A.

Comparative Financial Position of Bank

1. Comparison of Balance Sheet items of the Bank for 2066/67 and 2067/68:

(Amount in 000)
Particulars
Ashadh
2068
Ashadh
2067
Increase/
(Decrease)
Growth
(%)
Liabilities
Share Capital 1,610,168 1,608,256 1,912 0.12
Reserves and Funds 2,872,693 1,761,453 1,111,240 63.09
Debentures and Bonds - - -
Borrowings 350,000 - 350,000 100.00
Deposits 37,999,242 35,182,721 2,816,521 8.01
Bills Payables 65,966 89,220 (23,254) (26.06)
Proposed and Dividend Payables - 769,166 (769,166) (100)
Income Tax Liabilities - - -
Other Liabilities 912,450 802,503 109,947 13.70
Total Liabilities 43,810,520 40,213,320 3,597,200 8.95
Assets -
Cash Balance 610,691 509,031 101,660 19.97
Balance with Nepal Rastra Bank 1,638,277 819,509 818,768 99.91
Balance with Banks / Financial Institutions 726,828 600,767 126,061 20.98
Money at Call and Short Notice 4,280,888 1,669,460 2,611,428 156.42
Investments 17,258,682 19,847,511 (2,588,829) (13.04)
Loan Advances and Bills Purchase 18,427,270 15,956,955 2,470,315 15.48
Fixed Assets 106,071 118,540 (12,469) (10.52)
Non - Banking Assets - - -
Other Assets 761,812 691,547 70,265 10.16
Total Assets 43,810,520 40,213,320 3,597,200 8.95

Compared to the previous year, the loan portfolio has increased by 15.48% to Rs. 18,427
million. Deposits are up by 8.01% to Rs. 37,999 million. Cash balance with bank and
financial institutions increased by 20.98 % and the balance with NRB has increased by
99.91%. The decrease in investments is on account of the reduction in the placement with the
foreign banks.

In overall, the total assets of the bank have increased by Rs. 3.597 billion (8.95%) which is
mainly represented by the increase in liquid assets, loans and advances and decrease in
investments. The overall financial position of the bank remains strong.

2. Profitability Analysis

(Amount in 000)
Particulars

Current
Year
Previous
Year
Increase/
(Decrease)
Changes
(%)
Interest Income 2,718,699 2,042,109 676,590 33.13
Interest Expenses 1,003,100 575,741 427,360 74.23
Net Interest Income 1,715,599 1,466,369 249,230 17
Commission and Discount 321,771 338,298 (16,527) (4.89)
Other Operating Income 36,753 34,479 2,274 6.59
Exchange Fluctuation Income 387,134 458,564 (71,430) (15.58)
Total Operating Income. 2,461,257 2,297,710 163,547 7.12
Staff Expenses 365,986 312,964 53,022 16.94
Other Operating Expenses 305,215 295,305 9,911 3.36
Exchange Fluctuation Loss - - -
Operating Profit before provision for
Possible losses 1,790,055 1,689,441 100,614 5.96
Provision for Possible Losses 82,739 76,974 5,765 7.49
Operating Profit 1,707,316 1,612,467 94,849 5.88
Non Operating Income /Loss 6,445 36,268 (29,823) (82.23)
Loan Loss Provision Written Back 67,159 58,293 8,866 15.21
Profit from Regular Activities 1,780,921 1,707,028 73,893 4.33
Loss from extra-ordinary Activities (22,765) (17,024) (5,740) 33.72
Net profit after considering all activities 1,758,156 1,690,004 68,152 4.03
Provision for Staff Bonus 159,832 153,637 6,196 4.03
Provision for Income Tax 479,153 450,496 28,657 6.36
* Current Year's 485,713 465,686 20,028 4.30
* Up to Previous year - 23 (23) (100)
* Deferred tax (6,561) (15,213) 8,652 (56.87)
Net Profit 1,119,171 1,085,872 33,300 3.07

The bank continued progress in its performance during the year. However, the rate of growth
slightly decreased from 7.06% in the previous year to 5.88% this year. The main reasons are
the decline in interest rate spread caused mainly by increased rate and volume of high cost
fixed deposits. Reduction in Commission and Discount income and exchange fluctuation gain
has also contributed to slow growth in profitability.

The main reasons for relatively lower rate of growth in net profit this year compared to
previous year is that there was an extraordinary income on account of profit on sale of fixed
assets of Rs. 30.74 million which not there in the year under audit. And also there is increase
in the loss from extra-ordinary activities during the year.

The movement in the key indicators of the banks performance during the year 2067/68
compared to the previous year 2066/67 are as follows:

Net Interest Income: The net interest income has increased by 17%.
Operating Profit: Operating profit has increased by 5.88%.
Net Profit: The net profit has increased by 3.07% reaching to Rs. 1,119 million.

3. Classification of Loans and Advances

The banks classification of loans and advances as per NRB directives is as follows:

(Amount in 000)

Ashadh
2068 %
Ashadh
2067 %
Increase/
(Decrease)
Performing Loan 18,546,674 99.38 16,078,447 99.39 2,468,227
Pass Loan 18,546,674 99.38 16,078,447 99.39 2,468,227
Non-Performing Loan 115,804 0.62 98,136 0.61 17,668
Substandard 85,727 0.46 50,940 0.31 34,787
Doubtful 3,536 0.02 2,175 0.01 1,360
Loss 26,541 0.14 45,020 0.28 (18,479)
Total Loan 18,662,478 100 16,176,583 100 2,485,895

The bank has classified total outstanding loan and advances and bills purchased on the basis
of the ageing of the overdue loans and in compliance with other conditions stipulated in the
relevant directives issued by NRB. Of the total loan outstanding, 0.62% has been classified as
non-performing loans as compared to 0.61% in the last year. Our audit has found the
classification done by the bank to be in line with NRB directives.

4. Loan Loss Provision

The bank has made the following loan loss provision based on the above classification:

(Amount in 000)
Loan Classification
Ashadh 2068 Outstanding Ashadh 2067 Outstanding Change in
Provision Loan Provision Loan Provision
Pass 18,546,674 185,467 16,078,447 160,784 24,682
Substandard 85,727 21,432 50,940 12,735 8,697
Doubtful 3,536 1,768 2,175 1,088 680
Loss 26,541 26,541 45,020 45,020 (18,479)
Total Provisioning 18,662,478 235,207 16,176,583 219,627 15,580

Loan loss provision has been made as per NRB directives.

As per the above table, the total loan loss provision is 1.26 % of the total loan outstanding at
the year-end, as compared to 1.36 % in the previous year.

5. Capital Adequacy Position
(Amount in 000)
RISK WEIGHTED EXPOSURES This Year Previous Year
Risk Weighted Exposure for Credit Risk 23,454,639 20,779,883
Risk Weighted Exposure for Operational Risk 3,461,857 3,058,847
Risk Weighted Exposure for Market Risk 111,025 345,855
Total Risk Weighted Exposures 27,027,520 24,184,585

CAPITAL FUND
Core Capital 4,147,131 3,050,712
Supplementary Capital 521,197 479,783
Total Capital Fund 4,668,327 3,530,495

CAPITAL ADEQUACY RATIOS
Tier 1 Capital to Total Risk Weighted Exposures 15.34% 12.61%
Tier 1 and Tier 2 Capital to Total Risk Weighted Exposures 17.27% 14.60%

The bank is in comfortable position with regard to capital adequacy ratio prescribed by NRB.
As against the statutory requirement of maintaining total capital fund equal to 10% and tier 1
capital fund equal to 6% of total risk weighted assets, banks total capital fund amounts to
17.27% whereas tier 1 capital fund amounts to 15.34% of total risk weighted assets at the year
end. This situation provides the bank potential for further growth in its asset size.

6. Composition of Deposits

The movement in the deposits is presented in the table below.
(Amount in 000)
Particulars Ashadh 2068 % Ashadh 2067 %
Non Interest Bearing accounts
Current Deposits 11,545,604 30.38 9,763,155 27.75
Local Currency 6,114,286 16.09 4,942,470 14.05
Foreign Currency 5,431,318 14.29 4,820,685 13.70
Margin Deposit 291,684 0.77 251,242 0.71
Others - 0 - 0
Total of Non-Interest Bearing Accounts 11,837,288 31.15 10,014,397 28.46
Interest Bearing accounts 0

0
Saving Deposit 11,619,815 30.58 12,430,009 35.33
Local Currency 9,669,940 25.45 10,561,341 30.02
Foreign Currency 1,949,875 5.13 1,868,668 5.31
Fixed Deposit 10,136,244 26.67 9,175,070 26.08
Local Currency 5,491,688 14.45 3,603,055 10.24
Foreign Currency 4,644,556 12.22 5,572,016 15.84
Call Deposit 4,405,895 11.59 3,563,245 10.13
Local Currency 4,378,271 11.52 3,552,367 10.10
Foreign Currency 27,624 0.07 10,878 0.03
Certificate of Deposit 0 0 0 0
Total of Interest Bearing Accounts 26,161,954 68.85 25,168,324 71.54
Total Deposit 37,999,242 100 35,182,721 100

The total deposit of the Bank has increased during the year by 8.01%. Non-interest bearing
deposits have increased by 18.20 % whereas interest bearing deposits have increased by
3.95%. As a result, the proportion of interest bearing accounts has decreased to 68.85% of the
total deposits compared to previous years proportion of 71.54%.