Without a doubt, the Financial Institutions are also experiencing economic instability as a result of market swings, given the increasing interest rates, inflation, and overall worldwide recession. Financial institutions' primary business revenue may be affected as a result of the monetary policy's higher interest rate bar, which may be advantageous for some financial institutions and detrimental for others. During the lockdown phase a year ago, we saw the effects of dropping interest rate bars, greater provisions, and a halt in economic activity. Let's examine how the scenario for these development banks has changed this year.
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. The data represents 16 development banks which are currently listed NEPSE. So, let’s dissect the performance of B-class financial institutions based on the unaudited 4th quarterly report of 2078/79 fiscal year.
As per the quarterly report, Muktinath Bikas Bank Limited (MNBBL) has reported the highest net profit for the period amounting to Rs. 1.37 Arba. Garima Bikas Bank Limited (GBBL) comes in second place in terms of profit which amounts to Rs. 1.05 Arba.
The third position is secured by Jyoti Bikas Bank Limited (JBBL) with a net profit of Rs. 95.19 crores. In terms of growth in Net profit, Sindhu Bikas Bank Limited (SINDU) has obtained huge growth margin of 113.52% for the Q4 of FY 78/79.
Paid up capital:
Muktinath Bikas Bank Limited (MNBBL) has the highest paid-up capital amounting to Rs. 5.66 Arba among all the development banks. Garima Bikas Bank Limited (GBBL) has the second-highest paid-up capital amounting to Rs. 4.58 Arba.
In the national level, SADBL has the lowest paid-up capital of Rs. 3.01 Arba and NABBC has only Rs. 26 Crores paid-up capital in the regional level.
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. 2.54 Arba. LBBL is followed by Muktinath Bikas Bank Limited (MNBBL) with a reserve of Rs. 2.44 Arba. Mahalaxmi Bikas Bank Limited (MLBL) has secured the third position with a reserve of 2.41 Arba.
Out of all the development banks, 8 banks have reported below industry average reserve amount.
Deposits from Customers:
In B-class institution, Muktinath Bikas Bank Limited (MNBBL) has topped the list with a total deposit of Rs. 1.04 Kharba. This list is followed by Garima Bikas Bank Limited (GBBL) with a total deposit of Rs. 68.41 Arba. Jyoti Bikas Bank Limited (JBBL) has secured the third position with a total deposit of Rs. 53.74 Arba.
The overall development bank has collected a total deposit of Rs. 4.85 Kharba.
Loans and advances to Customers:
Till Q4 2078/2079, total loans and advances of development banks stood at Rs. 3.84 Kharba. The average loan stood at Rs. 25.93 Arba.
Muktinath Bikas Bank Limited (MNBBL) has disbursed the highest amount of loans which amounts to Rs. 86.90 Arba. Following the list, Garima Bikas Bank Limited (GBBL) has disbursed a total loan of Rs. 58.32 Arba. Jyoti Bikas Bank Limited (JBBL) has disbursed a loan of Rs. 48.66 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.3.37 Arba. Garima Bikas Bank Limited (GBBL) has the second-highest net interest income amounting to Rs. 2.61 Arba. GBBL is followed by Kamana Sewa Bikas Bank Limited (KSBBL) which has reported a net interest income of Rs. 1.95 Arba.
Out of 16 banks, 8 banks have reported above industry average net interest income.
Provisions for the period (Impairment/Reversal):
Banks have set aside a certain amount in loan loss provision and have delayed the loan repayment of several borrowers. A total of Rs 82.34 Crores of amount has been shown in an impairment charge for a loan and other losses.
In the national level, Kamana Sewa Bikas Bank Limited (KSBBL) has the highest impairment charge for a loan and other losses with Rs 29.98 Crores. Likewise, Saptakoshi Development Bank Limited (SAPDBL) in the regional level to have impairment charges of Rs. 4.92 Crores. Also, Mahalaxmi Bikas Bank Limited (MLBL) has reversal of impairment charges amounting to Rs. 8.77 Crores.
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 Garima Bikas Bank Limited (SHINE) with an NPL of 0.85%. Shine Resunga Development Bank Limited (GBBL) has the third-lowest NPL of 0.96%.
Out of 16 banks, 9 banks have reported below industry average NPL for this quarter. However, this is mainly because CORBL alone has massive NPL which led to increasing in average number. One should calculate the industry average in terms of their own analysis model.
Earnings per share:
Muktinath Bikas Bank Limited (MNBBL) topped the list in terms of EPS amounting to Rs. 24.22 per share. Mahalaxmi Bikas Bank Limited (MLBL) has the second-highest EPS with Rs. 23.73 per share. Similarly, Garima Bikas Bank Limited (GBBL) stands at the third position with an EPS of Rs. 23.07 per share.
Out of 16 development banks, 9 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. 177.19 per share. This is followed by Mahalaxmi Bikas Bank Limited (MLBL) with a net worth per share of Rs. 160.09 per share. Likewise, Garima Bikas Bank Limited (GBBL) reported a net worth of Rs. 144.57 per share making it the third-highest.
The average net worth per share comes at Rs. 131.52 per share when we factor in all the net worth per share of all the banks.
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, Mahalaxmi Bikas Bank Limited (MLBL) has the lowest P/E ratio of 15.93 times. This means that you are paying Rs. 15.93 for every Rupee of earning of Mahalaxmi Bikas Bank Limited (MLBL). Lumbini Bikas Bank Limited (LBBL) reported a P/E of 16.58 times which could be the second-best deal. This is followed by Garima Bikas Bank Limited (GBBL) with a P/E of 16.77 times.
The average P/E of the industry is 30.31 times. Out of 16 banks, 10 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.