Analyzing NMB Bank’s Q2: Core Income Grows, but Rising Provisions Dampen Bottom Line
Author
NEPSE TRADING
KATHMANDU – NMB Bank Limited (NMB) has showcased a bittersweet financial performance for the second quarter (Q2) of the current fiscal year. While the bank’s core business operations—lending and service-based income—showed robust growth, a significant spike in bad loan provisions has led to an 17.71% decline in net profit.
The bank reported a net profit of NPR 1.64 billion for the first six months of the fiscal year, down from the NPR 2 billion it earned during the same period last year.
Strong Operational Core vs. Impairment Headwinds Unlike some of its peers whose core income has stalled, NMB Bank's revenue engine remains active.
Core Income Growth: The bank’s net interest income grew by 12.18%, while its fee and commission income surged by an impressive 21.17%.
The Provisioning Pivot: The primary factor dragging down the profit was the impairment charge, which ballooned to NPR 1.55 billion. This massive allocation for potential loan losses caused a 15.29% drop in operating profit, effectively erasing the gains made from its increased interest income.
Shareholder Metrics and Valuation The earnings decline has directly impacted the bank’s key market indicators:
Earnings Per Share (EPS): The EPS has fallen by NPR 3.68, currently standing at NPR 17.10.
Distributable Profit: The bank reported a distributable profit of NPR 564.3 million, indicating that it still retains a positive, albeit reduced, capacity to reward its shareholders compared to previous years.
Market Valuation: With a P/E ratio of 13.98, NMB continues to trade at a valuation that reflects the broader market's cautious stance on commercial banks during this credit cycle.
Capital Base and Market Reach NMB Bank remains a heavyweight with a paid-up capital of NPR 19.28 billion and a healthy reserve fund of NPR 13.37 billion. Its business volume is equally substantial, having mobilized NPR 291 billion in deposits and extended NPR 239 billion in credit to various sectors.
Detailed Interpretation: The Price of Asset Quality
The Q2 report reveals that NMB Bank is currently prioritizing balance sheet fortification over immediate profit gratification.
Healthy Business, High Risk: The 21% jump in commission income is a very positive sign; it shows the bank is successfully diversifying its income away from just interest. However, the 1.55 billion impairment charge suggests that the bank's loan portfolio is under stress, likely mirroring the broader economic slowdown in Nepal where borrowers are struggling with repayments.
Safety Margin: A Net Worth per share of NPR 168.75 provides a solid safety margin for investors. Even with the dip in profits, the bank’s intrinsic book value remains strong.
Future Outlook: The bank’s performance in the next two quarters will depend entirely on loan recovery. If NMB can successfully recover a portion of the loans it has provisioned for, it could see a significant "write-back" in the final quarter, which would dramatically boost its year-end profit and dividend potential.
