Ranking of Nepali Commercial Bank
With the financial results for the third quarter of the current fiscal year published by the banks, we present CAMEL rating of the 14 private sector banks of which the results are available. We selected CAMEL because it is very simple and accepted worldwide. Apart from analyzing the banks on each of these ratios based on CAMEL, we have also provided additional information like Total Income, Operating Profit, Interest Income, Deposit, Advance and Total Asset.
CAMEL Model
C for Capital Adequacy
Capital Adequacy reflects the overall financial condition of the bank. It also reflects the bank’s leverage. In this category, we have considered Capital Adequacy Ratio (CAR) and Debt-Equity Ratio to rank the commercial banks.
A for Asset Quality:
The prime objective behind measuring the Asset Quality is to ascertain the component of non-performing loan as percentages of total loan. In this category, we have considered the ratio of non-performing loan to total loan and the ratio of loan loss provision to non-performing loan to rank the banks.
M for Management:
Though it involves a subjective analysis for measuring the efficiency of the management, we have considered the ratio of total advance to total deposit and Return on Net Worth (RONW) to compare the commercial banks to avoid being subjective.
E for Earning Quality:
This parameter gains importance in the light of the argument that much of a bank’s income is earned through the non-core activities like investments, treasury and so on. In this category, we have considered the percentage growth of Profit After Tax (PAT) and the ratio of Interest Income to Total Income to rank the banks.
L for Liquidity:
In this category, we have considered the ratio of Liquid Asset to Total Deposit (LA/TD) and Liquid Asset to Total Asset (LA/TA) to rank of the banks. LA/TD measures the ability of a bank to meet the demand from the demand deposit in a particular time. Further, LA/TA measures the liquidity available to the deposits of a bank.
Capital Adequacy
S. No |
Bank |
CAR (%) |
Rank |
D/E |
Rank |
1 |
NIC |
12.30 |
5 |
11.70 |
7 |
2 |
NABIL |
13.40 |
2 |
8.72 |
1 |
3 |
SCB |
18.06 |
1 |
11.23 |
6 |
4 |
HBL |
11.64 |
6 |
12.34 |
8 |
5 |
NIB |
11.20 |
10 |
12.63 |
10 |
6 |
NSBI |
12.94 |
4 |
13.07 |
11 |
7 |
EBL |
11.33 |
7 |
15.10 |
12 |
8 |
BOK |
13.39 |
3 |
12.49 |
9 |
9 |
LUMBINI |
(7.73) |
13 |
- |
- |
10 |
KBL |
11.23 |
9 |
10.58 |
4 |
11 |
MBL |
11.26 |
8 |
10.76 |
5 |
12 |
LAXMI |
11.11 |
12 |
9.74 |
3 |
13 |
SBL |
11.17 |
11 |
8.95 |
2 |
14 |
RBB |
(42.14) |
14 |
- |
- |
CAR = Capital Adequacy Ratio D/ E = Debt Equity Ratio |
|
Asset Quality
S. No |
Bank |
NPL/TL |
Rank |
LLP/NPL |
Rank |
1 |
NIC |
2.30 |
8 |
141.50 |
6 |
2 |
NABIL |
1.80 |
5 |
139.00 |
7 |
3 |
SCB |
1.89 |
6 |
144.94 |
4 |
4 |
HBL |
4.68 |
11 |
113.13 |
8 |
5 |
NIB |
1.90 |
7 |
144.50 |
5 |
6 |
NSBI |
5.08 |
12 |
93.86 |
13 |
7 |
EBL |
0.91 |
2 |
100.00 |
12 |
8 |
BOK |
3.21 |
10 |
104.30 |
10 |
9 |
LUMBINI |
20.94 |
13 |
101.89 |
11 |
10 |
KBL |
2.56 |
9 |
82.78 |
14 |
11 |
MBL |
1.26 |
4 |
187.92 |
2 |
12 |
LAXMI |
0.49 |
1 |
307.85 |
1 |
13 |
SBL |
0.99 |
3 |
154.36 |
3 |
14 |
RBB |
31.81 |
14 |
106.44 |
9 |
NPL = Non Performing Loan
TL= Total Loan
LLP= Loan Loss Provision |
|
Management
Sr. No |
Bank |
TA/TD |
Rank |
RONW |
Rank |
1 |
NIC |
0.92 |
3 |
0.10 |
6 |
2 |
NABIL |
0.87 |
5 |
0.20 |
3 |
3 |
SCB |
0.42 |
13 |
0.22 |
2 |
4 |
HBL |
0.64 |
11 |
0.16 |
5 |
5 |
NIB |
0.78 |
7 |
0.20 |
3 |
6 |
NSBI |
0.93 |
2 |
0.24 |
1 |
7 |
EBL |
0.75 |
8 |
0.17 |
4 |
8 |
BOK |
0.74 |
9 |
0.17 |
4 |
9 |
LUMBINI |
0.88 |
4 |
- |
|
10 |
KBL |
0.85 |
6 |
0.10 |
6 |
11 |
MBL |
0.71 |
10 |
0.05 |
8 |
12 |
LAXMI |
0.85 |
6 |
0.06 |
7 |
13 |
SBL |
0.96 |
1 |
0.10 |
6 |
14 |
RBB |
0.50 |
12 |
- |
|
TA = Total Advances TD= Total Deposit
RONW = Return on Net Worth |
Earning Quality
Sr. No |
Bank |
PAT Growth in % |
Rank |
II/TI |
Rank |
1 |
NIC |
61.48 |
4 |
0.89 |
3 |
2 |
NABIL |
36.22 |
6 |
0.78 |
9 |
3 |
SCB |
1.71 |
13 |
0.72 |
10 |
4 |
HBL |
32.01 |
7 |
0.81 |
8 |
5 |
NIB |
27.76 |
8 |
0.81 |
8 |
6 |
NSBI |
20.44 |
10 |
0.88 |
4 |
7 |
EBL |
19.33 |
11 |
0.85 |
6 |
8 |
BOK |
24.11 |
9 |
0.81 |
8 |
9 |
LUMBINI |
136.36 |
1 |
0.84 |
7 |
10 |
KBL |
56.80 |
5 |
0.91 |
1 |
11 |
MBL |
(14.09) |
14 |
0.86 |
5 |
12 |
LAXMI |
117.03 |
2 |
0.90 |
2 |
13 |
SBL |
66.92 |
3 |
0.91 |
1 |
14 |
RBB |
8.51 |
12 |
0.85 |
6 |
II = Interest Income TI = Total income |
Liquidity
Sr. No |
Bank |
LA/TD |
Rank |
LA/TA |
Rank |
1 |
NIC |
0.11 |
6 |
0.10 |
7 |
2 |
NABIL |
0.19 |
2 |
0.12 |
5 |
3 |
SCB |
0.19 |
2 |
0.16 |
2 |
4 |
HBL |
0.08 |
8 |
0.07 |
10 |
5 |
NIB |
0.09 |
7 |
0.07 |
10 |
7 |
NSBI |
0.11 |
6 |
0.08 |
9 |
8 |
EBL |
0.13 |
5 |
0.11 |
6 |
9 |
BOK |
0.14 |
4 |
0.12 |
5 |
10 |
LUMBINI |
0.11 |
6 |
0.09 |
8 |
11 |
KBL |
0.11 |
6 |
0.10 |
7 |
12 |
MBL |
0.27 |
1 |
0.24 |
1 |
13 |
LAXMI |
0.15 |
3 |
0.13 |
4 |
14 |
SBL |
0.11 |
6 |
0.08 |
9 |
17 |
RBB |
0.19 |
2 |
0.15 |
3 |
TA = Total Advances TD= Total Deposits RONW = Return on Net Worth |
Additional Indicators
Sr. No |
Bank |
Operating Profit |
TI |
II |
Deposit |
Advance |
TA |
1 |
NIC |
143,283 |
599,085 |
534,937 |
9,393,047 |
8,631,830 |
11,163,209 |
2 |
NABIL |
733,986 |
1,441,809 |
1,122,261 |
18,119,889 |
15,786,400 |
28,405,611 |
3 |
SCB |
787,893 |
1,440,802 |
1,040,289 |
24,623,026 |
10,264,109 |
28,523,851 |
4 |
HBL |
562,883 |
1,539,395 |
1,250,905 |
28,613,194 |
18,344,657 |
33,938,053 |
5 |
NIB |
520,808 |
1,387,344 |
1,129,178 |
21,680,132 |
16,870,565 |
25,012,577 |
6 |
NSBI |
196,657 |
650,182 |
570,813 |
10,486,778 |
9,758,593 |
15,443,088 |
7 |
EBL |
311,880 |
949,394 |
805,324 |
17,221,094 |
12,946,089 |
20,455,190 |
8 |
BOK |
268,297 |
731,817 |
591,864 |
12,028,302 |
8,943,999 |
14,264,081 |
9 |
LUMBINI |
163,509 |
407,701 |
341,062 |
6,007,196 |
5,296,531 |
7,313,975 |
10 |
KBL |
153,558 |
628,612 |
573,705 |
10,134,142 |
8,640,923 |
11,515,373 |
11 |
MBL |
78,375 |
563,229 |
486,801 |
10,463,294 |
7,474,002 |
11,713,085 |
12 |
LAXMI |
64,022 |
360,452 |
324,820 |
6,965,083 |
5,886,686 |
7,987,669 |
13 |
SBL |
107,033 |
379,549 |
345,183 |
5,613,989 |
5,396,989 |
7,127,559 |
14 |
RBB |
150,422 |
1,820,282 |
1,548,367 |
47,834,136 |
24,095,608 |
59,023,284 |
TI = Total income II = Interest Income TA= Total Asset |
Nepali Carpet Industry:
Facts behind the disaster
In 1992, Nepal exported 3.3 million sq. metres of carpet. This figure has now plummeted to 0.6 million sq. metres in the first nine months of this fiscal year. It is unlikely to exceed 1 million till the end of this fiscal year. Last year’s total exports were 1.4 million sq. metres.
The current state of the industry is mainly characterised by unplanned stocking of inventory, unplanned production, panic selling, losing in terms of competition with Indian carpets and thin profit margins.
Nepali carpets cannot compete in the international market in terms of price. This is because machine-spun yarns are banned by the Nepali government. Nepali producers have to compulsorily use hand-spun yarn. This happened as a result of the lobbying by Nepal Hand-made Yarn Producers Association, according to Surendra Dhakal, Executive Adviser of Nepal Carpet Exporter Association (NCEA).
On the other hand, the main competitors of Nepali carpet manufacturers, theIndian carpet producers, make excessive use of machines in different stages of production. Wool carding (mixing of different types wools), washing and even surface trimming are done with machines. Only the weaving is done manually. Whereas in Nepal , the entire process is carried out manually which results in the Nepali carpets becoming more expensive than Indian carpets in the European and American markets.
Also, the Nepali carpet industry is heavily dependent on imported raw materials. The only major Nepali component used is labour and this too is very expensive. In India the labour cost for producing 1 sq. metre of 60 knot carpet is INR. 250 equivalent to NRS. 400. Whereas in Nepal the labour charge was recently increased to NRS. 667 after labour unions put pressure on factory owners through strikes.
However, these are not the only factors that raise costs. Nepali exporters are paying Rs. 7.2 million yearly to the FNCCI for the Certificate of Origin, a compulsory document for export. Further, carpet businessmen are also paying the Trade Promotion Centre (TPC) an additional Rs. 4.2 million for the Generalised System of Preference (GSP) forms which must be filled up by the firms, attested by Customs officers and sent to the importer in developed countries who can avail of Customs rebate on producing this document. Other costs are incurred in sticking the labels of Rugmark (certificate of child labour-free carpet), ISO etc. Industrialists claim that all these fees are illegal under WTO rules. So the costs of Nepali carpets are rising because of the old habit of organisations such as the FNCCI to collect funds for themselves rather than looking after the welfare of businesses.
Improper supply-chain management is another factor behind Nepali carpets being expensive. Small-sized units dominate the carpet industry. Some firms even operate at the family level. These small units perform one or two activities in the total production process. Hence, subcontracting arrangement exists between bigger and smaller units. It starts from the local broker holding the weavers and ends with the final consumer in the foreign markets. In between them are producers, exporters, importers and retailers. In this way the profit is distributed at seven different levels increasing the end price significantly.
The Turkey Fiasco
Turkey and Nepal both were carpet exporting countries. When Turkish businessmen realised that Nepali labour costs were cheaper than their own, they began importing Nepali carpets to resell them in European and American markets. Nepali carpets were getting the GSP facility from Turkey as well. So in 2005, Turkey became the largest importer of Nepali carpets after Germany and America . That year, Turkey imported 110,398 sq. meters of 60 knots carpet which was 6.82 per cent of the total export of Nepal . Thus, Turkey 's traditional industry suffered the threat of extinction.
| Carpet Exports
(FY 1995-96 to 2005-06)
Financial |
Volume |
Growth |
Percentage |
Year |
(sq. meters) |
(+/-) |
(+/-) |
1995-96 |
2613363 |
(119371) |
(4.36) |
1996-97 |
2890482 |
277119 |
10.61 |
1997-98 |
2447000 |
(443482) |
(15.34) |
1998-99 |
2604475 |
157475 |
6.44 |
1999-00 |
2509452 |
(95023) |
(3.65) |
2000-01 |
2242692 |
(266760) |
(10.63) |
2001-02 |
1693196 |
(549496) |
(24.50) |
2002-03 |
1566950 |
(126246) |
(7.46) |
2003-04 |
1617766 |
50816 |
3.24 |
2004-05 |
1664117 |
46351 |
2.87 |
2005-06 |
1421710 |
(242407) |
(14.57) |
Source: NECA News, January 2007 |
Turkey could have saved its industry by making it competitive in terms of price and quality but instead it imposed an Anti Dumping Law (ADL) on Nepali carpets. Though the actual CIF cost of Nepali carpets in Turkey was $32 per sq. metres, Turkey argued that it was $100 and imposed 25 per cent duty on it. This increased the actual CIF cost of Nepali carpets in Turkey to $57 per sq. metre. Obviously this made Nepali carpets more expensive than Turkey 's and it was clear that Turkey had created a tariff barrier for Nepali carpet which was against WTO laws. ADL is lawful only when any item is exported at the price below the production cost or when it is produced by taking subsidies. The Nepali government had fixed a minimum price tag of $32 per sq. metre for carpets up to 60 knots and $75 per sq. metre above 60 knots. But Turkey 's government made fun of the WTO agreements by imposing ADL on Nepali carpets ignoring the price quoted in the exporting country.
Added to this, Turkey 's government made it compulsory for Nepali exporters to obtain stamps on Nepali carpets from its embassy in New Delhi to discourage the export of Nepali carpets. This sort of non-tariff barrier was also against WTO laws. The result of these Turkish moves was that the export of Nepali carpets diminished to 35,000 sq. metres.
Since both these barriers are illegal in a trade between member countries of the WTO, exporting countries can raise their voices on the Dispute Settlement Committee (DSC) of WTO. "NECA reported this problem to the Ministry of Industry, Commerce and Supplies and the Ministry of Foreign Affairs. But none of the ministries had any department to handle such a case and there was no appeal at DSC. Neither were there any bureaucrats who could understand the problems," says Dhakal.
All these factors play a dominant role in the current carpet industry crisis. In order to survive, the industry needs to be innovative. Market tastes and expectations are ever changing so the industry has to pay due attention to these needs and upgrade quality and design. At the same time, the government too must develop its capabilities and mechanism to address the problems and opportunities that emerge due to Nepal 's WTO membership.
(Bibek Subedi)
Understanding
Futures Market
Nepal too has got a commodities exchange (Commodities and Metal Exchange Ltd or COMEN) where one can trade in futures contracts on various commodities. Here is an educational material about a futures market for the uninitiated.
What is futures?
A futures contract is a legally binding agreement to buy or sell commodities or financial securities at a fixed time in the future at a price presently agreed upon. The delivery period, quantity and quality of a futures contract is standardised and specified while the price is set at the time a contract is opened and is negotiated between buyers and sellers. Futures are traded either electronically or via open outcry on a trading floor of the exchange offering the particular contract.
In finance, a futures contract is a standardised contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or the final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. The futures price, normally, converges towards the settlement price on the delivery date.
Characteristics of futures trading:
A “Futures Contract” is a highly standardised contract with certain distinct features. Some of the important features are as follows:
a. Futures trading is necessarily organised under the auspices of a market association so that such trading is confined to or conducted through members of the association in accordance with the procedure laid down in the rules and by-laws of the association.
b. It is invariably entered into for a standard variety known as the “basis variety” with permission to deliver other identified varieties known as “tenderable varieties”.
c. The units of price quotation and trading are fixed in these contracts, parties to the contracts not being capable of altering these units.
d. The delivery periods are specified.
e. The seller in a futures market has the choice to decide whether to deliver goods against outstanding sale contracts. In case he decides to deliver the goods, he can do so not only at the location of the association through which trading is organised but also at a number of other pre-specified delivery centres. If he prefers not to make the delivery, he has to pay the price difference.
f. In futures market actual delivery of goods takes place only in a very few cases. Transactions are mostly squared up before the due date of the contract and these are settled by payment of differences without any physical delivery of goods taking place.
Why futures?
Futures market is expected to help market participants through two vital economic functions, viz., Price Discovery and Price Risk Management. At the macro level, the liquid and vibrant futures market having nationwide participation also assists in sobering down inter-seasonal and intra-seasonal price fluctuations. This not only helps in bringing about reasonable stability in the prices of commodities, but also supports farmers to get remunerative prices without adversely affecting the consumers’ interests. Such a market also provides a market-based alternative to government involvement like procurement at Minimum Support Price and Public Distribution System.
Price discovery made in spot markets (sometimes also called as cash market, which are mostly fragmented, over-the-counter markets) is inefficient. Price discovery in spot market is affected by geographical dispersion, differential needs of the buyers and sellers in terms of quality, quantity, place of delivery and difficulties associated with handling physical delivery and absence of option to settle the contract by payment of price-difference. In any case, the spot market does not meet the need for price-forecast felt by participants in physical markets.
With convergence of bids and offers arising from a large number of buyers and sellers from different parts of the country – and possibly from abroad - futures trading is a very efficient means of forecasting a commodity’s price.
Price Risk Management is very closely related to Hedging, which means transfer of some or all of that risk to those who are willing to accept it, which are in turn called speculators. Price risk is managed by taking opposite positions on the two legs of the market e.g. spot and futures. The futures prices are linked to the spot prices through carrying cost, which comprises cost of storage, interest, wastage, shrinkage etc. Therefore, the two prices tend to move in parity. Taking opposite positions in the two legs of the market therefore tends to offsets loss in any market on account of adverse price fluctuation. All the participants in the physical markets, like producers, processors, manufacturers, importers, exporters and bulk consumers can focus on their core activities by covering their price-risk in a futures market. Their operations become more competitive since the price-risk involved in procurements and supply is transferred to the futures market.
Economic benefits of futures market:
Futures contracts perform two important functions of price discovery and price risk management with reference to the given commodity. It is useful to all segments of economy and to the producer. The producer can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities. It enables the consumer to get an idea of the price at which the commodity would be available at a future point in time. He can do proper costing and also cover his purchases by making forward contracts. Futures trading is very useful to exporters as it provides an advance indication of the price likely to prevail and thereby help him in quoting a realistic price and securing export contracts in a competitive market. Having entered into an export contract, it enables him to hedge his risk by operating in a futures market. Other benefits of futures trading are:
(i) Price stabilisation. In times of violent price fluctuations, this mechanism dampens the peaks and lifts up the valleys, i.e. the amplititude of price variation is reduced.
(ii) Leads to integrated price structure throughout the country.
(iii) Facilitates lengthy and complex, production and manufacturing activities.
(iv) Helps balance in supply and demand position throughout the year.
(v) Encourages competition and acts as a price barometre to farmers and other trade functionaries.
Category of futures:
1. Commodity futures
2. Financial futures
Under commodity futures are a) agro commodity futures, b) metal futures and c) energy futures. Agro-commodity futures is related with basic agro production and its processed items.
Metal futures deals with base metals and precious metal. Energy futures is related with electricity and petroleum products (raw items).
Financial Futures are related to currency, stock index, micro economic indicator index, credit derivatives etc.
All futures are financial contracts.
Each party obligates himself to accept or deliver a set number of contracts representing a set of financial instruments or physical commodities (that he has bought or sold) for future delivery at an agreed upon price. The opposite scenario might just as easily happen: if there are ideal growing conditions, and a glut of corn, the farmer would have received less, and the rancher paid less, for this harvest. Both agreed, in essence, to forego any additional profit or savings in order to be able to have an assurance of the ultimate price.
