees as a percentage of the total expenses of the company. For this purpose, we have complied data regarding the staff expenses of all the commercial banks and calculated the Staff expense to total expense ratio. The total expenses of the banks include staff expenses and other operating expenses.

S. No.	Symbol	Name	Total Expenses ('000)	Staff Expenses ('000)	Staff Expenses to Total Expenses
1	NBL	Nepal Bank Limited	3,146,711	2,464,887	78.33%
2	ADBL	Agricultural Development Bank Limited	3,862,342	3,011,913	77.98%
3	RBB	Rastriya Banijya Bank	3,804,855	2,594,412	68.19%
4	NCCB	Nepal Credit & Commercial Bank Limited	1,339,253	800,781	59.79%
5	NABIL	Nabil Bank Limited	1,752,292	1,044,021	59.58%
6	BOKL	Bank of Kathmandu Limited	1,342,237	782,651	58.31%
7	KBL	Kumari Bank Limited	1,062,782	609,773	57.38%
8	NBB	Nepal Bangladesh Bank Limited	1,058,657	598,315	56.52%
9	PRVU	Prabhu Bank Limited	2,027,777	1,140,816	56.26%
10	EBL	Everest Bank Limited	1,845,148	1,037,617	56.23%
11	MBL	Machhapuchchhre Bank Limited	1,252,663	681,650	54.42%
12	HBL	Himalayan Bank Limited	1,985,043	1,057,831	53.29%
13	SCB	Standard Chartered Bank Nepal Limited	1,234,622	644,704	52.22%
14	SBL	Siddhartha Bank Limited	1,535,514	798,520	52.00%
15	SBI	Nepal SBI Bank Limited	1,986,250	1,025,639	51.64%
16	CBL	Civil Bank Limited	896,299	461,990	51.54%
17	JBNL	Janata Bank Nepal Limited	1,274,465	656,230	51.49%
18	NIB	Nepal Investment Bank Limited	1,769,489	897,505	50.72%
19	SANIMA	Sanima Bank Limited	1,070,716	540,365	50.47%
20	CZBIL	Citizens Bank International Limited	1,021,206	511,796	50.12%
21	PCBL	Prime Commercial Bank Limited	776,385	388,408	50.03%
22	NMB	NMB Bank Limited	1,641,690	813,350	49.54%
23	LBL	Laxmi Bank Limited	1,175,239	578,859	49.25%
24	MEGA	Mega Bank Nepal Limited	923,633	454,682	49.23%
25	CCBL	Century Commercial Bank Limited	987,625	485,572	49.17%
26	SRBL	Sunrise Bank Limited	1,401,642	686,614	48.99%
27	NICA	NIC Asia Bank Limited	2,936,937	1,413,710	48.14%
28	GBIME	Global IME Bank Limited	2,131,600	946,128	44.39%
Average			1,687,253	968,884	54.83%

All the figures in the table above have been taken from the fourth quarter reports of FY 74/75 published by each bank.

The industry average of staff expenses to total expenses ratio stands at 54.83% and only 10 commercial banks have above average ratio. In this aspect, Nepal Bank Limited has the highest ratio of 78.33% with its staff expenses standing at Rs.2.46 Arba. While Agricultural Development Bank is second on the list with a ratio of 77.98%.

NIC Asia Bank and Global IME Bank have the least staff expenses to total expenses ratio after posting ratio of 48.14% and 44.39% respectively.

Further, we compare the latest staff to expenses ratio with ratio calculated on the basis of results of the previous year. They stand as follows:

Staff Expense to Total Expenses
S. No.	Symbol	FY 73/74	FY 74/75
1	ADBL	79.96%	77.98%
2	NBL	78.12%	78.33%
3	RBB	75.27%	68.19%
4	NABIL	58.83%	59.58%
5	EBL	56.42%	56.23%
6	BOKL	56.37%	58.31%
7	KBL	55.82%	57.38%
8	HBL	55.48%	53.29%
9	NBB	54.58%	56.52%
10	NICA	53.22%	48.14%
11	NCCB	53.15%	59.79%
12	CBL	51.89%	51.54%
13	SCB	51.60%	52.22%
14	MBL	51.23%	54.42%
15	SBI	51.16%	51.64%
16	PRVU	50.04%	56.26%
17	SBL	49.95%	52.00%
18	JBNL	49.58%	51.49%
19	MEGA	49.44%	49.23%
20	PCBL	48.88%	50.03%
21	NIB	48.76%	50.72%
22	CCBL	48.65%	49.17%
23	CZBIL	48.59%	50.12%
24	NMB	47.59%	49.54%
25	LBL	46.41%	49.25%
26	GBIME	45.85%	44.39%
27	SRBL	45.21%	48.99%
28	SANIMA	44.60%	50.47%
Average		53.81%	54.83%

The industry average of the ratio as per the figures of FY 73/74 stood at 53.81% while the said average for FY 74/75 stood at 54.83%.

Agricultural Development Bank was at the top of this list after posting a ratio of 79.96% in the previous year against 77.98% posted this year. Similarly, Nepal Bank Limited showed a slight increase in the ratio as compared to previous year. We can also see that the banks with lowest ratio this year (NICA, GBIME) had posted a higher ratio last year indicating a decrease in the ratio.

A decrease in this ratio could possibly indicate reduction in work force of the bank. It could also mean that the total expenses have increased while the staff expenses have remained the same. In any case, it means that the bank is not investing in the growth of its most important assets.

Further, we have also compared the staff expenses with the total operating income of the banks. Staff expenses to total operating ratio as per FY 74/75 reports, stands as follows:

S. No.	Symbol	Name	Staff Expenses ('000)	Total operating Income ('000)	SE/TOI
1	ADBL	Agricultural Development Bank Limited	3,011,913	8,015,443	37.58%
2	NCCB	Nepal Credit & Commercial Bank Limited	800,781	2,192,043	36.53%
3	NBL	Nepal Bank Limited	2,464,887	7,710,133	31.97%
4	PRVU	Prabhu Bank Limited	1,140,816	3,968,601	28.75%
5	NICA	NIC Asia Bank Limited	1,413,710	5,118,637	27.62%
6	CBL	Civil Bank Limited	461,990	1,810,042	25.52%
7	RBB	Rastriya Banijya Bank	2,594,412	10,488,207	24.74%
8	KBL	Kumari Bank Limited	609,773	2,579,589	23.64%
9	JBNL	Janata Bank Nepal Limited	656,230	2,886,842	22.73%
10	BOKL	Bank of Kathmandu Limited	782,651	3,764,595	20.79%
11	MBL	Machhapuchchhre Bank Limited	681,650	3,308,129	20.61%
12	CCBL	Century Commercial Bank Limited	485,572	2,410,273	20.15%
13	NMB	NMB Bank Limited	813,350	4,108,013	19.80%
14	NBB	Nepal Bangladesh Bank Limited	598,315	3,070,934	19.48%
15	SBI	Nepal SBI Bank Limited	1,025,639	5,297,257	19.36%
16	SRBL	Sunrise Bank Limited	686,614	3,613,162	19.00%
17	GBIME	Global IME Bank Limited	946,128	5,129,787	18.44%
18	HBL	Himalayan Bank Limited	1,057,831	5,753,569	18.39%
19	LBL	Laxmi Bank Limited	578,859	3,177,600	18.22%
20	SBL	Siddhartha Bank Limited	798,520	4,453,003	17.93%
21	EBL	Everest Bank Limited	1,037,617	5,942,149	17.46%
22	CZBIL	Citizens Bank International Limited	511,796	2,977,340	17.19%
23	MEGA	Mega Bank Nepal Limited	454,682	2,792,742	16.28%
24	SCB	Standard Chartered Bank Nepal Limited	644,704	4,622,117	13.95%
25	SANIMA	Sanima Bank Limited	540,365	3,926,654	13.76%
26	NABIL	Nabil Bank Limited	1,044,021	7,991,197	13.06%
27	NIB	Nepal Investment Bank Limited	897,505	7,702,249	11.65%
28	PCBL	Prime Commercial Bank Limited	388,408	3,730,225	10.41%
Average			968,884	4,590,733	20.89%

The table above clearly shows how much the banks have invested in their human assets out of the total operating income. Looking at the industry average, staff expenses make up around 20.90% of the total operating income. And as per the data, only 9 commercial banks lie above the average figure. While Agricultural Development Bank has posted a ratio of 37.58%, Prime Commercial Bank has posted the ratio as low as 10.41%.

Agriculture Development Bank, Nepal Credit & Commercial Bank and Nepal Bank Limited have invested the most in their human assets with respect to the total operating income while Nabil Bank, Nepal Investment Bank and Prime Commercial Bank have invested the least.

An important aspect to notice here is that the relation between staff expenses and distributable profit is inverse; if commercial banks spend more on staff expenses, their net profits will come down and vice versa. For the commercial bank it is a gamble between the satisfaction of the shareholders and satisfaction of the workforce. The banks need to carefully strike a balance between the two as both these aspects are imperative for the functioning and performance of the banks.

Commercial Banks’ investment in Human Assets; An Important Decision

Tue, Aug 28, 2018 2:27 PM on Exclusive, Financial Analysis,

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