Net Profit of Development Banks of Nepal has Decreased in Q1; Dive Into Comprehensive Analysis of Major Indicators For All 15 Development Banks In Nepal

Mon, Nov 7, 2022 11:10 AM on Company Analysis, Exclusive,

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. In this comprehensive analysis, we will examine the  financial performance of “B” class financial institution; Development Banks of Nepal, and see which institution is maintaining a good financial position despite numerous obstacles. 

There are 16 development banks which are currently listed NEPSE. However, the Quarter first report (Q1) of Saptakoshi Development Bank Limited (SAPDBL) is not yet published by the company. Hence, this analysis discards SAPDBL.

So, let’s dissect the performance of B-class financial institutions based on the unaudited 1st quarterly report of 2079/80 fiscal year. 

Net profit:

As per the quarterly report, Muktinath Bikas Bank Limited (MNBBL) has reported the highest net profit for the period amounting to Rs. 30.70 Crores. Shine Resunga Development Bank Limited (SHINE) comes in second place in terms of profit which amounts to Rs. 20.90 Crores.

The third position is secured by Garima Bikas Bank Limited(GBBL) with a net profit of Rs. 19.33 crores. In terms of growth in Net profit, Shine Resunga Development Bank Limited (SHINE) has obtained growth margin of 42.18% for the Q1 of FY 79/80. However, 5 out of 8 National level development bank have reported decline in net profit as compared to the relevant quarter of previous year. 

Coming towards regional level, Miteri Development Bank Limited(MDB) has reported highest net profit of Rs. 2.56 Crores, whereas Corporate Development Bank Limited(CORBL) has reported highest growth in net profit of 642.45% in the Q1 of F.Y 79/80.

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. 2.42 Arba. Mahalaxmi Bikas Bank Limited (MLBL) has secured the third position with a reserve of 2.44 Arba.


Deposits from Customers:

In B-class institution, Muktinath Bikas Bank Limited (MNBBL) has topped the list with a total deposit of Rs. 1.05 Kharba. This list is followed by Garima Bikas Bank Limited (GBBL) with a total deposit of Rs. 68.97 Arba. Jyoti Bikas Bank Limited (JBBL) has secured the third position with a total deposit of Rs. 53.92 Arba.

The overall development bank has collected a total deposit of Rs. 4.90 Kharba. 

Loans and advances to Customers:

Till Q1 2079/2080, total loans and advances of development banks stood at Rs. 3.93 Kharba. The average loan stood at Rs. 27.98 Arba.

Muktinath Bikas Bank Limited (MNBBL) has disbursed the highest amount of loans which amounts to Rs. 88.03 Arba. Following the list, Garima Bikas Bank Limited (GBBL) has disbursed a total loan of Rs. 59.86 Arba. Jyoti Bikas Bank Limited (JBBL) has disbursed a loan of Rs. 48.60 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.1.02 Arba. Garima Bikas Bank Limited (GBBL) has the second-highest net interest income amounting to Rs. 79.62 Crores. GBBL is followed by Jyoti Bikas Bank Limited (JBBL) which has reported a net interest income of Rs. 59.64 Crores.

Out of the 15 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 1.76 Arba has been shown in an impairment charge for a loan and other losses.

In the national level, Garima Bikas Bank Limited (GBBL) has the highest impairment charge for a loan and other losses with Rs 28.13 Crores. Likewise, Green Development Bank Limited(GRDBL) in the regional level to have impairment charges of Rs.  3.84 Crores. Also, Shine Resunga Development Bank Limited (SHINE) has reversal of impairment charges amounting to Rs. 4.98 Crores.

Earnings per share:

Shine Resunga Development Bank Limited (SHINE) topped the list in terms of EPS amounting to Rs. 22.12 per share. Muktinath Bikas Bank Limited (MNBBL) has the second-highest EPS with Rs. 21.74 per share.

In the regional level, Karnali Development Bank Limited (KRBL) reported highest EPS of Rs. 13.09 per share.

Out of 15 development banks, 7 banks have reported above industry average EPS.

Non-Performing Loan:

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 0.77% and Mahalaxmi Bikas Bank Limited (MLBL) has reported the highest NPL of 3.62% from the national level.

Likewise, in the regional level, Sindhu Bikas Bank Limited (SINDU) has reported the lowest NPL of 1.13%. 

Out of 15 banks, 7 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. 

P/E Ratio:

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, Shine Resunga Development Bank Limited (SHINE) has the lowest P/E ratio of 12.72 times. This means that you are paying Rs. 12.72 for every Rupee of earning of Shine Resunga Development Bank Limited (SHINE). Kamana Sewa Bikas Bank Limited (KSBBL) reported a P/E of 59.15 times from the national level and Sindhu Bikas Bank Limited (SINDHU) has reported P/E ratio of 169.72 times in the regional level.  

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. Also the PE is calculated as per the quarter end closing price of the respective companies. In today's date the price differs in the secondary market. 

Net worth per share:

The highest net worth per share is reported by Lumbini Bikas Bank Limited (LBBL) with Rs. 174.02 per share. This is followed by Mahalaxmi Bikas Bank Limited (MLBL) with a net worth per share of Rs. 161.02 per share. Likewise, Miteri Development Bank Limited (MDB) reported a net worth of Rs. 146.07 per share making it the highest in the regional level. 

The average net worth per share comes at Rs. 134.50 per share when we factor in all the net worth per share of all the 15 banks.