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It is time for all to diversify their analysis strategy as number of new investors are massively rising
and market is based on true facts and figures rather than rumor. Low volatility in the price of
banks makes hard for investors to book profit in short period of time as banking sector has
sideways trend in terms of price.
Major fundamental indicators of companies like Earnings per Share (EPS), Dividend per share
(DPS), net worth per share, Return on Equity (ROE) and Return on Assets (ROA) are not sufficient
to find out the true financial position of the company. Apart from these ratios Capital Fund to
RWA, loan loss provision, CD Ratio and Cost of Fund are also key indicator to analyze the financial
positions of the company.
Capital Adequacy Ratio (CAR), also known as Capital to Risk (Weighted) Assets Ratio (CAR), is the
ratio of a bank’s capital to its risk. National regulators track a bank’s CAR to ensure that it can
absorb a reasonable amount of loss and complies with statutory Capital requirements.
As of fourth quarter report of fiscal year 2073/74, If we analyze the CAR of commercial banks, all
the 28 commercial banks have capital adequacy ratio more than 10 percent.
Standard Chartered Bank Limited (SCB) has a capital Adequacy Ratio of 22.04 percent which is the
highest out of all 28 commercial banks while Prabhu Bank Limited (PRVU) has the least CAR of
11.05%.
Loan loss provision (LLP) is a non-cash expenses which are set aside by the banks for the
untimely payment of principal and interest. Provisioning higher amount as loan loss will directly
reduce profit of the bank which also symbolizes portion of bad loans. Due to low non-performing
loan (NPL), Sanima Bank Limited has highest percentage of LLP to NPL as its NPL is only 0.01%,
which is lowest NPL among commercial banks.
In terms of Cost of Fund of Commercial Banks in fourth quarter, there are ten Commercial Banks
with the fund more than 5 percent. Prime Commercial Bank has the highest cost of fund of 8.15
percent while Rastriya Banijya Bank’s stand lowest at 1.27%. Meanwhile, Prabhu Bank has not
provided its cost of fund in Q4.
Nepal Rastra Bank, the banking sector regulator, requires commercial banks to maintain CD ratio
— technically referred to as credit to core-capital-cum-deposit (CCD) ratio — of 80 per cent. This
means of every Rs 100 in deposit and core capital, only Rs 80 can be extended as loans.
Almost all commercial banks have maintained the CCD ratio of 80 percent.