It is without a doubt that the Financial Institutions are facing a difficult time as the economic activities are halted for an extended period of time. Due to the monetary policy lowering the interest rate bar for financial institutions, their core business revenue might be hampered. We observed the effect of lowering interest rate bar, higher provision, economic activity halt due to lockdown in the previous quarter. However, some financial institutions have somehow managed to improve profitability at this time.
There are different classes of banks in Nepal. However, we will be analyzing the financial performance of “B” class financial institution; Development Banks in this article. There are currently 17 listed development banks in NEPSE out of which only 16 development bank data are presented here. So, let’s dissect the performance of B-class financial institutions.
(NOTE: Karnali Development Bank Limited (KRBL) is yet to publish the third-quarter report. Whereas, Sahara development bank is in acquisition process by Garima Bikas Bank Limited)
As per the quarterly report, Muktinath Bikas Bank Limited (MNBBL) has reported the highest net profit for the period amounting to Rs. 1.00 Arba. Garima Bikas Bank Limited (GBBL) comes in second place in terms of profit which amounts to Rs. 67.82 crores. The third position is secured by Jyoti Bikas Bank Limited (JBBL) with a net profit of Rs. 60.25 crores.
Out of 16 banks, 1 bank reported negative net profit whereas 5 banks reported a decline in net profit compared to the corresponding quarter of the previous year.
When we observe the distributable profit, Muktinath Bikas Bank Limited (MNBBL) topped the list with Rs. 82.87 crores of profit. Garima Bikas Bank Limited (GBBL) has secured the second position with Rs. 49.02 crores as distributable profit. The third position is secured by Jyoti Bikas Bank Limited (JBBL) with a distributable profit of Rs. 43.31 crores.
Out of 16 Development Banks, 8 banks have reported their net profit below the industry average.
Note: Those companies whose distributable profit is mentioned zero, have not published this figure in their published report.
Muktinath Bikas Bank Limited (MNBBL) has the highest paid-up capital amounting to Rs. 4.81 Arba among all the development banks. Jyoti Bikas Bank Limited (JBBL) has the second-highest paid-up capital amounting to Rs. 3.84 Arba.
Note: Out of the total mentioned Rs 41 crore paid up capital of CORBL, Rs 21 crore is call in advance of 150% right share called by the company.
Reserve and Surplus:
Reserve is the amount that is retained by the company from its profits to promote future growth.
Lumbini Bikas Bank Limited (LBBL) has reported the highest reserve and surplus which amounts to Rs. 1.90 Arba. LBBL is followed by Muktinath Bikas Bank Limited (MNBBL) with a reserve of Rs. 1.84 Arba. Mahalaxmi Bikas Bank Limited (MLBL) has secured the third position with a reserve of 1.83 Arba.
Out of all the development banks, 8 banks have reported below industry average reserve amount.
Deposit from customers:
In B-class institution, Muktinath Bikas Bank Limited (MNBBL) has topped the list with a total deposit of Rs. 79.90 Arba. This list is followed by Garima Bikas Bank Limited (GBBL) with a total deposit of Rs. 59.20 Arba. Jyoti Bikas Bank Limited (JBBL) has secured the third position with a total deposit of Rs. 45.31 Arba.
The overall development bank has collected a total deposit of Rs. 3.95 Kharba.
Loans and Advances:
Till Q3 2077/2078, total loans and advances of development banks stood at Rs. 3.35 Kharba. The average loan stood at Rs. 21 Arba.
Muktinath Bikas Bank Limited (MNBBL) has disbursed the highest amount of loans which amounts to Rs. 68.57 Arba. Following the list, Garima Bikas Bank Limited (GBBL) has disbursed a total loan of Rs. 50.29 Arba. Jyoti Bikas Bank Limited (JBBL) has disbursed a loan of Rs. 39.53 Arba which puts it in third place.
Net Interest Income:
Net Interest Income is the core business revenue which is calculated by subtracting the cost related to the deposits from the income from loans and advances.
In terms of Net interest income, Muktinath Bikas Bank Limited (MNBBL) tops the list with a total of Rs. 1.89 Arba. Garima Bikas Bank Limited (GBBL) has the second-highest net interest income amounting to Rs. 1.35 Arba. GBBL is followed by Mahalaxmi Bikas Bank Limited (MLBL) which has reported a net interest income of Rs. 1.16 Arba.
Out of 16 banks, 8 banks have reported above industry average net interest income.
Total Comprehensive Income:
In terms of total comprehensive income, Muktinath Bikas Bank Limited (MNBBL) reported the highest total comprehensive income which amounts to Rs. 1.02 crores. MNBBL is followed by Garima Bikas Bank Limited (GBBL) with a total comprehensive income of Rs. 78.30 crores. Jyoti Bikas Bank Limited (JBBL) has reported the third-highest total income which amounts to Rs. 62.99 crores.
Annualized Earnings per share:
Kamana Sewa Bikas Bank Limited (KSBBL) topped the list in terms of EPS amounting to Rs. 29.47 per share. Muktinath Bikas Bank Limited (MNBBL) has the second-highest EPS with Rs. 27.87 per share. Similarly, Garima Bikas Bank Limited (GBBL) stands at the third position with an EPS of Rs. 24.60 per share.
Out of 16 commercial banks, 10 banks have reported above industry average EPS.
Net worth per share:
The highest net worth per share is reported by Lumbini Bikas Bank Limited (LBBL) with Rs. 165.67 per share. This is followed by Excel Development Bank Limited (EDBL) with a net worth per share of Rs. 157.96 per share. Likewise, Mahalaxmi Bikas Bank Limited (MLBL) reported a net worth of Rs. 154.90 per share making it the third-highest.
The average net worth per share comes at Rs. 132.49 per share when we factor in all the net worth per share of all the banks.
Price to Earnings per share (Quarter End):
P/E ratio tells investors what they are paying for each Rupee of earnings of the firm. The lower the ratio, the better the deal.
In terms of the P/E ratio, Kamana Sewa Bikas Bank Limited (KSBBL) has the lowest P/E ratio of 11.94 times. This means that you are paying Rs. 11.94 for every Rupee of earning of Kamana Sewa Bikas Bank Limited. Jyoti Bikas Bank Limited (JBBL) reported a P/E of 12.73 times which could be the second-best deal. This is followed by Shangrila Development Bank Limited (SADBL) with a P/E of 13.17 times.
The average P/E of the industry is 29.79 times. Out of 16 banks, 13 banks have a below industry average P/E which could possibly indicate that those banks are relatively cheaper than their competitors.
However, one should always check the fundamentals of the company and if they found the bad fundamentals then there is a reason for the lower valuation.
(Investors are requested to factor in the current market price while calculating the PE ratio)
Non-performing loan indicates the risk of credit the bank provided to their clients. Higher NPL indicates that the bank might be at risk.
In terms of NPL, Muktinath Bikas Bank Limited (MNBBL) has the lowest ratio with an NPL of 0.21%. This is followed by Miteri Development Bank Limited (MDB) with an NPL of 0.31%. Garima Bikas Bank Limited (GBBL) has the third-lowest NPL of 0.58%.
Out of 16 banks, 13 banks have reported below industry average NPL for this quarter. However, this is mainly because NABBC alone has massive NPL which led to increasing in average number. One should calculate the industry average in terms of their own analysis model.
NOTE: Investors should always look at the trend of NPL rather than just a one-quarter figure. Increasing NPL suggests that the banks are losing focus on loan underwriting.
Capital Adequacy Ratio:
In terms of Capital Adequacy ratio (CAR), Muktinath Bikas Bank Limited (MNBBL) has the lowest CAR of 11.14%. This is followed by Garima Bikas Bank Limited (GBBL) with a CAR of 11.63%.
Finally, the table below shows provides a full picture with major indicators of 16 development banks as of the third quarter of FY 2077-2078.
When we observe the numbers reported by all the development banks in this quarter, it is obvious that the banks are somewhat past the previous situation and are convinced that they have to adapt to the new normal and create a strategy that fits the current situation. This can be seen by the reported numbers as well since most of the companies have been able to perform well despite the second wave of COVID-19. However, it is important for investors to factor in the current situation and see how the banks have been creating strategies to sustain their business and move forward.