State owned commercial banks exhibit higher staff expenses among the commercial banks: A study

• Dheerusha Tiwari

With the announcement of quarterly reports of all commercial banks, investors were keen to know about the net profit and EPS that commercial banks have to offer the investors. However, it is equally important for investors to look at other key indicators in order to attain the real value of the company. The article, therefore, aims to provide readers an understanding on expenses that banks incur towards its human resources. The expense proportion of banks can provide knowledge on how efficiently banks have been utilizing their resources and also, how much effort banks have been putting into to retain their human resources. The comparison has been made under several categories such as comparing staff expenses to operating income, staff expenses to total operating expenses, staff expenses to paid up capital and finally, staff expenses including bonus to total expenses excluding interest expenses. With the accelerating number of branches of the commercial banks, it is likely that the staff expenses have increased this year. Except state owned commercial banks such as Agricultural Development Bank (ADBL) and Rastriya Banijya Bank (RBB), all the commercial bank have a positive increase in the staff expenses in second quarter of FY 2074/75 to that of the second quarter of FY 2073/74. Janata Bank Limited is the bank that has increased the staff expenses by comparatively higher percentage than other banks as compared to the second quarter of last fiscal year. The bank’s staff expenses increased from Rs 10.19 crore (Q2, FY 2073/74) to Rs 29.82 crore (Q2, FY 2074/75). The three state owned commercial banks such as ADBL, Nepal Bank Limited (NBL) and RBB is seen to incur the highest staff expenses among all commercial banks. For instance, ADBL has staff expenses of about Rs 1.41 arba, NBL incurs staff expenses of Rs 1.22 arba and RBB that of Rs 1.19 arba. Among the private commercial banks, Himalayan Bank Limited (Rs 51.02 crore), State Bank of India (Rs 50.65 crore) and NABIL (Rs 50.49 crore) incur the highest amount of staff expenses. Banks such as Global IME, NIC Asia Bank (NICA), Everest Bank Limited (EBL), Bank of Kathmandu Limited (BOKL) incur staff expenses above 40 crore and below 50 crore. Provided figures are rupees in thousands. Staff expenses to operating income: The commercial banks of the country must be able to maintain their staff expenses in proportion to operating income. Both aggressive and lucrative staff expenses can be problematic to banks. Thus, the graph below reflects on the staff expenses of commercial banks with respect to the operating income. The average staff expense (excluding staff bonus) of commercial bank is 22.40% in relation to operating income. The above data implies that only one government bank i.e. ADBL has staff expenses above 40% in relation to the operating income. Similarly, NCCB has the highest staff expenses of 34.44% in relation to the operating income among the private commercial banks. Only two banks such as NBL and NCCB has staff expenses above 30% in relation to the operating income. If ADBL, NCCB and NBL are to be excluded from the list, the average staff expense in relation to operating income will stand at 20.79%.

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Staff expenses plus staff bonus compared to total expenses: Out of total expenses, staff expenses including bonus covers 64.99% in average among all commercial banks. Staff expenses of ADBL cover 83.28% of the total expenses while staff expenses of NBL cover 80.94% of the total expenses. Among the private banks, NABIL’s staff expenses cover 68.83% of the total expenses. In the provided context, NICA covers 53.98% of the staff expenses including bonus in relation to the total expenses which is the least among all commercial banks. The total expenses in the provided context do not include interest expenses.

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Staff expenses excluding bonus compared to total operating expenses: The average staff expense (excluding staff bonus) with respect to total operating expenses is 59.67%. Staff expenses of ADBL covers 82.21%, NBL covers 78.66% and RBB covers 72.25% of staff expenses without inclusion of bonus in relation to total operating expenses. Among the private commercial banks, Kumari Bank Limited (KBL) covers 60.36% of the staff expense (excluding staff bonus) in relation to total operating expenses.

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Staff expenses compared to paid up capital: The staff expenses of ADBL, NBL and RBB cover 16.68%, 15.17% and 13.93% of the paid up capital respectively. Several banks have not met the paid up capital requirement so, banks such as Prabhu Bank Limited (PRVU) and Bank of Kathmandu Limited (BOKL) are seen to cover the highest staff expense i.e. 7.30%and 6.43% respectively in relation to the paid up capital among the private commercial banks. This might not be a meaningful comparison since these banks are yet to meet the paid up capital requirement.

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Hence, the large number of employees and employee benefit facilities of the government banks justify the higher staff expenses among the state owned banks. Finally, what thoughts do you have on the expenses incurred by commercial banks in Nepal? Do you think the human resources of the private commercial banks are exploited to its extreme? Do you think the commercial banks have provided a fair pay to its staffs? Do you believe the proportion of expenses that the commercial banks are incurring is in proportionate to the net profit the banks have gained? Please feel free to provide your views in the comment section below. (Disclaimer:  Any kind of information that is provided in the article should not be used as a sole advice or recommendation by investors in order to design their investment portfolio. So, before taking steps for any kind of the information, the investors are required to base their judgment on their own financial analysis, appropriateness of the information and seek independent financial advice. The information of the company has been taken from the authorized sources such as website of the company, NEPSE, financial reports and press releases of the companies so, any changes not updated in these may differ in the analysis.)