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

Background of Miteri Development Bank Ltd. (MDB)

Miteri Development Bank (MDB) commenced operations on 13 October 2006. This is a regional -level class ‘B’ bank. Its head office is located at Mahendrapath, Dharan – 5, Sunsari district, Koshi Province. The bank provides development banking products and services in the eastern region of Nepal. It has been serving people across three districts while contributing to society and the nation to the best of its capacity.

Here, we examine its financial performance over the past fourteen fiscal years based on fourth-quarter unaudited reports. In this article, we will evaluate from fiscal year 2069/70 to 2082/83. How the regional level development bank performing?

Balance Sheet Analysis

Assets

The overall asset size of MDB has increased by 9.29 times, from Rs. 1.15 billion to Rs. 10.72 billion. The proportion of Loans and Advances to Customers to Total Liabilities and Equity decreased from 85.66% in the base year to 82.54% in Q4 2082/83. Below are the major asset indicators over the review period.

1. Cash and Cash Equivalents

Cash and cash equivalents have fluctuated over the period. This item stood at Rs. 27.79 crore in the latest review period, compared with Rs. 22.19 crore in the base year. Holding cash and cash equivalents above the regulatory requirement is generally not considered efficient for banks. In this regard, MDB maintains moderate liquidity position.

2. Loans and Advances to Customers

The bank has remarkably expanded its core lending business. Loans and advances increased by 7.93 times, from Rs. 84.36 crore as of Q4 2069/70 to Rs. 6.69 billion by Q4 2082/83. Over the fourteen - year period, the bank achieved remarkable growth in business expansion based on the bank’s size and permitted area for operation.

3. Property and Equipment

Property and equipment initially stood at Rs. 87.95 lakh and showed an increasing trend and reached Rs. 5.51 crore as of Q4 2082/83. it peaked highest in Q4 2079/80 reached Rs. 5.58 crore. This category may also include certain non-banking properties.

4. Total Assets

Total assets increased at a higher growth rate during the initial years. Although the growth rate slowed in recent years, assets continued to grow steadily. Overall, MDB's asset base expanded by 9.29 times, increasing from Rs. 1.15 billion in Q4 2069/70 to Rs. 10.72 billion in Q4 2082/83.

Liabilities

Total liabilities (excluding equity) stood at Rs. 1 billion in Q4 2069/70. They increased by 8.97 times, reaching Rs. 8.98 billion by Q4 2082/83. Deposits from customers, the bank's core liability, grew at a median annual growth rate of 18.14%, decrease from Rs. 9.88 billion to Rs. 8.85 billion. Meanwhile, total liabilities and equity combined increased from Rs. 1.15 billion to Rs. 10.72 billion. The major liability trends are discussed below.

1. Deposits from Customers

Deposits from customers increased at a median annual growth rate of 18.14%. Within total liabilities (excluding equity), deposits accounted for 98.70% in Q4 2069/70, decreased marginally to 98.59% 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 increased steadily throughout the review period. From Q4 2069/70 to Q4 2082/83, they increased from Rs. 1.20 crore to Rs. 7.88 crore. This category reached its highest level of Rs. 12.76 crores in Q4 2076/77.

3. Total Liabilities

Total liabilities followed a pattern like customer deposits, recording a median annual growth rate of 18.94%. Since deposits constitute the largest portion of liabilities, total liabilities closely tracked deposit growth.

4. Equity Analysis

Total equity of MDB increased at a median annual growth rate of 17.19%. During the same period, share capital grew at a median annual rate of 16%, while reserves increased at a median annual rate of 16.50%.

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. 97.65 crore in Q4 2079/80. Thereafter, both interest income and interest expense decreased steadily. By Q4 2082/83, interest income had fallen to Rs. 67.41 crore.

During the declining interest rate environment, MDB median growth of interest income and expense didn’t differ significantly. On the positive side, net interest income continued to increase. The interest spread rate narrowed, the bank may affect negatively.

2. Net Fees and Commission Income

Another positive aspect of MDB is the steady growth in its net fees and commission income. MDB earned Rs. 3.83 crore in Q4 2082/83, representing an increase of approximately 18 times over the 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.

MDB’s net profit of seemed as stagnated for growth. After reaching the highest peak on Rs. 16.73 crore in 76/77 afterward, growth either in negative or lower growth. MDB earned Rs. 14.12 crore in Q4 2082/83.

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.

Trends in Key Performance Indicators

Earnings Metrics

Earnings Per Share (EPS)

The bank's Earnings Per Share (EPS) has been on declining trend. After reaching the peak in Q4 2072/73 at Rs. 46.02. The bank’s eps sharply for next two years after reached on top. Overall, EPS has followed a declining trend.

Till recent year, the bank has maintained EPS above Rs. 10. A sharp decline from Rs. 46.02 in 2072/73 to Rs. 22.59 in 2074/75 represents the higher decline in earnings performance during the review period.

Q4 2082/83 closed with Distributable EPS of Rs. 12.73, indicating that profitability has substantially improved compared to the post-pandemic years.

Overall, the long - term trend suggests the bank needs to think and operate more creatively to restored profitability and develop strength to absorb external shocks.

Efficiency Measures

Return on Equity (RoE)

RoE broadly mirrors the movement in EPS. he ratio declined sharply from 27.67% in Q4 2072/73 to 16.15% in Q4 2074/75. This fall occurred due to weak profitability. It hasn’t rebound, indicating the bank appears to be in a consolidation phase and needs to expand its business.

FY2082/83 recorded 8.1%, The ratio remained low and relatively stable for this year. Although current returns remain stable there is fear of declining in coming year if bank couldn’t expand business.

Return on Assets (RoA)

RoA followed a similar trajectory. The bank achieved its highest RoA, 3.6% in FY2072/73. The ratio declines steadily afterward. Q4 2082/83 recorded 1.32%, the lowest level in the entire review period. This indicates the bank unable to show efficiency in utilizing total assets to generate profits.

Valuation Multiples

Price-to-Earnings (P/E) Ratio

The P/E ratio of the bank from Q4 2075/76, in this year ratio was 9.31 times. On this year EPS was Rs. 25.12. Although the price of MDB wasn’t rise significantly meanwhile, declining eps fuel the P/E ratio to higher level. MDB highest P/E ratio was 64.23 times on Q4 2081/82.

Price-to-Book (P/B) Ratio

The P/B ratio also has shown increasing trend. close to 0.97 times in Q4 2069/70 lowest in review period. A sharp increase to 4.06 times on Q4 2082/83.

Q4 2082/83 recorded 4.06 times, median P/B ratio of MDB stay at 3.24 times. The share price is in increasing trend and net worth have shown a decreasing trend. Indicating the market may overvalue stock price.

Health Indicators

The Capital Fund to Risk-Weighted Assets remained at a high level in Q4 2080/81%. MDB's risk-weighted assets fluctuated significantly over the period indicating lower efficiency in assets management capacity on such assets. The bank’s RWA stood at 25.75% as of Q4 2082/83. It improved and maintained at comply with regulatory requirement and optimize to mobilize capital in higher return generating sectors.

The NPL ratio has shown the bank has maintained high quality loan. MDB’s highest NPL stood 1.25% on Q4 2079/80. Then MDB maintain NPL below 1%. As of Q4 2082/83 NPL stood at0.26%, indicating the bank isn’t rushing for lending.

The cost of funds declined significantly from the peak level 9.83% in Q4 2079/80 to 4.22% in Q4 2082/83, reflecting easing interest rates and lower deposit costs. Similarly, Base Rate declined from 12.12% to 5.98% in the last four year.

Interest Spread narrowed from 9.27% on Q4 2072/73 to 4.37% the most recent review period, indicating compliance with NRB directives and increasing competition. This may put pressure on profit margins in coming time.

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 shock, business slowdown or higher NPL provisioning. MDB has distributed average total dividends of 19. 83 percent. Another aspect of MDB didn’t make shareholder hand empty based on the last fourteen years.

Data Source: The data used in this article has been obtained from SS Pro by ShareSansar.