Three commercial banks in billionaire club; Loan and deposit crosses mark of Rs 20 kharba; Rastriya Banijya Bank leads in profit: A comparative analysis of commercial banks for Q1

Mon, Nov 19, 2018 4:57 PM on Exclusive, Stock Market, Latest,

Highlights:

  • Overall Deposits and Loans portfolio crosses Rs 20 kharba in the first quarter of fiscal year
  • State bank Rastra Banijya Bank leads with the highest profit 1.11 arba
  • Three commercial banks in the billionaire club

In Nepalese capital market, the first quarter financial reports hold a major significance to the individual and institutional investors. The nature of performance shown in the first quarter often predicts how the institute will be performing in the remaining fiscal year. Among the categorized financial institutes, listed in NEPSE, commercial banks occupy a larger market weightage. Thus, the performance of commercial banks are of concern to majority of investors. However, the new format i.e. NFRS adopted to publish quarterly reports have created hassle among investors.

The purpose of the article is to reflect upon the financial status of the commercial banks and the definition of specimen in NFRS standard financial reports. The industry average in the article is calculated referring to 28 commercial banks.

The financial report in NFRS format can be categorized into four segments:

  1. Balance sheet
  2. Profit and loss statement
  3. Statement of reconciliation
  4. Segmental reporting
  5. Disclosure as per Securities Registration and Issuance, 2073

The former two will be of major concern in the further analysis.

Profit/loss for the period:

As per the net profit of first quarter of 2075/76, Rastriya Banijya Bank (RBB) is in the lead with a profit of Rs 1.11 arba. Similarly, Nepal Investment Bank (NIB) has the second highest net profit of Rs 1.05 arba in the same quarter. In the third position, NABIL Bank Limited (NABIL) has the net profit of Rs 1.05 arba. The bank with the least net profit is Civil Bank Limited (CBL) whose net profit amounts to Rs 18.51 CRORE.

The industry average net profit of the 28 commercial banks is Rs 55.01 crore. 12 commercial banks have net profit above the industry average. Remaining all banks have net profit below the industry average. Find the details in the pictures below:

 

(Please download and study the image in case of difficulty upon studying).

In the NFRS format of financial statements, investors will find several types of income and profits. For instance, profit for the period, comprehensive income, distributable profit, profit after regulatory adjustments, etc. However, the actual profit can be determined through specimen “profit/loss for the period” of financial statement.

Paid up capital:

Paid up capital in NFRS refers to the amount of money that commercial banks have received from their shareholders through the exchange of shares in the primary market. The central bank of the country has directed these “A” categorized banks to meet the paid up capital requirement of at least 8 arba. Three banks namely Kumari Bank Limited (KBL), Bank of Kathmandu Limited (BOKL) and Nepal Credit and Commercial Bank (NCCB) are still to meet the paid up capital requirement. These commercial banks are also expected to meet the paid up capital requirement through dividend distribution. NCCB recently allotted 50% right shares worth Rs 2.33 arba out of which 0.79 crores share is unsubscribed. The unsubscribed shares will be auctioned later.  The bank with highest paid up capital are Nepal Investment Bank (NIB) with Rs 10.65 arba capital, Mega Bank Limited (MEGA) with Rs 10.29 arba and Nepal Bank Limited (NBL) with Rs 9.81 arba paid up capital.

 

(Please download and study the image in case of difficulty upon studying).

Reserve and surplus:

Reserves are the funds earned by the company from a specific purpose which the company intends to use in the future. Surplus is the one point in balance sheet where P/L account and balance sheet interacts. For instance, the profit of the company resides in surplus. The profit/loss from “Net comprehensive income (NCI)” in P/L account is transferred to reserve and surplus of the balance sheet. NCI is derived from profit/loss generated from fair valuation through Other Comprehensive Income (OCI) and added to profit of the year. This income/loss is kept under “Component of equity” under reserve and surplus section of balance sheet. Dividends that commercial banks distribute is through surplus.

With an industry average of Rs 6.52 arba, 9 banks stand above the average range of Rs 6.52 arba in their reserve fund. Under NFRS reporting, most of the banks’ reserves and surplus is higher compared to the old NRB directives’ format. It is  mainly because of valuation securities as per fair valuation methods.

As each and every commercial bank adopted different paid up increment strategy, the impact is seen in the reserve and surplus fund of these banks. In terms of reserves and surplus, Nepal Bank Limited (NBL) has maintained its lead with a reserve and surplus of Rs 19.61 arba. Nepal Investment Bank Limited (NIB) has maintained second position with Rs 15.64 arba reserve and surplus fund. Agriculture Development Bank Limited (ADBL) is in the third position with reserve and surplus of Rs 14.70 arba. The bank with least reserve and surplus is Century Commercial Bank Limited (CCBL) with a reserve of Rs 1.38 arba.

 

(Please download and study the image in case of difficulty upon studying).

 Deposit collection:

In an average among 28 banks of the country, a bank has collected Rs 90.40 arba as deposit. Only 12 banks are above the average deposit collection.

In the banking sector, the deposit collection will play a major role in the upcoming days. All the banks except three banks have the same range of paid up capital which is equal or above Rs 8 arba. So, the commercial banks is going through a severe competition with each other in order to attract the deposit clients. As of the first quarter of FY 2075/76, Rastriya Banijya Bank (RBB) stands on top with total deposits worth Rs 1.64 kharba. NIC Asia is aggressively involved in collecting deposits from existing and prospective clients with deposits of Rs 1.63 kharba. Similarly, the bank is followed by NABIL Bank Limited (NABIL) with the collected deposit of Rs 1.43 kharba respectively. Civil Bank Limited (CBL) has the lowest deposit collection of Rs. 39.44 arba only.

The total deposit collected by the industry is Rs 25.31 kharba.

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Loans and advances:

With paid up capital of almost same ranges, competition among commercial banks implies even in bringing the loan clients. As shown in the figure, the top position in loans and advances is occupied by NICA Bank Limited (NICA) with credit disbursement worth Rs 1.39 kharba. NABIL Bank (NABIL) has a loan and advances portfolio of Rs. 1.28 kharba. Nepal Investment Bank Limited (NIB) has the loan portfolio of Rs 1.24 kharba. Similarly on the other end of the rope, stands Civil Bank Limited (CBL) with the lowest loan and advances portfolio of Rs. 41.95 arba.

The industry average loan disbursed is Rs 80.85 arba. 12 commercial banks have the loan portfolio above Rs 80.85 arba. The total loan disbursed is Rs 22.63 kharba. Find the details in the pictures below:

(Please download and study the image in case of difficulty upon studying).

Free profit/loss after regulatory adjustments:

The commercial banks are further required to calculate the free profit/loss after regulatory adjustment. This free profit/loss is related with the statement of reconciliation published in financial reports. The commercial banks are required to reconcile profit between NFRS financials and NRB Directives, 2074 based financials. The bank with highest free profit after regulatory adjustment is Nepal Investment Bank (NIB) is Rs 1.05 arba. In the second position, Nepal Bank Limited (NBL) has the second highest free profit after regulatory adjustment that accounts to Rs 97.92 crore. It is further followed by NABIL Bank Limited (NABIL) with an amount of Rs 93.32 crore.

The industry average free profit after regulatory adjustment accounts to Rs 45.22 crore.

(Please download and study the image in case of difficulty upon studying).

Major indicators:

Earnings per share (Annualized):

With the increment in the paid-up capital requirement, the EPS of these banks were expected to fall. However, some commercial banks have managed to maintain their EPS better than others. Nabil Bank Limited (NABIL) becomes the bank to serve investors with highest annualized EPS of Rs 51.36 per share. Rastra Banijya Bank (RBB) has the second highest EPS of Rs 49.71 per share.  Nepal Credit and Commercial Bank Limited (NCCB), with an unmet paid up capital stands in the third position with annualized EPS of Rs 40.05 per share. Civil Bank Limited (CBL) stays at the bottom with an earning of Rs. 5.95 per share.

The average EPS of 28 commercial banks stands at Rs 26.49. 13 commercial banks still provide EPS higher than that of the industry average.

In the old format, investors calculated EPS through “net profit divided by no. of outstanding shares”. However, the EPS calculation is not possible through the same approach in context of NFRS format. Under NFRS, Weighted number of outstanding shares is taken to calculate EPS.Hence, investors should rely on the published EPS.

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P/E Ratio:

Again, Nepal Credit and Commercial Bank (NCCB), with an unmet paid up capital, has the least PE ratio of 5.24 times. It is followed by Nepal Bank Limited (NBL) with PE ratio of 7.39 times and finally Civil Bank Limited (CBL) has highest PE ratio of 27.90 times.

17 commercial banks have a P/E ratio lower than the industry average of 13.88 times. This figure suggests that commercial banks are far cheaper than expected.

(Please download and study the image in case of difficulty upon studying).

Net worth per share:

The highest net worth per share among these commercial banks is Rs 299.89 which belongs to Nepal Bank Limited (NBL). Nabil Bank Limited (NABIL) is in the second position with Rs 271.52. Nepal Investment Bank (NIB) has the third highest net worth per share as of Q1 of FY 2075/76 i.e. Rs 246.93. Century Commercial Bank Limited (CCBL) has the least net worth of Rs 117.15 per share.

The industry average net worth stands around Rs 175.47 per share. 11 companies have net worth more than the industry average. Find out those companies in the table below.

(Please download and study the image in case of difficulty upon studying).

A full picture:

Finally the table below provides a full picture with major indicators of the 28 commercial banks as of the first quarter of FY 2075/76:

(Please download and study the image in case of difficulty upon studying).

Don’t forget to share your views on the performance of commercial banks in the first quarter of this fiscal year.