Nabil Bank near its high, priced above the sector

The market is treating Nabil Bank as a premium that has already been paid for — a stock resting at its ceiling rather than being bid higher on fresh conviction. The shares closed at Rs 547, 0.4% below their 52-week high, up 10.48% over a year in which the NEPSE fell 3.38%.

Buyers are paying 22.2 times earnings and 2.44 times a book value of Rs 224.31 against sector medians of 19.5 times and 1.57 times. The return on equity of 10.99% clears the 9.12% sector median, and the 4.51% earnings yield sits far above a 364-day Treasury at 1.95%. What the price is discounting is the durability of the loan book behind those returns — the one line in the six-year record that keeps moving the wrong way.

Paying for the franchise

The six peers line up in a clear order, and Nabil's multiple places it mid-pack on earnings and above the median on book. On price-to-earnings it sits between Siddhartha's 22.4 and Laxmi Sunrise's 23.4, above Everest Bank's 19.5 and well above Global IME's 15.5; Nepal Investment Mega carries the highest earnings multiple in the set at 25.6 with a 4.07% return on equity — the market's clearest statement that it is paying for earnings power, not for cheapness. On price-to-book the ladder is steeper: Standard Chartered at 3.01 times on a 12.57% ROE and Everest at 2.80 times on 14.41% sit above Nabil's 2.44 times on 10.99%, while the rest of the set trades below the sector median of 1.57 — Siddhartha at 2.13 times on 9.53%, Laxmi Sunrise at 1.54 times on 6.58%, Global IME at 1.39 times on 8.92% and Nepal Investment Mega at 1.04 times on 4.07%.

The premium is for the franchise, and the franchise is the balance sheet. Total operating income ran Rs 11.66 arba in FY 2077/78 and Rs 11.94 arba in FY 2078/79 before the step-change to Rs 21.68 arba in FY 2079/80; since then it has drifted — Rs 20.20 arba in FY 2080/81, Rs 21.01 arba in FY 2081/82, Rs 22.33 arba in FY 2082/83, up 6.3% in the latest year. Net profit tells the same shape: Rs 4.53 arba, Rs 4.97 arba, Rs 7.53 arba, Rs 7.06 arba, Rs 7.13 arba and Rs 7.91 arba — a 10.9% gain in the latest year that leaves profit essentially where it stood four years earlier. Deposits compounded from Rs 223.48 arba to Rs 592.56 arba across the six years, customer loans from Rs 198.11 arba to Rs 460.32 arba, and total assets from Rs 290.38 arba to Rs 734.73 arba.

The latest year's growth, though, is not going where the old growth went. Customer deposits rose 12.9%, loans to customers 11.5% and investment securities 8.7%, but loans to other banks and financial institutions rose 16.6% — the fastest line in the book. The marginal rupee is being placed at an interbank rate of 2.75% rather than lent into customer credit, which is one way a bank this size produces Rs 22.33 arba of operating income without pushing its risk curve higher. None of this is new information, and the price behaviour shows it: the 60-session gain of 5.83% trails the sector median of 8.36%, while the 250-session gain of 10.48% matches the sector median — the market is renewing the position, not extending it.

Cheap money, thinner spread

Funding costs have swung in a full cycle and now sit at the cheapest level in the record. The cost of funds ran 4.41% in FY 2077/78, jumped 2.76 points in FY 2078/79 to 7.17%, peaked at 7.81% in FY 2079/80, and has unwound through 5.86% in FY 2080/81, 4.41% in FY 2081/82 and 3.09% in FY 2082/83 — down 1.32 points in the latest year, with the base rate down 1.39 points. Yet interest income fell 6.2% in the same year, and net interest income rose only 4.2%: the cheapest funding in six years bought a smaller increment of income than the fall in deposit cost would suggest.

The asset side explains it. The interest spread compressed for three consecutive years — 3.99% in FY 2080/81, 3.57% in FY 2081/82, 3.18% in FY 2082/83 — after peaking at 4.99% in FY 2079/80. Operating profit has held anyway: Rs 6.23 arba in FY 2077/78, Rs 7.10 arba in FY 2078/79, Rs 11.02 arba in FY 2079/80, Rs 9.85 arba in FY 2080/81, Rs 10.85 arba in FY 2081/82 and Rs 11.56 arba in FY 2082/83, a 6.6% gain against 6.3% for total operating income. The credit-to-deposit ratio traces the same arc — 79.22% at the start, 89.79% at the peak, then 87.68%, 83.60%, 82.48% and 80.18% in the latest year, down 2.3 points. The bank still runs its balance sheet harder than a system credit-to-deposit ratio of 70.79%, and with the 91-day Treasury bill at 1.01% and the 364-day at 1.95%, there is little reward in holding the slack.

This is the section where the tape has begun to disagree. Over 60 sessions the stock is up 5.83% while the sector median is up 8.36% — the market has spent the recent window preferring other banks, even as a full-year window shows Nabil level with the sector.

The loan book's flaw

The one figure that spoils the run of the numbers is asset quality. Non-performing loans read 0.84% in FY 2077/78, 1.54% in FY 2078/79, 3.2% in FY 2079/80, 3.85% in FY 2080/81, 4.27% in FY 2081/82 and 4.2% in FY 2082/83. The latest drop of 0.07 points is the first improvement in the series, and it is small against the deterioration that preceded it. Capital has held up better: the capital adequacy ratio ran 12.77%, 13.44%, 12.66%, 12.52%, 11.94% and 12.37%, up 0.43 points in the latest year, with equity growing 12.8% to Rs 71.91 arba on the back of 8.7% reserve growth and 8.3% retained-earnings growth.

The returns story is where the dilution shows. Return on equity eased almost without interruption from 13.58% in FY 2077/78 to 9.46% in FY 2078/79, 12.96%, 11.85%, 11.64% and 10.99% in FY 2082/83 — a 0.65-point drift lower even as net profit rose 10.9%. Earnings per share tell the sharper version: Rs 32.70 in FY 2077/78, Rs 21.78 in FY 2078/79, Rs 27.82, Rs 26.09, Rs 26.34 and Rs 24.66 in FY 2082/83, down 6.4% in the latest year, while book value per share fell 4.8% to Rs 224.31. Paid-up capital expanded 18.5% in FY 2082/83, and the 10.8% cash dividend plus 5% bonus — book closure on 30 September 2026, AGM on 8 October 2026 — enlarges the count again.

None of that dilution shows in the price. At 0.4% below the high, the market charges nothing for a 4.2% bad-loan ratio, and the 20-session gain of 2.56% and 120-session gain of 9.19% describe a stock marked up gradually rather than repriced in a single move.

The tape reads as patient absorption. Average daily turnover over the last 20 sessions was Rs 3.35 crore against Rs 3.01 crore over the prior 60, up 11.4% — more money moving through the stock as it sat near the high, not less. The one-year beta of 0.69 says the stock moves less than the index, which makes a 10.48% gain against a 3.38% index fall a matter of drift rather than aggression; the 52-week range of Rs 461.9 to Rs 549.2 has been worked in its upper half. Across the last ten sessions, buyers paid up five times and sellers hit bids none; five sessions traded two ways, eight shaped as accumulation and none as distribution, with buying built into the close in four sessions and faded into the close in four. The median buy-initiated share of traded value was 62.4%, and the latest session on 16 October was balanced in pattern, buyers paying up, buying fading into the close, and 64.9% of value buy-initiated. The flow describes a stock absorbed on dips rather than aggressively marked up at the high.

The way to read the trading is that the market runs Nabil Bank as a low-beta, above-median-return name whose premium is maintained by gradual accumulation rather than renewed conviction — it keeps the stock level with the sector over a year, lets it lag the sector over a quarter, and neither lets it go cheap nor pushes it far past the high. The read breaks if the 60-session lag behind the sector median of 8.36% widens while the stock sits at its high, if buy-initiated value falls below half of traded value across a run of sessions, or if the bad-loan ratio turns back up from 4.2% and the price finally starts charging for it.