The development banking industry and individual company: Excel Development bank excels even in the fourth quarter

The development banking industry is often found to be changing in today’s scenario. The influence of raised paid up capital requirement is still visible in this sector as the number of listed companies keeps on changing. The merger and acquisition process in still on the runway in this sector. Business students and investors are often confused in understanding the categorization of this industry. Here, is the overall status of companies operating as of today:

Please note that three microfinance institutes are going into merger and acquisition namely Sahara Bikas Bank Limited (SHBL), Western Development Bank Limited (WDBL), Hamro Bikas Bank Limited (HAMRO). Sahara Bikas Bank (SHBL) is in acquisition process by Deva Bikas Bank Limited (DBBL), Western Development Bank Limited (WDBL) is in the process of acquisition by Deva Bikas Bank Limited (DBBL) and Hamro Bikas Bank Limited is in the process of acquisition by Jyoti Bikas Bank Limited (JBBL). Post-merger, there will be 16 development banks. The analysis excludes banks which are yet to float IPO, problem ridden banks and Sahara Bikas Bank Limited (SHBL). Hence, the comparative analysis highlights the situation of 18 development banks operating in 1 to 3 districts only.

 The further analysis is focused on the 18 development banks operating in 1 to 3 districts and discards all the remaining banks.

Industry analysis:

If the development banks are to be categorized in terms of national level, operating in 4 to 10 districts and operating in 1 to 3 districts, the contribution each category provides to the overall sector with respect to indicators are as follows:

The individual indicators can be further analyzed for each bank from the following paragraphs:

Net profit:

As per the net profit of fourth quarter of 2074/75, Excel Development Bank Limited (EDBL) is in the lead with a profit of Rs 15.66 crore. Similarly, Sahayogi Vikas Bank (SBBLJ) has the second highest net profit of Rs 11.95 crore in the same quarter. The bank with the least net profit is Green Development Bank (GRDBL) whose net profit amounts to Rs 0.83 crore.

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Paid up capital:

The central bank of the country has directed these development “B” categorized banks to meet the paid up capital requirement. NRB has directed development banks of national level to meet the paid up capital of at least 2.50 arba, development banks operating in 4 to 10 districts to meet the paid up capital of at least 1.2 arba and development banks operating in 1 to 3 districts a paid up capital of 50 crores.  Fourteen of the banks namely, Excel Development Bank (EDBL), Nepal Community Development Bank Limited (NCDB), Purnima Bikas Bank Limited (PURBL),  Mission Development bank (MIDBL), Sahayogi Vikas Bank (SBBLJ), Saptakoshi development Bank (SKDBL), Tinau Bikas Bank Limited (TNBL), Kanchan Development bank (KADBL), Western Development Bank Limited (WDBL), Kankai Bikas Bank Limited (KNBL), Sindhu Bikas Bank Limited (SINDU), Green Development Bank Limited (GRDBL), Kankai Bikas Bank Limited (KNBL) and Miteri Development Bank (MDB) have already met the paid up capital requirement of 50 crores. Excel Development Bank Limited has the highest paid up capital of Rs 69.27 crores followed by Nepal Community Development Bank (NCDB) with Rs 52.64 crores. All the remaining banks have to meet the paid up capital requirement by FY 2074/75. So, investors can look forward for bonus shares and right shares from these development banks.

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Reserve and surplus:

With the changes in paid up capital, the reserves and surplus of the banks are likely to be affected. In terms of reserves and surplus, Excel Development Bank (EDBL) has maintained its lead even in reserve and surplus of Rs 26.83 crore. Sahayogi Vikas Bank Limited (SBBLJ) has maintained second position with Rs 22.38 crore reserve and surplus fund. Investors are requested to note down the bank with negative reserve and surplus is Corporate Development Bank Limited (CORBL) having a negative reserve of Rs 14.51 crores.

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 Deposit collection:

The development banks are going through an intense competition with each other. The banks have been trying their best to attract the deposit clients. As of the third quarter of FY 2074/75, just like the three indicators above, Excel Development Bank (EDBL) has established itself in the top list in deposit collection as well. It has a deposit worth Rs 523.53 crores. Similarly, the bank is followed by Tinau Bikas Bank Limited (TNBL) and Mission Development Bank Limited (MIDBL) with the collected deposit of Rs 491.58 crore and Rs 405.62 crore respectively. CORBL has the lowest deposit collection of Rs. 7.19 crore only. The position is consistent with the third quarter of the same fiscal year.

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Loans and advances:

As shown by the figures, the positions in loans and advances are almost similar to deposit. The top three positions are occupied by Excel Development bank (EDBL), Tinau Development Bank (TNBL) and Kanchan Development Bank Limited (KADBL) with credit disbursement worth Rs 429.76 crores, 393.02 crores and 335.16 crores.

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Major indicators:

Earnings per share (Annualized):

With the increment in the paid-up capital requirement, the EPS were expected to fall. However, some banks have managed to maintain their EPS better than others. The top position, is occupied by Sahayogi Bikas Bank Limited (SBBLJ) with EPS of Rs 23.45. Excel Development Bank (EDBL) with an annualized EPS of Rs 22.61 per share.

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P/E Ratio:

The development bank (operating in 1 to 3 districts) with the lowest P/E ratio as of 20^th August, 2018 is is Sahayogi Bikas Bank Limited (SBBLJ) i.e. 8.53 times followed by Purnima Bikas Bank Limited with P/E ratio of 11.05 times.

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Net worth per share:

The highest net worth per share among these development banks is Rs 148.36 of Kabeli Bikas Bank Limited (KEBL). Sahayogi Bikas Bank Limited (SBBLJ) has the second highest net worth per share as of Q4 of FY 2074/75 i.e. Rs 143.92.

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A full picture:

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

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From the table above, we can see that Excel Development Bank (EDBL) has been able to occupy the top space for 5 indicators out of 8. 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.

Please feel free to drop a comment if you have any say on the operation of these development banks.