Chapter 1 · Part 1 — Statement of Financial Position

Reserves, retained earnings and total equity

Where the profit actually goes, why most of it cannot be paid out, and the minority stake that is not yours.

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Share premium

Simple definition. The amount shareholders paid above the face value of their shares.

Technical definition. The excess of consideration received on issue of shares over their nominal value, presented as a separate, generally non-distributable component of equity.

Formula.

Share premium  =  (Issue price per share  −  Par value per share)  ×  Number of shares

Illustrative: 10,000,000 shares issued at NPR 250 with par of NPR 100 → (250 − 100) × 10,000,000 = NPR 1,500,000,000 to share premium.

Distribution restriction. Share premium is contributed capital, not earned profit. Its use is restricted under the Companies Act 2063 and NRB rules [R] — typically it may be used for bonus issues or writing off preliminary expenses, but not paid out as an ordinary cash dividend.

*(NMB, Asar 2083: Group NPR 37,216 thousand; Bank nil. The premium arose in a subsidiary and appears only on consolidation. Small, and unchanged year on year.)*

Related terms. Share capital · Part 5 · Part 12 CET 1

Retained earnings

Simple definition. Accumulated profits the bank has earned over its life and not yet paid out or moved into a named reserve.

Technical definition. The cumulative balance of profit or loss attributable to equity holders, less dividends declared, less transfers to statutory and regulatory reserves, plus transfers back from reserves, adjusted for prior-period restatements and certain items recycled within equity.

The bridge between the P&L and the balance sheet.

STATEMENT OF PROFIT OR LOSS
            │
            │  Profit for the period
            ▼
┌───────────────────────────────────────────┐
│            RETAINED EARNINGS              │
│                                           │
│  Opening balance                          │
│  + Profit for the period                  │
│  + Transfers FROM reserves                │
│  − Transfers TO reserves (statutory,      │
│      regulatory, exchange, CSR, training, │
│      debenture redemption)                │
│  − Cash dividend                          │
│  − Bonus shares capitalised               │
│  ± Restatements / adjustments             │
│  ± Recycling from fair value reserve on   │
│      disposal of FVOCI-equity             │
│  = Closing balance                        │
└───────────────────┬───────────────────────┘
                    ▼
        BALANCE SHEET — EQUITY

Worked reconciliation from the source report. (Bank standalone, NPR thousand.)

Retained earning at Asar end 2082                         1,901,381
+ Profit for the period                                   4,013,671
− Transfer to Reserves                                   (2,205,386)
− Bonus shares capitalized                                 (918,335)
− Cash dividend paid                                       (918,335)
                                                         ──────────
Retained earning at Asar End 2083                         1,872,996 OK

This ties exactly to the balance sheet. Trace this reconciliation every time you read a bank's accounts — it is the fastest way to confirm you have understood the equity section.

Note what it reveals. The bank earned NPR 4.01 billion but retained earnings rose only NPR (28) million — actually fell slightly. Why? Because NPR 2.21 billion went to reserves (mandated by NRB and the Companies Act) and NPR 1.84 billion went out as dividends. Very little of a Nepali bank's profit is genuinely free.

Why retained earnings ≠ distributable profit. This is the most consequential misunderstanding in reading a Nepali bank:

RETAINED EARNINGS (balance sheet)     NPR 1,872,996 thousand
                 ≠
DISTRIBUTABLE PROFIT (NRB statement)  NPR 1,872,996 thousand  ← in this case equal,
                                                                 but NOT by definition

They coincide here because the report's distributable-profit statement ends at Total Distributable profit (or loss) as on quarter ended Asar End, 2083 = 1,872,996, matching the balance-sheet retained earnings. But conceptually the regulatory adjustments in Part 7 — accrued interest receivable, DTA, goodwill, NBA short provision, actuarial loss — must be stripped out before profit becomes distributable. In a year where those adjustments are large and not already reflected, the two figures diverge. Always read Part 7's statement; never assume retained earnings can be paid out.

Effect on regulatory capital. Retained earnings are a core component of CET1, subject to the regulatory adjustments and to NRB's rules on what is eligible [R].

Analyst interpretation.

Compare profit to the change in retained earnings. A large gap means heavy reserve transfers or dividends.
A bank whose retained earnings are flat or falling despite profitability is either paying out heavily or being forced into regulatory reserves — the latter signals asset-quality or recognition issues.
Retained earnings are the cheapest source of growth capital. A bank that retains little must raise equity to grow, diluting shareholders.

Related terms. Reserves · Part 2 Profit for the period · Part 5 (entire) · Part 7 (entire) · Part 12 CET 1

Reserves

Simple definition. Parts of accumulated profit that have been set aside for specific purposes and generally cannot be paid out as dividend.

Technical definition. Components of equity other than share capital, share premium and retained earnings, created by appropriation of profit under statute, NRB directives or accounting standards, or by the accumulation of items recognised in OCI.

The reserve columns in a Nepali bank's SoCE — from the source report:

Reserve	Created by	Purpose	Distributable?
General reserve	Statutory appropriation of profit each year [R]	Build permanent capital	No
Exchange equalisation reserve	Appropriation of FX revaluation gain [R]	Cushion FX volatility	Restricted
Regulatory reserve	NRB-mandated appropriation of specified items	Block non-cash/uncertain profit from distribution	No — this is its entire purpose
Fair value reserve	OCI — FVOCI fair value movements	Hold unrealised gains/losses	No (unrealised)
Revaluation Reserve	OCI — revaluation model on PPE	Hold revaluation surplus	No
Other reserve	CSR fund, employee training fund, debenture redemption reserve, etc.	Earmarked obligations	No

The regulatory reserve — the most distinctively Nepali item in the equity section.

PROBLEM NRB IS SOLVING:
A bank can report profit that is not backed by cash or certainty —
accrued but uncollected interest, a deferred tax asset, goodwill,
a bargain purchase gain, an actuarial gain, property taken over
from a defaulter.
                         │
                         ▼
If that profit is paid out as a dividend, the bank has
distributed money it never actually earned in cash.
                         │
                         ▼
SOLUTION: force an appropriation of exactly those amounts
from retained earnings into a REGULATORY RESERVE,
which cannot be distributed.
                         │
                         ▼
Dr  Retained earnings
    Cr  Regulatory reserve
(no P&L effect — a movement WITHIN equity)

You can see the exact items in the source report's distributable profit statement — accrued interest receivable, short loan-loss provision, short provision on investments, short provision on Non Banking Assets, deferred tax assets recognised, goodwill, bargain purchase gain, actuarial loss, interest capitalised term loan. Every one of them is a "profit-on-paper" item. Full treatment in Part 7.

Movement in the source report. (Bank standalone, Asar 2082 → Asar 2083, NPR thousand.)

                                    Asar 2082      Transfers      Asar 2083
General reserve                       5,981,038      +802,734       6,783,772
Exchange equalisation reserve           215,637       +41,202         256,839
Regulatory reserve                    2,998,136      +709,748       3,707,883
Fair value reserve                      819,054      −173,367         645,687
Other reserve                         1,892,656      +651,702       2,507,552
                                     ──────────                    ──────────
Total reserves                       11,906,521                    13,901,734

Read the general reserve transfer: NPR 802,734 thousand out of profit of NPR 4,013,671 thousand ≈ 20%. That is consistent with a statutory 20% general-reserve appropriation requirement — but treat the rate as [R] regulation-dependent and verify it.

Journal-entry logic — all appropriations are within equity.

Dr  Retained earnings                    802,734,000
    Cr  General reserve                                802,734,000

Dr  Retained earnings                    709,748,000
    Cr  Regulatory reserve                             709,748,000

No P&L effect. No cash effect. Total equity unchanged. Only the composition of equity shifts from "free" to "blocked."

Effect on regulatory capital. General reserve, and typically the regulatory reserve, form part of CET1 [R] — so appropriation does not reduce capital. It reduces only what can be distributed. That is the elegance of the mechanism: the money stays in the bank as capital, it simply cannot leave as dividend.

Analyst interpretation.

A large jump in the regulatory reserve is a warning. It means the bank recognised a large amount of non-cash or uncertain profit. Read Part 7's statement to find out which item drove it.
The fair value reserve falling (as here, −NPR 173,367 thousand) means unrealised losses on FVOCI investments — usually a weak equity market, since Nepali banks hold listed shares.
Dividend capacity is constrained by reserves, not by profit. A bank can be highly profitable and still have limited distributable profit.

Related terms. Retained earnings · Part 3 Fair value reserve · Part 5 (all reserve columns) · Part 7 (entire) · Part 12 Regulatory reserve, CET 1

Total equity attributable to equity holders

Simple definition. The portion of the bank's net worth that belongs to the parent bank's own shareholders.

Technical definition. Share capital + share premium + retained earnings + reserves, being the residual interest in the Group's assets after deducting liabilities, excluding the share belonging to minority shareholders of partly-owned subsidiaries.

Formula.

Total equity attributable      Share      Share      Retained
to equity holders of the   =  capital  +  premium  +  earnings  +  Reserves
parent

(NMB, Asar 2083, NPR thousand.)

                        Group        Bank
Share capital        22,285,041   22,285,041
Share premium            37,216            −
Retained earnings     2,469,225    1,872,996
Reserves             14,102,652   13,901,734
                     ──────────   ──────────
Attributable to
equity holders       38,894,134   38,059,771

Why this is the right base for shareholder ratios. ROE, net worth per share and book value per share must be computed on this figure, not on total equity, because NCI belongs to someone else.

                 Profit attributable to equity holders of the parent
ROE  =  ─────────────────────────────────────────────────────────────  × 100
               Average equity attributable to equity holders
                         (less PNCPS, per the report's method)

Related terms. Non-controlling interest · Total equity · Part 6 Return on Equity, Net-Worth per share

Non-controlling interest

Simple definition. The part of a subsidiary that the bank does not own, but which still appears in the Group accounts because the bank controls the subsidiary.

Technical definition. Equity in a subsidiary not attributable, directly or indirectly, to the parent. The source report defines it plainly: "Non-Controlling Interest (NCI) refers to ownership of a company, which does not give the shareholder the control of the company."

Why it exists — the consolidation logic.

NMB Bank owns 51% of NMB Laghubitta Bittiya Sanstha.
                         │
                         ▼
51% > 50% → NMB CONTROLS it → must CONSOLIDATE it (NFRS 10)
                         │
                         ▼
Consolidation means adding 100% of the subsidiary's
assets, liabilities, income and expenses — line by line —
NOT 51%.
                         │
                         ▼
But NMB's shareholders do not own 100% of it.
The other 49% belongs to outside shareholders.
                         │
                         ▼
So a separate line — NON-CONTROLLING INTEREST — is shown
in equity and in profit, representing that 49%.

┌──────────────────────────────────────────────────────────┐
│  CONSOLIDATED BALANCE SHEET                              │
│                                                          │
│  Assets:      100% of the subsidiary's assets            │
│  Liabilities: 100% of the subsidiary's liabilities       │
│                                                          │
│  Equity:                                                 │
│    Attributable to equity holders of the Bank    38,894  │  ← 51% share
│    Non-controlling interest                         531  │  ← 49% share
│    ─────────────────────────────────────────────────────  │
│    Total equity                                  39,425  │
└──────────────────────────────────────────────────────────┘

(NMB, Asar 2083, NPR thousand. NCI = 530,872; prior year 489,124.)

NCI in the profit statement. The source report allocates total comprehensive income:

Equity holders of the Bank        3,997,320
Non-controlling interest             71,248
                                  ─────────
Total                             4,068,568

The NPR 71,248 thousand is the minority's 49% share of the microfinance subsidiary's comprehensive income.

Why NCI is nil in the Bank column. The standalone accounts do not consolidate anything — they show an Investment in subsidiaries of NPR 772,488 thousand instead. NCI is purely a consolidation artefact.

Effect on EPS. Critical: EPS uses profit attributable to ordinary equity holders of the parent — NCI is excluded. The report states this: "For Group basic earnings per share profit or loss attributable to ordinary equity holders of the parent entity has been considered."

Effect on regulatory capital. NCI recognition in consolidated regulatory capital is subject to limits under capital adequacy frameworks [R] — a minority stake in a subsidiary cannot generally be used in full to support the parent's own risks.

Analyst interpretation. A large and growing NCI means the Group's reported profit is increasingly not the shareholders'. Always check whether you are looking at total profit or profit attributable to the parent. In this case NCI is small (~1.3% of equity), so the distinction barely matters — but in a group with a large partly-owned subsidiary it matters a great deal.

Related terms. Investment in subsidiaries · Total equity attributable to equity holders · Part 3 Total comprehensive income attributable to · Part 8 NFRS 10, Basis of Consolidation, NCI

Total equity

Simple definition. The bank's total net worth — everything it owns minus everything it owes — including the minority's share.

Technical definition. The residual interest in the assets of the Group after deducting all liabilities, comprising equity attributable to the parent's equity holders plus non-controlling interest.

Formula.

Total equity  =  Total assets  −  Total liabilities
              =  Equity attributable to equity holders  +  Non-controlling interest

(NMB, Asar 2083, Group, NPR thousand.)

405,921,893 − 366,496,887 = 39,425,006 OK
38,894,134 + 530,872      = 39,425,006 OK

Growth analysis.

Total equity Asar 2083           39,425,006
Total equity Asar 2082           33,385,433
                                 ──────────
Increase                          6,039,573   = 18.1%

Composition of the increase:
  Profit for the period                        4,280,765
  Other comprehensive income                    (212,197)
  PNCPS issue                                  3,000,000
  Bonus shares (no net effect — within equity)         −
  Cash dividend paid                            (982,734)
  Other movements                                (46,261)
                                              ──────────
                                               6,039,573 OK

Note that half the equity growth came from issuing AT1 preference shares, not from earnings. An analyst reporting "equity grew 18%" without that breakdown would mislead.

Effect on regulatory ratios. Total equity is related to but not equal to regulatory capital. Regulatory capital starts from equity then applies deductions (goodwill, DTA, investments in financial institutions) and adds eligible instruments (Tier 2 debentures) [R]. Never substitute one for the other.

ACCOUNTING EQUITY              REGULATORY CAPITAL FUND
─────────────────              ───────────────────────
Share capital                  CET1: ordinary capital + premium
Share premium                        + eligible reserves
Retained earnings                    + eligible retained earnings
Reserves                             − goodwill [R]
Fair value reserve                   − DTA [R]
NCI                                  − other deductions [R]
                               AT1:  + PNCPS
                               Tier 2: + eligible debentures
                                       + general loan-loss provision [R]
= Total equity 39,425          = Capital fund (a DIFFERENT number)

Related terms. Total Assets · Total liabilities · Part 6 Capital fund to RWA, Return on Equity, Net-Worth per share · Part 12 Total regulatory capital

Total liabilities and equity

Simple definition. The bottom line of the balance sheet, which must equal total assets.

Technical definition. The sum of total liabilities and total equity, equal by the accounting identity to total assets.

Total liabilities and equity  =  Total liabilities  +  Total equity  =  Total Assets

*(NMB, Asar 2083: Group 366,496,887 + 39,425,006 = 405,921,893 = Total Assets OK)*

Purpose. A control total. If it does not equal total assets, the statement does not balance and something is wrong. It carries no analytical information of its own.

Related terms. Total Assets

Part 1 — Revision table

Term	Meaning	Measurement	Statement location	Key issue
Cash and cash equivalent	Immediately available money	Amortised cost	Asset 1	Original ≤3m maturity; excludes restricted deposits
Due from Nepal Rastra Bank	Balance at central bank	Amortised cost	Asset 2	Part is statutory CRR, not free liquidity [R]
Placement with BFIs	Interbank lending >3m	Amortised cost	Asset 3	Large book + weak loans = margin pressure
Derivative financial instruments (asset)	Positive-value derivatives	FVTPL	Asset 4	Trade-date recognition; gross presentation
Other trading assets	Held-for-trading securities	FVTPL	Asset 5	Usually nil in Nepal
Loan and advances to B/FIs	Wholesale lending to BFIs	Amortised cost less ECL	Asset 6	Group vs Bank gap = intra-group loans
Loans and advances to customers	Core lending book	Amortised cost less impairment	Asset 7	Impairment = higher of NFRS 9 ECL and NRB provision
Investment securities	Bonds, bills, shares	AC / FVOCI / FVTPL	Asset 8	FVOCI-equity gains never reach P&L
Current tax assets	Tax overpaid	Recoverable amount	Asset 9	Offset only with legal right
Investment in subsidiaries	Cost of controlled entities	Cost	Asset 10	Nil in Group — eliminated
Investment in associates	Significant influence	Equity method	Asset 11	Nil here; format line retained
Investment property	Foreclosed land/buildings (NBA)	Fair value, no depreciation	Asset 12	Rising NBA = credit warning
Property and equipment	Own premises and kit	Cost less depreciation	Asset 13	Includes ROU assets; land not depreciated
Goodwill and Intangible assets	Merger premium + software	Goodwill: impairment only	Asset 14	Deducted from CET1 [R]; ICAN carve-out history
Deferred tax assets	Future tax relief	Temp. difference × rate	Asset 15	Non-cash; blocked from distribution; capital deduction [R]
Other assets	Residual	Mixed	Asset 16	Holds NPR 3.07bn deferred employee expenditure
Total Assets	Scale	—	Asset total	Growth consumes capital
Due to BFIs	Interbank borrowing	Amortised cost	Liab 1	Volatile funding
Due to Nepal Rastra Bank	Central-bank borrowing	Amortised cost	Liab 2	Nil is the comfortable reading
Derivative financial instruments (liability)	Negative-value derivatives	FVTPL	Liab 3	Read with the asset side
Deposits from customers	Public funding	Amortised cost	Liab 4	Mix (CASA vs fixed) drives cost of funds
Borrowing	DFI and other borrowing	Amortised cost	Liab 5	Often FX; check hedging
Current Tax Liabilities	Tax owed	Payable amount	Liab 6	Cannot net across entities
Provisions	NAS 37 uncertain obligations	Best estimate	Liab 7	Not loan-loss provisions
Deferred tax liabilities	Future tax payable	Temp. difference × rate	Liab 8	No probability test
Other liabilities	Residual	Mixed	Liab 9	Holds lease liabilities + actuarial obligations
Debt securities issued	Listed debentures	Amortised cost	Liab 10	May qualify as Tier 2 [R]; recognition decays near maturity
Subordinated Liabilities	Loss-absorbing debt	Amortised cost	Liab 11	Nil — NMB used PNCPS instead
Total liabilities	All obligations	—	Liab total	Deposit share = funding quality
Share capital	Par value + AT1 instruments	Par	Equity 1	PNCPS is equity under NAS 32, AT1 for capital
Share premium	Paid above par	—	Equity 2	Restricted from distribution
Retained earnings	Accumulated undistributed profit	—	Equity 3	≠ distributable profit
Reserves	Appropriated equity	—	Equity 4	Regulatory reserve blocks non-cash profit
Total equity attributable to equity holders	Shareholders' slice	—	Equity 5	Base for ROE and per-share ratios
Non-controlling interest	Minority's slice	—	Equity 6	Consolidate 100%, carve out the minority
Total equity	Net worth	Assets − Liabilities	Equity total	≠ regulatory capital
Total liabilities and equity	Control total	—	Bottom line	Must equal total assets

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