Despite some major economic challenges and slowdown in overall economy, quarterly results published by national level development banks as on Poush 2081 shows convincing and adequate growth in major performance indicators. In this article we have tried to highlight the major performance indicators of national level development banks as on Poush 2081

      Performance Analysis of National Level Development Banks- Poush 2081

Analysis -1 : Gross Loan

What does Gross Loan mean to Bank? Gross Loans mean total value of loans and advances consisting of Loans and Advances, Accrued Interest Receivable (AIR), Staff Loan and Gross LLP. Loans are assets to the Bank and are booked under Bank’s Balance Sheet under assets head.

Muktinath Bikas Bank has the highest loans and advance net of impairment as on Poush 2081 of Rs.97.66 Billion followed by Garima Bikas Bank with loan portfolio of Rs. 72.08 Billion amongst all national level development banks. Lowest Loan portfolio is of Mahalaxmi Bikas Bank with Loan amount of Rs. 45.86 Billion. 

In terms of Year-to-Date growth, Muktinath Bikas Bank increased its loan portfolio by Rs. 3.62 Billion followed by Garima Bikas Bank with increment of Rs.3.16 Billion and Kamana Sewa Bikas Bank by Rs.2.80 Billion till Poush 2081. Jyoti Bikas Bank however witnessed negative loan growth of Rs. 3.02 Billion. In terms of growth percentage Kamana Sewa Bikas Bank loans grew by 5.71% as compared to Ashadh 2081. Overall loans of national level development banks grew by 2.97% till Poush 2081 with growth of Rs.1.69 Billion.

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Analysis -2 : Deposits 

What does Deposit mean to Banks? Deposits if the total fund collected by the Bank from its customers. Deposit is shown in liability side of Bank’s Balance Sheet which consists of “Due to Bank and Financial Institutions” and “Deposit from Customers”. Banks normally collect deposit in a form of Fixed, Saving, Current, Call, Margin, Recurring accounts.

Deposit Performance Analysis: 

Deposit Volume of National Level Development Banks grew by 0.73% on an average from Rs. 70.13 Billion to Rs. 70.65 Billion. Muktinath Bikas Bank has highest portfolio size of Rs.113.60 Billion as on Poush 2081 followed by Graima Bikas Bank and Jyoti Bikas Bank with portfolio of Rs. 88.81 Billion and Rs. 69.72 Billion respectively.  Major growth in deposit was achieved by Shine Resunga Development Bank with increment of 5.13% as compared to Ashadh 2081. Average deposit growth of national level bank remained at 0.73%.

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Analysis - 3 : Net Interest Income (NII)

What does Net Interest Income (NII) mean to Banks? Interest Income is recognized on interest bearing advances and financial assets whose income is booked to statement of profit or loss under interest income, whereas Interest Expenses is booked on interest bearing deposits or financial liabilities whose expenses is booked in statement of profit or loss under interest expenses. The net difference between these income and expenses is referred as Net Interest Income (NII).

Net Interest Income (NII) Performance Analysis: 

Net Interest Income is the difference between Interest Income and Interest Expenses of the Bank. NII is the major source of Bank’s revenue. NII of 6 national level development Banks shows positive growth whereas of 2 Banks shows negative growth as on Poush 2081. Leading the NII in terms of volume is Muktinath Bikas Bank with Rs.  2.194 Billion of NII followed by Shine Resunga Development Bank with Rs. 24.82% growth followed by Mahalaxmi Bikas Bank with 14.15% annual increment. During the review period, Shangrila Development Bank’s NII decreased by Rs.28.07 Million. Industry Average NII growth stands at 7.21%.  

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Analysis - 4 : Net Fee and Commission Income (NFCI)

What does Net Fee and Commission Income (NFCI) mean to Banks? Net Fees and Commission Income is supplementary source of revenue in addition to Net Interest Income of the Bank consisting of charges, fees or commission on products or services offered by the Bank. Bank’s normally collect loan administration fees, renewal fees, digital banking fees, card issuance fees, remittance commission among others.

Net Fees and Commission Income Performance Analysis:

During the review period Muktinath Bikas Bank managed to collect highest amount of NFCI of Rs. 291.43 Million. Garima Bikas Bank secured the highest growth of 25.18% with increment of Rs.47.88 Million in its fees and commission income. Amongst the highest decrement Jyoti Bikas Bank decreased its Fees and Commission income by 15.74%. Overall industrial average growth remained at 8.32% with 5 Banks being able to achieve positive growth while 3 banks encountered negative growth.

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Analysis -5 : Impairment Charges

What does Impairment Charges mean to Banks? Impairment Charges are charges recognized as expenses by Banks when Bank expects that they will not recover full amount of expected cash flows of loans. Impairment Charges are reversed if the expected cash flows are lateral realized. Banks try to minimize their Impairment Charges to increase their profitability through stronger recovery actions.

Impairment Charges Performance Analysis: 

Impairment charges of overall industry increased by 14.25% during the review period. Heavy increment in impairment charges pertains to Lumbini Bikas Bank, Shine Resunga Development Bank and Mahalaxmi Bikas Bank whose NPL increased by 395.95%, 242.02% and 106.95% as compared to Poush 2080. In terms of negative growth Shangrila Development Bank’s and Jyoti Bikas Bank’s impairment charges fell by 46.97% and 34% respectively as compared to Poush 2080.     

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Analysis - 6 : Personnel Expenses (Excluding Bonus)

What does Personnel Expenses mean to Banks? Personnel expenses includes expenses related to employees of the Bank. Personnel Expenses mostly include staff’s salary, allowances, pension, gratuity, contribution to provident fund, training expenses, uniform expenses, insurance, staff bonus, finance expense under NFRS etc. Banks are required to create provision for staff bonus which is a mandatory requirement under the requirement of the Bonus Act, 2074. Amount of bonus is not included here under analysis.

Personnel Expenses (Excluding Bonus) Performance Analysis:

Lumbini Bikas Bank seems to have best managed its staff costs with lowest Personnel Expenses of Rs.191.72 Million as on Poush 2081. Highest amount of personnel expenses is booked by Muktinath Bikas Bank of Rs.586.03 Million. In terms of highest Y-o-Y growth, Personnel Expenses of Garima Bikas Bank increased by 23.84% as compared to previous year. In terms of lowest increment in Personnel Expenses, Lumbini Bikas Bank and Jyoti Bikas Bank managed to decrease its costs by 3.50% and 0.63% respectively. Overall Industry’s average personnel expenses grew at 7.51% y-o-y.

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Per branch staff expenses (Excluding bonus) Performance Analysis

Lumbini Bikas Bank seems to have lowest per branch staff costs of Rs.2.15 Million as compared to others followed by Jyoti Bikas Bank with per branch staff cost of Rs.2.58 Million.  In terms of highest per branch staff costs Garima Bikas Bank had Rs.3.82 Million per branch staff cost.  Banks whose per branch staff expenses has decreased as compared to earlier year are Lumbini Bikas Bank and Jyoti Bikas Bank whose per branch staff cost decreased by 3.5% and 0.63% Y-o-Y. In terms of highest Y-o-Y growth, Garima Bikas Bank’s per branch staff cost grew by 23.84% from Rs.3.09 Million to Rs.3.82 Million. Overall industry’s per branch average staff costs grew at 7.79% Y-o-Y.   

Million

Analysis -7 : Operating Expenses

What does Operating Expenses mean to Banks? Operating expenses of the Bank includes day to day operation related expenses and consists of Personnel Expenses, Depreciation and Amortization and other operating expenses of the Bank like Operating Expenses consists of Administration Expenses, Audit Fees, Lease Expenses among others.

Operating Expenses Performance Analysis: 

Lumbini Bikas Bank seems to have best managed its operating expenses with lowest Operating Expenses of Rs.120.83 Million as on Poush 2081. Highest amount of operating expenses is incurred by Garima Bikas Bank of Rs.271.40 Million. In terms of highest Y-o-Y growth, Operating Expenses of Garima Bikas Bank increased by 12.83% as compared to previous year. Muktinath Bikas Bank managed to decrease its operating expenses by 10.19% during the review period. Overall Industry’s average operating expenses grew by 0.12% y-o-y.

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Per Branch Operating Expenses Performance Analysis: 

In terms of per branch operating expenses Muktinath Bikas Bank seems to have lowest per branch operating costs of Rs. 1.20 Million followed by Lumbini Bikas Bank with Rs.1.36 Million. In terms of Year-on-Year variance Garima Bikas Bank’s operating expenses per branch increased by 12.83% followed by 5.73% increment of Shine Resunga Development Bank as compared to earlier year.

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Analysis - 8 : Loan Write-offs

What does Loan Write-offs mean to Banks? Loans are written off by the Banks when Bank’s consider loans to be uncollectable even after necessary recovery efforts from the Bank. Written off loans are removed from Bank’s Balance Sheet and are booked as expenses under non-operating expenses of the Bank reducing Bank’s profit.

 Loan Write-offs Performance Analysis:

During the review period Jyoti Bikas Bank and Muktinath Bikas Bank are the only bank which have not written-offs any loans as on Poush 2081. Highest value of loan was written-off by Shine Resunga Development Bank of Rs.7.92 Million. In terms of Y-o-Y comparison Kamana Sewa Bikas Bank’s write-off expenses surged to 7.63 Million from earlier Rs. 0.15 Million. Overall Industry’s average Loan Write-off expenses decreased by 24.64% y-o-y from Rs. 3.84 Million to Rs. 2.89 Million.                                                                                            

Million

Analysis -9 : Net Profit After Tax (NPAT)

What does Net Profit After Tax (NPAT) mean to Banks? Net Profit After Tax (NPAT) means the final profit  after deduction of all the expenses and taxes of the Bank. Net Profit helps to judge the profitability healthiness of the Bank. Higher the NPAT better is the bank’s performance in terms of return to shareholders.

Net Profit After Tax Performance Analysis:

Average Net Profit After Tax of overall national level development banks grew at 14.78% Y-o-Y. Jyoti Bikas Bank managed to increase its NPAT by 147.57% from Rs. 101.03 Million to Rs. 250.13 Million followed by Shangrila Development Bank with 96.10% increment from Rs. 100.23 Million to Rs.196.56 Million. NPAT of Lumbini Bikas Bank decreased by 30.46% and remained at 147.62 Million. Most of the Banks managed to achieve positive NPAT growth except Lumbini Bikas Bank and Shine Resunga Development Bank with Y-O-Y decrement of Rs. 64.65 Million and Rs. 40.35 Million respectively.

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Analysis -10 : Distributable Profit and DPS

What does Distributable Profit and DPS mean to Banks? Distributable Profit (DP) means the final profit which is available for distribution to shareholders. If the same distributable profit is divided by number of available shares with Bank then Dividend Per Share (DPS) is derived which shows how much dividend a share will generate. Higher the distributable profit and DPS better will be the Bank from Shareholders perspective.

Distributable Profit and DPS Performance Analysis: 

All national level development banks except Jyoti Bikas Bank have positive distributable profit as on Poush 2081.Industrial average distributable profit remained at Rs.159.55 Million as on Poush 2081. It was negative Rs. 53.84 Million in last Poush 2080. Lumbini Bikas Bank managed to increase its distributable profit by massive 406.69% as compared to previous year. Thanks to its reversal of NBA provision by Rs.2 crores and lower apportionment of AIR balance to regulatory reserve as compared to previous year, its distributable profit remained at Rs.76.44 Million with DPS of Rs.2.11 per share. Muktinath Bikas Bank, which did not distributed dividend this year, has the highest Distributable Profit amount of Rs.542.82 Million with DPS of Rs. 9.88 per share followed by Kamana Sewa Bikas Bank with distributable profit of Rs.375.58 Million with DPS of Rs. 21.40 per share.

Analysis -11 :  Non-Banking Assets (NBA)

What does Non-Banking Assets (NBA) mean to Banks? If a loan provided is defaulted, then Bank may sell the collateral held and recover the dues of borrower from such collateral sales. However, sometimes the collateral may not be sold and Bank may have to itself take such assets. Such assets are Non-Banking Assets to the Bank, which are shown under Investment Property under Balance Sheets.

Non-Banking Assets Performance Analysis: 

Highest amount of NBA was booked by Jyoti Bikas Bank of Rs. 697.79 Million in a year up by 0.77% as compared to Ashadh 2081. However, lowest volume of Non-Banking Assets lies in the Books of Shine Resunga Development Bank at Rs.157.05 Million followed by Lumbini Bikas Bank of Rs. 198.25 Million. Kamana Sewa Bikas Bank seems to have effectively managed its NBA by being able to get rid-off NBA equivalent to Rs43.24 million followed by Garima Bikas Bank with decrement of Rs.40.64 Million. Overall Industry’s NBA increased by 1.30% during the review period.

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Analysis -12 : Base Rate

What does Base Rate mean to Banks? Base Rate is the floor rate upon which premium is charged by Banks to derive lending rate. Base rate consists of Cost of Fund, Cost of CRR, Cost of SLR and Operating Costs of the Bank. Higher base rate means Banks are obtaining funds at higher rate and lower base rate means banks are obtaining funds at lower rates. Higher Base rate also means expensive lending rates and lower base rate means cheaper lending rates.

Base Rate Performance Analysis: 

During the review period Industry average base rate remained at 7.72%. As compared to Poush 2080, Average Base rate which was 10.83% of all the national level development banks have decreased due to falling cost of deposits. Lumbini Bikas Bank has lowest Base Rate of 7.90% whereas Mahalaxmi Bikas Bank’s base rate of 7.48% is the highest amongst peer.

Analysis -13 : Earning Per Share (EPS)

What does Earning Per Share mean to Banks? Earnings Per Share (EPS) is the amount of profit earned by the Bank equivalent to each of its share. Higher the EPS, better it is and vice versa. It is computed by dividing Net Profit by total number of shares of the Bank.

Earnings Per Share Performance Analysis: 

Garima Bikas Bank has the highest EPS of Rs.19.34 per share followed by Kamana Sewa Bikas Bank with Rs.18.37 per share. Three banks have their EPS above industrial average of 13.79 whereas 5 banks have their EPS below industrial average. Lumbini Bikas Bank has the lowest EPS of Rs.8.15 per share as on Poush 2081.

Analysis -14 : Non-Performing Loan (NPL)

What does Non-Performing Loan mean to Banks? Non-Performing Loans (NPL) are those loans which are classified under Doubtful, Substandard and Bad as per the NRB provisions. Higher Non-Performing Loans ratio means higher probability of loan defaults, so Banks try to maintain NPL as low as possible.

Non-Performing Loans (NPL) Performance Analysis: 

Industry Average non-performing loan (NPL) of overall industry remained at 4.63% as on Poush 2081. Higher NPL triggers increased risk of credit defaults and lower changes of credit recovery, so bank’s try to restrict their NPL as low as possible. During the review period, Muktinath Bikas Bank managed to keep its NPL at 3.98% which is lowest amongst peers, followed by Kamana Sewa Bikas Bank with 4.35% NPL. Highest NPL was reported by Shangrila Development Bank of 4.99% as on Poush 2081. Considering Y-o-Y growth, NPL of Shine Resunga Development Bank’s growth of 1.78% was highest amongst the peer. 

Analysis -15 : Cost of Fund 

What does Cost of Fund mean to Banks? Cost of Fund means the cost incurred by the Bank to obtain funds in a form of deposit or borrowings. It includes cost of local currency deposit and borrowings obtained by the Bank.

Cost of Fund Performance Analysis: 

During the review period lowest cost of fund was of Mahalaxmi Bikas Bank at 5.29% followed by 5.37% of Shine Resunga Development Bank. This means these banks are soliciting funds at lower costs than peers. However, cost of fund of Lumbini Bikas Bank remained highest amongst peer at 6.18% as on Poush 2081. Industry average cost of fund remained at 5.62% as on Poush 2081. 

Analysis -16 : Capital Adequacy Ratio (CAR)

What does Capital Adequacy Ratio mean to Banks? Capital Adequacy Ratio (CAR) measures the sufficiency of Bank’s capital in terms of its credit, operation and market or liquidity risk weighted exposures. It indicates the sufficiency of Bank’s capital commensurate to risk pertaining to business growth, gross income and open position. NRB has mandated banks to maintain CAR of at least 11% in line with Capital Adequacy Framework, 2015.

Industrial average CAR remained at 12.92% as on Poush 2081. Mahalaxmi Bikas Bank managed to remain at top with CAR of 14.99% whose Y-o-Y CAR increased by 2.22% as compared to earlier year followed by Shangrila Development Bank with CAR of 13.32% a raise of 1.80% from earlier year. Lowest CAR was reported by Muktinath Bikas Bank of 11.87%. 

Analysis -17 : Credit to Deposit (CD) Ratio

What does CD Ratio mean to Banks? Credit to Deposit (CD) ratio is the measure which shows proportion of credit and deposit mix of the Bank. Till Ashadh 2081 Banks were allowed to include 50% of their debenture as part of deposit. NRB has set maximum limit of CD ratio at 90%. Higher CD ratio means higher portion of lending as compared to Bank’s deposit volume and lower CD ration means lower portion of lending as compared to Bank’s deposit volume. Banks try to maintain optimum CD ratio by balancing between credit and deposit mix.

Credit to Deposit (CD) ratio Performance Analysis: 

During the review period industrial average CD ratio remained at 84.83%. Lumbini Bikas Bank had the highest CD ratio of 88.64% followed by Muktinath Bikas Bank of 87.07%. Lowest CD ratio was reported by Jyoti Bikas Bank of 80.49% a fall by 4.65% as compared to earlier year.

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