Nabil Bank profit up 10.9% as funding costs ease

Nabil Bank reported net profit of Rs 7.91 arba for the full fiscal year to Ashadh, up 10.9%, as a 1.32-point fall in its cost of funds outweighed a smaller interest take. Why it matters: the earnings came from cheaper money rather than a wider spread, and with the share count up 18.5% after the capital raise, less of that gain reached shareholders on a per-share basis.

Where the profit came from

Interest income fell 6.2% to Rs 37.96 arba, yet net interest income rose 4.2% to Rs 17.01 arba — the whole difference sits in funding. Cost of funds came down to 3.09% and the base rate to 4.44%, so the bank paid markedly less for deposits even as it lent more. Operating income rose 6.3% to Rs 22.33 arba and operating profit 6.6% to Rs 11.56 arba.

The ratio that explains the year is the spread, which narrowed 0.39 points to 3.18%. Repricing ran through the loan book faster than the bank could hold its margin, and volume had to do the work: loans to customers grew 11.5% to Rs 460.32 arba. Profit per share still slipped 6.4% to Rs 24.66 because the capital raise lifted the share count 18.5%. The final quarter on its own added Rs 1.14 arba.

Balance sheet and asset quality

Total assets reached Rs 734.73 arba, up 15.1%, funded by deposits of Rs 592.56 arba, up 12.9%. The credit-to-deposit ratio eased 2.3 points to 80.18%, leaving room to lend, and investment securities grew 8.7% to Rs 127.54 arba. Asset quality was close to flat: NPLs edged down 0.07 points to 4.2% and the capital adequacy ratio improved 0.43 points to 12.37%. Book value per share fell 4.8% to Rs 224.31 and return on equity slipped 0.65 points to 10.99%, both a function of the bigger equity base.

Against the sector

Among the large commercial banks, this was the fastest profit growth in the set: Everest Bank managed 3.1%, Siddhartha 3.7%, Global IME 0.4%, while Standard Chartered fell 5.9% and Nepal Investment Mega 59.3%. The caveat is quality. Nabil's 4.2% NPL is well above Everest's 0.49% and Standard Chartered's 2.03%, though better than Global IME's 4.96% and Laxmi Sunrise's 5.23%, and its 10.99% ROE trails Everest's 14.41%. The market pays 20 times earnings and 2.24 times book, against 15.5 and 1.38 for Global IME.

The tape

The shares closed at Rs 547 on 16 October, up 0.18% on the day, 2.01% over five sessions and 2.56% over twenty, within reach of the 52-week high of Rs 549.20 and well above the low of Rs 461.90. Turnover was modest at Rs 1.69 crore across 280 trades and 30,945 shares. Buyers paid up for most of the session, with 64.9% of trades buy-initiated and 71.8% in the first third, then faded into the close as the final third dropped to 56.7%. The buying was concentrated in a few names, the largest prints were split between buyers and sellers, and the close landed just below the day's average price.

Next catalyst

The annual general meeting and book closure for the dividend are the near-term events, with distributable profit of Rs 5.17 arba, up 8.3%, setting the payout base. The next test is the first-quarter filing for FY 2083/84: whether the spread holds near 3.18% now that funding costs have fallen so far, and whether NPLs keep drifting down from 4.2%. What would change the picture is a renewed climb in credit costs or a sharper squeeze on the margin.