National level development banks far cheaper than expected; Grab your shares looking at the year-end comparative analysis; Muktinath Bikas Bank makes it to the top

Among the 37 listed development banks (B-categorized), there are 11 National level development banks in the country. The number of national level development banks remained inconsistent throughout the year. Banks such as Tourism Development Bank Limited merged with MEGA Bank Limited while NIDC Development Bank Limited merged with Rastriya Banijaya Bank Limited. Banks also went through merger and acquisition. Some of the few examples among many are: Kamana Bikas Bank and Sewa Bikas Bank went through a merger, Mahalaxmi Bikas Bank and Yeti Development Bank started a joint transaction, Gandaki and Fewa Bikas Bank also came together, Lumbini Bikas Bank further went into merger with Vibor Society Development Bank and Lumbini Finance and Leasing Company Limited, Om Development Bank started a joint transaction with Manasalu Development Bank, Jyoti Bikas Bank started joint transaction with Raptibheri bank and is in the process of acquiring Hamro Bikas Bank, and Deva Bikas Bank is in the process to acquire Western Development Bank.

All these banks have published their fourth quarter financial reports and thus, the article provides an analysis on their financial status.

The listed national level development banks are:

Net profit:

As per the net profit of fourth quarter of 2074/75, Muktinath Bikas Bank Limited (MNBBL) is in the lead with a profit of Rs 57.55 crore. Similarly, Mahalaxmi Development Bank Limited (MLBL), has the second highest net profit of Rs 56.11 crore in the same quarter. In the third position, Kailash Bikas Bank Limited (KBBL) has the net profit of Rs 55.32 crores. The bank with the least net profit is Deva Bikas Bank (DBBL) whose net profit amounts to Rs 27.54 crore.

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Paid up capital:

The central bank of the country has directed these national level “B” categorized banks to meet the paid up capital requirement of at least 2.50 arba. All the eleven national level banks except Lumbini Bikas Bank Limited (LBBL), has met the paid up capital requirement. The bank with highest paid up capital are  Gandaki Bikas bank (GDBL) with Rs 2.75 arba capital, Mahalaxmi Bikas Bank Limited (MLBL) with Rs 2.63 arba paid up capital and Jyoti Bikas Bank Limited (JBBL) with Rs 2.59 arba paid up capital. 

As for Lumbini Bikas Bank Limited (LBBL), the bank has paid up capital of Rs 2.17 arba paid up capital. The bank had issued auction with an amount of Rs 3.62 crores for promoter shares. Once the auction process is completed, LBBL will have a paid up worth Rs 2.21 arba. Its paid up capital will still be short by 13%. Thus, investors are in an expectation of bonus shares from the bank. The paid up capital structure of Jyoti Bikas bank Limited (JBBL) might change after acquiring Hamro Bikas Bank Limited. Similarly, the paid up capital of Deva Bikas Bank Limited (DBBL) might also change after acquiring Western Development Bank Limited.

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Reserve and surplus:

As each and every development bank adopted different paid up strategy, the impact is seen in the reserve and surplus fund of these banks. In terms of reserves and surplus, Mahalaxmi Bikas Bank Limited (MLBL) has maintained its lead with a reserve and surplus of Rs 1.43 arba. Lumbini Bikas Bank Limited (LBBL) has maintained second position with Rs 1.15 arba reserve and surplus fund. However, this reserve will be decreased if the bonus share is issued by the bank. The bank with least reserve and surplus is Deva Bikas Bank Limited (DBBL) having a reserve of Rs 48 crores.

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 Deposit collection:

In the banking sector, the deposit collection will play a major role in the upcoming days. All the banks except Lumbini Bikas Bank has the same range of paid up capital which is equal or above Rs 2.50 arba. So, the national level development banks will go through a severe competition with each other in order to attract the deposit clients. As of the fourth quarter of FY 2074/75, Muktinath Bikas Bank Limited (MNBBL) stands on top with total deposits worth Rs 30.35 arba. Similarly, the bank is followed Mahalaxmi Bikas Bank Limited (MLBL) and Gandaki Bikas Bank Limited (GDBL) with the collected deposit of Rs 27.28 arba and Rs 23.52 arba respectively. Deva Bikas Bank (DBBL) has the lowest deposit collection of Rs. 15.70 arba only.

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Loans and advances:

With paid up capital of almost same ranges, competition among development banks implies even in bringing the loan clients. As shown in the figure, the top position in loans and advances is occupied by Muktinath Bikas Bank (MNBBL) with credit disbursement worth Rs 25.26 arba. Mahalaxmi Bikas Bank (MLBL) has a loan and advances portfolio of Rs. 21.66 arba. Kailash Bikas Bank Limited (KBBL) has the loan portfolio of Rs 20.13 arba. Similarly on the other end of the rope, stands Kamana Sewa Bikas Bank (KSBBL) with the lowest loan and advances portfolio of Rs. 13.44 arba.

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Major indicators:

Earning per share (Annualized):

With the increment in the paid-up capital requirement, the EPS were expected to fall. However, some national level development banks have managed to maintain their EPS better than others. Muktinath Bikas Bank (MNBBL) becomes the bank to serve investors with highest annualized EPS of Rs 22.20 per share. Kailash Bikas Bank Limited (KBBL) stands in the second position with annualized EPS of Rs 21.95 per share. Deva Bikas Bank (DBBL) stays at the bottom with an earning of Rs. 10.87 per share.

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P/E Ratio:

Given that Lumbini Bikas Bank Limited (LBBL) has not met the paid up capital, it has lowest P/E ratio as of 31^st July, 2018 i.e. 7.74 times. Among the banks whose paid up capital are met, Mahalaxmi Bikas Bank has least P/E ratio which stands at 8.59 times. Similarly, bank with the highest P/E ratio is Muktinath Bikas Bank limited (MNBBL) i.e. 17.07 times. The P/E ratio of all the national level development banks are below 15 times. Since, the general rule of thumb in finance suggest, a P/E ratio below 15 is an adequate price, the banks are far cheaper than expected.

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Net worth per share:

The highest net worth per share among these development banks is Rs 154.30 of Mahalaxmi Bikas Bank (MLBL). Lumbini Bikas Bank (LBBL) with an unmet paid up capital has the second highest net worth per share as of Q4 of FY 2074/75 i.e. Rs 152.85. Deva Bikas Bank Limited (DBBL) has the least net worth of Rs 118.99 per share.

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Market price:

As of the Last Traded Price (LTP) on 31^st July, 2018, Muktinath Bikas Bank Limited (MNBBL) has the highest LTP of Rs 379. It is further followed by Kailash Bikas Bank (KBBL) with a market price of Rs 219. Gandaki Bikas Bank Limited (GDBL) has the market price of Rs 193. Deva Bikas Bank Limited (DBBL) has the least market price of Rs 129.

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A full picture:

Finally the table below provides a full picture with major indicators of the 11 national development banks as of the fourth quarter of FY 2074/75:

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From the table above, we can see that Muktinath Bikas Bank (MNBBL) has been able to occupy the top space for 5 indicators out of 9. However, this doesn’t capture the entire picture as there are numerous exogenous factors that must be kept on mind before making any investment decision.

The other issue that needs to come into the light is the fact that Development banks’ paid up capital has been hiked to Rs 2.5 arba, but on the same picture their area of operation is still restricted. They aren’t still eligible for bringing in the foreign funds like the commercial banks are allowed to, they can’t open Letter of Credit (LC) and so on. The recent monetary policy did not address these provisions for the development banks. Do you think this scenario needs rectification, or do you believe the current area of operations should be enough for the national level development bank? How would you like these banks to perform in the upcoming fiscal year? Which is your choice of investment? Please feel free to drop a comment.