Chapter 4 · Part 4 — Statement of Cash Flows
Dividends, reconciliation and the cash flow story
The FX line that is not a cash flow, the tie you must check first, and a bank's whole year read from one statement.
Dividends paid
Simple definition. Cash paid out to shareholders.
Technical definition. Cash outflows for dividends declared and paid to equity holders, classified as financing activities per NAS 7.
(NMB, Asar 2083: Group NPR (918,335) thousand, Bank NPR (918,335) thousand.)
Reconciling to the equity statement.
30th AGM approved: 5% cash dividend + 5% stock dividend Cash dividend: 18,366,706 × 5% = 918,335 → CASH OUT OK appears here Stock dividend: 18,366,706 × 5% = 918,335 → NON-CASH x does not appear Total distribution 1,836,670 Of which cash 918,335 ← the cash flow figure
Note the Group figure in the SoCE differs. The Group SoCE shows cash dividend paid of NPR (982,734) thousand versus NPR (918,335) thousand at the Bank. The NPR 64,399 thousand difference is dividends paid by subsidiaries to their non-controlling shareholders — real cash leaving the Group that does not go to the bank's own shareholders.
Effect on ratios. Reduces equity, hence reduces CET1 and capital adequacy [R]. Increases the dividend payout ratio:
Cash dividend paid
Payout ratio = ─────────────────────────── × 100
Profit for the period
Bank: 918,335 ÷ 4,013,671 × 100 = 22.88% (cash only)
Including the stock dividend:
1,836,670 ÷ 4,013,671 × 100 = 45.76% (total distribution)Related terms. Part 1.32 Retained earnings · Part 5 Cash dividend paid · Part 7
Other receipt/payment
Simple definition. Residual financing cash flows.
(NMB, Asar 2083: Group NPR 32,664 thousand, Bank nil; prior year Group NPR 69,569 thousand. Arises entirely in the subsidiaries.)
Net cash from financing activities
Simple definition. Net cash from capital and long-term funding transactions.
Build-up. (NMB, Asar 2083, NPR thousand.)
Group Bank
Receipt from issue of shares 3,000,000 3,000,000
Dividends paid (918,335) (918,335)
Other receipt/payment 32,664 −
───────── ─────────
Net cash from financing activities 2,114,329 2,081,665
Prior year 69,569 −Analyst interpretation. A positive financing cash flow driven by a capital raise, partly offset by dividends. The bank raised NPR 3 billion of AT1 and paid out NPR 918 million — a net capital strengthening of NPR 2.08 billion. This is precisely what a bank does when it needs capital headroom to keep growing its loan book, and it corroborates the balance sheet: Tier 1 at 9.90% against CET1 at 8.99% — the ~0.91pp gap is the new AT1.
Related terms. 4.25–4.31 · Part 12 AT1, Tier 1
RECONCILIATION
Net increase (decrease) in cash and cash equivalents
Formula.
Net increase/(decrease) = Net operating cash flow
+ Net investing cash flow
+ Net financing cash flow(NMB, Asar 2083, NPR thousand.)
Group Bank
Operating (10,461,461) 1,978,418
Investing (16,516,587) (16,421,613)
Financing 2,114,329 2,081,665
─────────── ───────────
Net decrease (24,863,720) (12,361,531)Related terms. 4.14, 4.24, 4.32
Cash and cash equivalents at the beginning of the year
Simple definition. The opening cash balance, carried forward from last year's closing balance.
(NMB, Asar 2083: Group NPR 46,995,817 thousand, Bank NPR 33,385,654 thousand — which are exactly the prior-year balance sheet figures for Cash and cash equivalent. OK)
Related terms. Part 1.1 Cash and cash equivalent
Cash and cash equivalents acquired from the merger
Simple definition. Cash that came into the bank because it acquired another institution, rather than through its own operations.
Technical definition. Cash and cash equivalents assumed on acquisition of a business, presented separately because the increase does not arise from the bank's own operating, investing or financing activities.
Why the line exists in the Nepali format. Because of NRB's merger and acquisition drive (see Part 1.14). When a bank absorbs another institution, the acquired cash appears on day one without any corresponding cash flow — it must be shown separately or the reconciliation breaks.
(NMB, Asar 2083: nil, consistent with Note 39 reporting no change in the composition of the entity.)
Related terms. Part 1.14 Goodwill · Part 8 Business Combination
Effect of exchange rate fluctuations on cash and cash equivalents held
Simple definition. The change in the rupee value of foreign-currency cash the bank holds, caused purely by exchange-rate movement.
Technical definition. The effect of changes in exchange rates on cash and cash equivalents held in foreign currencies, presented separately from operating, investing and financing cash flows under NAS 7, because it is a remeasurement, not a cash flow.
Why it must be separate.
The bank holds USD 1,000,000 in a nostro account.
Start of year: rate 138 → NPR 138,000,000
End of year: rate 142 → NPR 142,000,000
The balance sheet shows a NPR 4,000,000 increase.
But NO CASH MOVED. Not a single dollar came in or out.
│
▼
If this were left inside operating/investing/financing,
the statement would report a cash flow that never happened.
│
▼
NAS 7 requires it to be shown as a SEPARATE reconciling item.(NMB, Asar 2083: NPR 142,619 thousand for both Group and Bank — a gain, meaning the NPR weakened against the currencies held, or holdings increased in appreciating currencies.)
Related terms. Part 1.1 Cash and cash equivalent · Part 2.9 Other operating income · Part 8 Foreign Exchange Transactions
Cash and cash equivalents at the end of the year
Simple definition. The closing cash balance — which must equal the balance sheet.
Formula.
Closing cash = Opening cash
+ Net increase/(decrease) in cash
+ Cash acquired from merger
+ Effect of exchange rate fluctuationsThe full reconciliation, verified. (NMB, Asar 2083, NPR thousand.)
Group Bank
Net increase/(decrease) in cash (24,863,720) (12,361,531)
Cash at beginning of the year 46,995,817 33,385,654
Cash acquired from merger − −
Effect of exchange rate fluctuations 142,619 142,619
─────────── ───────────
CASH AT END OF THE YEAR 22,274,716 21,166,742
Balance sheet "Cash and cash equivalent" 22,274,716 21,166,742
═══════════ ═══════════
OK TIES OK TIESRelated terms. Part 1.1 Cash and cash equivalent · 4.33–4.36
The cash flow story of this bank, in one page
┌─────────────────────────────────────────────────────────────────────┐
│ WHAT HAPPENED TO NMB'S CASH IN FY2082/83 (Group, NPR billion) │
└─────────────────────────────────────────────────────────────────────┘
Opening cash 47.0
│
Core trading generated cash + 6.7
├─ interest received 19.8, fees 3.5 │
└─ less interest paid 11.9, staff 2.9, other 1.7 │
│
Loan book grew — cash consumed −25.1
Other operating assets grew −16.1
Deposits grew — cash provided +33.6
Other operating liabilities fell −7.8
Tax paid − 1.7
──────
OPERATING −10.5
│
Net deployment into investment securities −18.8
Interest and dividends on investments + 2.6
Capex and other − 0.3
──────
INVESTING −16.5
│
PNCPS capital raised + 3.0
Dividends paid − 0.9
──────
FINANCING + 2.1
│
FX effect on foreign currency cash + 0.1
──────
Closing cash 22.3
┌─────────────────────────────────────────────────────────────────────┐
│ THE VERDICT │
│ │
│ Cash halved — but this is a DEPLOYMENT story, not a drain: │
│ • NPR 25bn went into loans (earning ~11%) │
│ • NPR 19bn went into government securities (liquid, low RWA) │
│ • Funded by NPR 34bn of deposit growth and NPR 3bn of new AT1 │
│ │
│ GENUINE CONCERNS: │
│ • Interest received is 10.4% below interest income, and the │
│ gap widened — collection quality is slipping │
│ • Group operating cash flow is NPR 12.4bn worse than the Bank's │
│ — the subsidiaries, especially microfinance, are cash-hungry │
│ • Other assets consumed NPR 11.7bn — a large, opaque movement │
│ that deserves a note check │
│ │
│ REASSURANCE: │
│ • Cash operating profit (5.9bn) tracks accounting operating │
│ profit (6.1bn) within 3% — the earnings are cash-backed │
│ • The NPR 22bn closing cash plus NPR 52bn of investment │
│ securities is ample liquidity (NLA ratio 28.99%) │
└─────────────────────────────────────────────────────────────────────┘Part 4 — Revision table
| Term | Meaning | Activity | Key issue |
|---|---|---|---|
| Interest received | Cash interest collected | Operating | **10.4% below interest income — the key quality test** |
| Fees and other income received | Cash fees collected | Operating | Near-full conversion |
| Dividend received | Cash dividends | Operating **or** Investing | NAS 7 policy choice; NMB uses investing |
| Receipts from other operating activities | Sundry inflows | Operating | Residual |
| Interest paid | Cash interest paid | Operating | Tracks accrual almost exactly |
| Commission and fees paid | Cash fee costs | Operating | Full conversion |
| Cash payment to employees | Cash wages | Operating | 14% below accrual — actuarials, bonus, VRS reversal |
| Other expense paid | Cash running costs | Operating | Excludes depreciation |
| Operating cash flows before changes | Cash operating profit | Operating | **Best "is profit real?" test** — within 3% of operating profit |
| (Increase)/Decrease in operating assets | Cash consumed by asset growth | Operating | Loan growth consumed NPR 23bn |
| Increase/(Decrease) in operating liabilities | Cash from liability growth | Operating | Deposit growth provided NPR 34bn |
| Net cash flow before tax paid | Operating subtotal | Operating | Re-derive arithmetically |
| Income taxes paid | Cash tax | Operating | NAS 7 default classification |
| Net cash flow from operating activities | Total operating cash | Operating | **Negative is normal for a growing bank — decompose it** |
| Purchase of investment securities | Securities bought | Investing | **Gross — net it against sales** |
| Receipts from sale of investment securities | Securities sold/matured | Investing | 24× turnover = very short-dated book |
| Purchase of property and equipment | Capex | Investing | Only 1.4% of investing outflow |
| Receipt from sale of PPE | Disposal proceeds | Investing | Proceeds ≠ gain |
| Purchase of intangible assets | Software capex | Investing | 5-year amortisation |
| Receipt from sale of intangible assets | Software disposals | Investing | Rare; nil |
| Purchase of investment properties | Foreclosure costs | Investing | A rise is a **credit** warning |
| Receipt from sale of investment properties | NBA disposals | Investing | Nil disposals + rising NBA = concern [R] |
| Investment in subsidiaries, associates & JVs | Group acquisitions | Investing | Nil — no restructuring |
| Net cash used in investing activities | Total investing | Investing | Dominated by treasury, not capex |
| Receipt from issue of debt securities | Debenture proceeds | Financing | Nil |
| Repayment of debt securities | Debenture redemption | Financing | Nil — but check the maturity ladder |
| Receipt from issue of subordinated liabilities | Sub-debt raised | Financing | Nil |
| Repayment of subordinated liabilities | Sub-debt repaid | Financing | Nil |
| Receipt from issue of shares | Equity raised | Financing | NPR 3bn PNCPS; **bonus shares excluded — non-cash** |
| Dividends paid | Cash to shareholders | Financing | Cash only; stock dividend absent |
| Other receipt/payment | Residual financing | Financing | Immaterial |
| Net cash from financing activities | Total financing | Financing | +NPR 2.1bn — net capital strengthening |
| Net increase (decrease) in cash | Sum of three activities | — | −NPR 24.9bn Group |
| Cash at beginning of the year | Opening balance | — | **Must tie to prior-year balance sheet** |
| Cash acquired from the merger | Cash assumed on acquisition | — | Nepal-specific format line; nil |
| Effect of exchange rate fluctuations | FX remeasurement of cash | — | **Not a cash flow** — separate by NAS 7 |
| Cash at end of the year | Closing balance | — | **Must tie to the balance sheet — check first** |
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