Thorough Evaluation: Q3 2080/81 Financial Performance Analysis of Finance Companies in Nepal Unveiled

The third-quarter reports for the fiscal year 2080/81 have recently been unveiled by 15 finance companies, offering a comprehensive insight into their financial standings. This analysis aims to meticulously evaluate the financial performance of Finance Companies of Nepal, categorized as a "C" class financial institution, based on their unaudited 3rd quarterly report of the 2080/81 fiscal year.

Within the Nepal Stock Exchange (NEPSE), there exist a total of 15 finance companies, each falling into distinct categories, namely National-level and Regional-level. Our specific focus revolves around meticulously examining the performance of C-class financial institutions within this framework, leveraging insights gleaned from the disclosed third-quarter reports.

Net profit:

As per the quarterly report, Manjushree Finance (MFIL) has reported the highest net profit for the period amounting to Rs. 15.10 Crores. Gurkhas Finance (GUFL) comes in second place in terms of profit which amounts to Rs. 5.49 Crores.

Likewise, Multipurpose Finance Company (MPFL) has reported the highest growth in net profit of 197.20% while Nepal Finance Company (NFS) reported the highest decline in net profit of 86.64% in the Q3 of FY 80/81.

Paid-up capital:

Manjushree Finance (MFIL) has the highest paid-up capital amounting to Rs. 1.35 Arba among all the finance companies. ICFC Finance (ICFC) has the second-highest paid-up capital amounting to Rs. 1.18 Arba.

On the other hand, Multipurpose Finance Company (MPFL) has the lowest paid-up capital of Rs. 61.02 Crores.

Reserve and surplus:

The reserve is the amount that is retained by the company from its profits to promote future growth.

Manjushree Finance (MFIL) has reported the highest reserve and surplus which amounts to Rs. 80.76 Crores. MFIL is followed by ICFC Finance (ICFC) with a total reserve of Rs. 62.26 Crores. Gurkhas Finance (GUFL) has secured the third position with a reserve of 45.37 Crores.

Whereas, four finance companies have reported negative reserves and surplus.

Deposits from Customers:

In C-class institutions, ICFC Finance (ICFC) has topped the list with a total deposit of Rs. 18.82 Arba. This list is followed by Manjushree Finance (MFIL) with a total deposit of Rs. 15.44 Arba. 

The overall finance companies have collected a total deposit of Rs. 1.18 Kharba.

Loans and Advances to Customers:

Till Q3 2080/2081, total loans and advances of finance companies stood at Rs. 86.47 Arba. The average loan stood at Rs. 5.76 Arba.

ICFC Finance (ICFC) has disbursed the highest amount of loans which amounts to Rs. 14.07 Arba. Following the list, Manjushree Finance (MFIL) has disbursed a total loan of Rs. 13.26 Arba. Goodwill Finance (GFCL) has disbursed a loan of Rs. 8.40 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, Manjushree Finance (MFIL) tops the list with a total of Rs. 54.56 Crores. ICFC Finance (ICFC) has the second-highest net interest income amounting to Rs. 38.69 Crores. ICFC is followed by Pokhara Finance (PFL) which has reported a net interest income of Rs. 23.77 Crores.

Out of the 15 finance companies, 6 companies have reported above-industry-average net interest income.

Provisions for the period (Impairment/Reversal):

A total of Rs 1.5 Arba has been shown in an impairment charge for a loan and other losses.

Pokhara Finance (PFL) has the highest impairment charge for a loan and other losses with Rs. 33.79 Crores. Janaki Finance Company (JFL) also has higher provisions amounting to Rs. 23.10 Crores.  

Earnings per share:

Manjushree Finance (MFIL) topped the list in terms of EPS amounting to Rs. 14.90 per share. Gurkhas Finance (GUFL) has the second-highest EPS with Rs. 8.43 per share.

Net worth per share:

The highest net worth per share is reported by Manjushree Finance (MFIL) with Rs. 159.75 per share. This is followed by ICFC Finance (ICFC) with a net worth per share of Rs. 152.61 per share. Similarly, Gurkhas Finance (GUFL) reported a net worth of Rs. 152.27 per share.

The average net worth per share comes at Rs. 121.28 per share when we factor in the net worth per share of 15 companies.

P/E Ratio:

The 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, Manjushree Finance (MFIL) has the lowest P/E ratio of 33.90 times. Meanwhile, Best Finance Company (BFC) reported the highest P/E of 282.77 times.

One should always check the fundamentals of the company and if they find 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.

Non-Performing Loans:

Non-performing loan indicates the risk of credit provided by the bank to its clients. A higher NPL indicates that the bank might be at risk.

In terms of NPL, Shree Investment Finance Company (SIFC) has the lowest ratio with an NPL of 2.55%, and on the other hand, Janaki Finance (JFL) has reported the highest NPL of 28.91%.

Capital Adequacy Ratio (CAR):

In terms of the Capital Adequacy ratio (CAR), Multipurpose Finance Company (MPFL) seems to have reported the highest CAR of 39.05%, while Progressive Finance (PROFL) has the lowest CAR of 11.37%.

CAR is the ratio of a bank's capital in relation to its risk-weighted assets and current liabilities.


Cost of Funds, CD Ratio, Base Rates, and Interest Spread:

Cost of Funds: The term cost of funds refers to how much banks and financial institutions spend in order to acquire money to lend to their customers. The lower the cost of funds, the better because it ultimately reduces the cost of banks. As per reports, Multipurpose Finance Company (MPFL) has the highest Cost of Funds at 9.94%, whereas Gurkhas Finance (GUFL) has the lowest cost of funds at 7.78%.

CD Ratio: The CD ratio refers to the credit-deposit ratio in banking parlance. It tells how much of the money banks have raised in the form of deposits has been deployed as loans. Manjushree Finance (MFIL) has reported the highest CD ratio of 84.74%, whereas Central Finance (CFCL) has reported the lowest CD ratio of 65.55%.

Base Rate and Interest Spread:

Base rate is defined as the minimum interest rate set by the NRB below which banks are not permitted to lend to their customers. Samriddhi Finance Company Limited (SFCL) reports the highest base rate of 14.86%, and Gurkhas Finance (GUFL) has the lowest base rate of 10.81%.

Likewise, the net interest rate spread represents the variance between the interest rate disbursed to depositors and the interest accrued from loans extended to consumers by a bank. Among the majority of finance companies, a consistent interest spread rate of 4.53% has been upheld, with the highest reported at 4.59%.

Finally, the table below provides a full picture of the major indicators of finance companies as of the third quarter of FY 2080-2081.