Chapter 7 · Part 7 — Distributable Profit
Distributable profit, and the number that matters
What is actually left for shareholders, the preference claim ahead of them, and the per-share figure that moved opposite to EPS.
Other (Interest Capitalised Term Loan)
Simple definition. Interest that was added to a loan's principal instead of being collected in cash, removed from distributable profit.
Technical definition. An adjustment removing from distributable profit interest income recognised on term loans where the interest has been capitalised into the loan principal rather than received in cash.
What interest capitalisation is, and why NRB is wary of it.
A borrower — say a hydropower project under construction —
cannot service interest during the construction period.
│
▼
The bank agrees to CAPITALISE the interest: add it to the
loan principal instead of collecting it.
│
▼
Loan principal NPR 1,000,000,000
+ Capitalised interest NPR 120,000,000
─────────────────
New principal NPR 1,120,000,000
│
▼
ACCOUNTING: the NPR 120 million is recognised as INTEREST INCOME.
Profit rises. EPS rises.
│
▼
┌──────────────────────────────────────────────────────────────┐
│ REALITY CHECK: │
│ • No cash was received │
│ • The borrower now owes MORE │
│ • The loan is LARGER and therefore RISKIER │
│ • The bank has, in substance, lent the borrower the money │
│ to pay its own interest │
│ │
│ If the project fails, the bank loses the capitalised │
│ interest too — profit it already reported. │
└──────────────────────────────────────────────────────────────┘
│
▼
NRB: this profit is not distributable.Nepali context. Interest capitalisation is common in Nepal for:
- Hydropower projects — long construction periods with no revenue
- Infrastructure and real estate — pre-completion phases
- Restructured loans — where a struggling borrower's arrears are capitalised
Reading the numbers.
FY2082/83 FY2081/82 Change Interest Capitalised Term Loan adjustment (67,505) (47,879) +41%
A 41% increase. On its own, NPR 67.5 million is modest against NPR 4 billion of profit — but the trend matters. Rising capitalised interest alongside rising NPL (4.11% → 4.91%) suggests increasing use of forbearance: struggling borrowers having interest rolled up rather than being downgraded.
Related terms. Part 1.7 Loans and advances · Part 2.1 Interest income · Part 6.2 NPL ratio · Part 8 ECL, Stage 2
DISTRIBUTION
Net Profit available for distribution
Simple definition. The profit that is genuinely available to pay out, after everything NRB requires to be held back.
Formula.
Net Profit available Profit or Loss Before Total Regulatory for distribution = Regulatory adjustment + Adjustments
Worked. (NMB, Bank, NPR thousand.)
Profit or Loss Before Regulatory adjustment 2,518,033
Regulatory adjustments:
Interest receivable (297,150)
Short loan loss provision in accounts −
Short provision on investment −
Short loan loss provision on NBA (88,637)
Deferred tax assets recognised (61,174)
Goodwill recognised −
Bargain purchase gain recognised −
Actuarial loss recognised (195,282)
Other (Interest Capitalised Term Loan) (67,505)
─────────
Total regulatory adjustments (709,748)
─────────
Net Profit available for distribution 1,808,285 OK
Check: 2,518,033 − 709,748 = 1,808,285 OKThe full erosion, from top to bottom.
┌───────────────────────────────────────────────────────────────┐ │ Net profit (NFRS) 4,013,671 100.0% │ │ ├─ Appropriations (1,495,638) −37.3% │ │ │ ────────── │ │ │ Before regulatory adjustment 2,518,033 62.7% │ │ ├─ Regulatory adjustments (709,748) −17.7% │ │ │ ────────── │ │ └─ Available for distribution 1,808,285 45.1% │ │ │ │ → 54.9% of reported profit is NOT available for │ │ distribution in the year it was earned. │ └───────────────────────────────────────────────────────────────┘
Year-on-year — and this is the finding that matters.
FY2082/83 FY2081/82 Change
Net profit 4,013,671 2,854,638 +40.6%
Available for distribution 1,808,285 1,995,222 −9.4%
───────── ─────────
Available as % of profit 45.1% 69.9% −24.8ppProfit rose 40.6%. Distributable profit FELL 9.4%.
That is a 50 percentage point divergence in one year, and it is the single most important number in this Part. The causes, in order of size:
1. Interest receivable swing (890,162) ← collections deteriorated 2. Debenture redemption reserve up (384,524) ← appropriation tripled 3. Actuarial loss adjustment up (67,388) 4. General reserve up (with profit) (231,806) ← mechanical 5. Interest capitalised up (19,626) 6. CSR fund up (18,310) Partly offset by: NBA short provision down +262,951 Training fund down +10,748 Other (prior year) down +20,000
The dominant driver is the interest receivable swing — the bank collected less of what it booked. Everything in this guide's analysis points back to the same root cause: deteriorating asset quality.
Related terms. 7.7, 7.9–7.17
Opening Retained Earning
Simple definition. Distributable profit left over from previous years.
Technical definition. The retained earnings balance brought forward at the start of the period, representing accumulated distributable profit not yet paid out.
(NMB, Bank: NPR 1,901,381 thousand as at Shrawan 1, 2082.)
The prior-year figure is worth noting.
FY2081/82 opening retained earning: NPR (93,841) thousand ← NEGATIVE
Related terms. Part 1.32 Retained earnings · Part 5.12
Bonus shares issued
Simple definition. Distributable profit converted into share capital, reducing what remains available for future distribution.
Technical definition. The capitalisation of retained earnings through a bonus share issue, deducted in arriving at distributable profit carried forward.
(NMB, Bank: NPR (918,335) thousand — the 5% stock dividend.)
Fully covered in Part 5.25. Its role here is as a deduction from distributable profit.
┌──────────────────────────────────────────────────────────────┐ │ A BONUS ISSUE COSTS NOTHING IN CASH — │ │ BUT IT PERMANENTLY CONSUMES DISTRIBUTABLE PROFIT. │ │ │ │ Dr Retained earnings 918,335,000 │ │ Cr Share capital 918,335,000 │ │ │ │ • Total equity unchanged │ │ • CET1 unchanged │ │ • Cash unchanged │ │ • DISTRIBUTABLE PROFIT reduced by NPR 918 million │ │ │ │ Once retained earnings become share capital, they can │ │ NEVER be distributed again — paid-up capital cannot be │ │ returned to shareholders without a formal capital │ │ reduction [R]. │ └──────────────────────────────────────────────────────────────┘
Related terms. Part 5.25 · Part 1.30 Share capital · Part 6.10 CET 1
Cash Dividend Paid
Simple definition. Cash actually paid out to shareholders, deducted from distributable profit.
Technical definition. Cash distributions to equity holders during the period, deducted in arriving at distributable profit carried forward.
(NMB, Bank: NPR (918,335) thousand — the 5% cash dividend approved by the 30th AGM.)
Fully covered in Part 5.26 and Part 4.30.
The total distribution.
Bonus shares issued NPR 918,335 thousand
Cash Dividend Paid NPR 918,335 thousand
────────────────────
Total distributed NPR 1,836,670 thousand
Against Net Profit available for
distribution NPR 1,808,285 thousand
→ The bank distributed slightly MORE than the year's
distributable profit, drawing on the opening balance.Related terms. Part 4.30 · Part 5.26 · Part 5.24
Total Distributable profit (or loss)
Simple definition. The distributable profit carried forward — what is available for future dividends.
Formula.
Total Distributable Net Profit available Opening Retained Bonus Cash
profit (or loss) = for distribution + Earning − shares − Dividend
(± adjustments) issued PaidWorked. (NMB, Bank, NPR thousand.)
Net Profit available for distribution 1,808,285
Opening Retained Earning as on Shrawan 1, 2082 1,901,381
Adjustment (+/-) −
Bonus shares issued (918,335)
Cash Dividend Paid (918,335)
─────────
Total Distributable profit as on Asar End 2083 1,872,996 OK
Check: 1,808,285 + 1,901,381 − 918,335 − 918,335 = 1,872,996 OKThe critical cross-check with the balance sheet.
Total Distributable profit (this statement) 1,872,996
Retained earnings (balance sheet, Bank) 1,872,996
═════════
OK IDENTICALYear-on-year.
FY2082/83 FY2081/82 Change Total Distributable profit 1,872,996 1,901,381 −1.5%
Essentially flat, and slightly down — despite profit rising 40.6%.
Related terms. Part 1.32 Retained earnings · Part 5.8 · 7.18–7.21
Cash Dividend Distributable to PNCPS holders
Simple definition. The dividend owed to the preference shareholders, which must be paid before ordinary shareholders get anything.
Technical definition. The dividend payable on Perpetual Non-Cumulative Preference Shares at the contractual rate, deducted from total distributable profit to arrive at the amount available to common equity holders.
The instrument. (From Part 1.30.)
NMB Perpetual Non-Cumulative Preference Shares (PNCPS) - 2081/82 Rate: 8.25% Amount: NPR 3,000,000,000 Units: 30,000,000 Kitta @ NPR 100 each Capitalized on: Magh 04, 2082 Qualifies as: Additional Tier I (AT1) capital
The calculation, and why it is not the full 8.25%.
Full-year dividend at 8.25%: 3,000,000,000 × 8.25% = NPR 247,500,000 Reported: NPR 122,055 thousand = NPR 122,055,000 Ratio: 122,055,000 ÷ 247,500,000 = 49.3%
The PNCPS was capitalized on Magh 04, 2082 — which falls in the second half of the Nepali fiscal year (Magh is the sixth month, Shrawan being the first). Roughly 49.3% of the year remained, so the dividend is time-apportioned. The arithmetic confirms the timing disclosure precisely.
Shrawan Bhadra Ashwin Kartik Mangsir Poush │ Magh Falgun Chaitra Baisakh Jestha Asar
1 2 3 4 5 6 │ 7 8 9 10 11 12
↑
PNCPS issued Magh 04, 2082
≈ 5.9 of 12 months remaining ≈ 49%Why it must be deducted before ordinary shareholders.
┌──────────────────────────────────────────────────────────────┐ │ PREFERENCE = priority. │ │ │ │ PNCPS holders rank AHEAD of ordinary shareholders for: │ │ • Dividend │ │ • Return of capital on winding up │ │ │ │ So the distributable profit belongs to them FIRST, │ │ up to their contractual rate. │ │ │ │ BUT — because the shares are NON-CUMULATIVE and the │ │ dividend is DISCRETIONARY, the bank CAN skip it. If it │ │ does, the dividend is gone forever — it does not accrue. │ │ That discretion is precisely why the instrument qualifies │ │ as equity under NAS 32 and as AT1 capital. │ └──────────────────────────────────────────────────────────────┘
Full-year impact going forward. From FY2083/84, the full NPR 247.5 million will be payable — more than double this year's NPR 122 million. That is a permanent NPR 125 million annual reduction in profit available to ordinary shareholders, and it will show up in:
- Distributable profit to common equity holders
- Basic EPS (the deduction in the numerator)
- ROE (same deduction)
Related terms. Part 1.30 Share capital · Part 3.15 Basic EPS · Part 6.11 ROE · Part 12 AT1
Total Profit Distributable to Common Equity Share holders
Simple definition. What is actually left for the ordinary shareholders.
Formula.
Total Profit Distributable Total Distributable Cash Dividend
to Common Equity Holders = profit (or loss) − Distributable to
PNCPS holdersWorked.
Total Distributable profit as on Asar End 2083 1,872,996
Cash Dividend Distributable to PNCPS holders (122,055)
─────────
Total Profit Distributable to Common Equity
Share holders 1,750,941 OKThe complete journey, from reported profit to shareholder entitlement.
╔═══════════════════════════════════════════════════════════════════╗ ║ FROM ACCOUNTING PROFIT TO SHAREHOLDER ENTITLEMENT ║ ║ NMB Bank Limited, FY 2082/83 (NPR thousand) ║ ╠═══════════════════════════════════════════════════════════════════╣ ║ ║ ║ Net Profit (NFRS) 4,013,671 100.0% ║ ║ │ ║ ║ ├── General Reserve (802,734) ║ ║ ├── Debenture Redemption Reserve (621,825) ║ ║ ├── Exchange Fluctuation Fund (41,202) ║ ║ ├── CSR Fund (22,145) ║ ║ └── Employees Training Fund (7,732) ║ ║ ────────── ║ ║ Before regulatory adjustment 2,518,033 62.7% ║ ║ │ ║ ║ ├── Interest receivable (297,150) ║ ║ ├── NBA short provision (88,637) ║ ║ ├── Deferred tax assets (61,174) ║ ║ ├── Actuarial loss (195,282) ║ ║ └── Interest capitalised term loan (67,505) ║ ║ ────────── ║ ║ Available for distribution 1,808,285 45.1% ║ ║ │ ║ ║ ├── + Opening retained earning 1,901,381 ║ ║ ├── − Bonus shares issued (918,335) ║ ║ └── − Cash dividend paid (918,335) ║ ║ ────────── ║ ║ Total distributable profit c/f 1,872,996 ║ ║ │ ║ ║ └── − PNCPS dividend (122,055) ║ ║ ────────── ║ ║ DISTRIBUTABLE TO COMMON EQUITY 1,750,941 43.6% ║ ║ ══════════ ══════ ║ ╚═══════════════════════════════════════════════════════════════════╝
Year-on-year.
FY2082/83 FY2081/82 Change To common equity holders 1,750,941 1,901,381 −7.9%
Related terms. 7.22, 7.23 · Part 3.15 Basic EPS
Annualised Distributable Profit/Loss per share (Common Equity)
Simple definition. How much distributable profit backs each ordinary share — the honest counterpart to EPS.
Technical definition. Total profit distributable to common equity shareholders, annualised, divided by the number of ordinary shares outstanding.
Formula.
Annualised Distributable Total Profit Distributable to Common Equity Holders Profit/Loss per share = ────────────────────────────────────────────────────── (Common Equity) Number of ordinary shares outstanding
Verifying the reported figure.
Total Profit Distributable to Common Equity NPR 1,750,941,000
Ordinary shares:
Share capital NPR 22,285,041,000
Less PNCPS NPR 3,000,000,000
──────────────────
Ordinary share capital NPR 19,285,041,000
÷ par NPR 100 = 192,850,410 shares
Distributable per share = 1,750,941,000 ÷ 192,850,410 = NPR 9.08 OKTies exactly to the reported NPR 9.08.
The comparison that should change how you read a Nepali bank
┌──────────────────────────────────────────────────────────────────────┐ │ FY2082/83 FY2081/82 Change │ ├──────────────────────────────────────────────────────────────────────┤ │ Basic EPS (Common Equity) NPR 20.18 NPR 14.80 +36.4% ▲ │ │ Distributable per share NPR 9.08 NPR 10.35 −12.3% ▼ │ │ ───────── ───────── │ │ Distributable as % of EPS 45.0% 69.9% −24.9pp │ └──────────────────────────────────────────────────────────────────────┘ ╔══════════════════════════════════════════════════════════════════════╗ ║ EPS ROSE 36%. DIVIDEND CAPACITY PER SHARE FELL 12%. ║ ║ ║ ║ These two numbers moved in OPPOSITE directions in the same year, ║ ║ for the same bank, on the same share count. ║ ║ ║ ║ An investor who bought on the EPS story would have been buying ║ ║ a share whose actual capacity to pay them a dividend had DECLINED. ║ ╚══════════════════════════════════════════════════════════════════════╝
Why the divergence — traced to source.
1. Interest collection deteriorated → interest receivable adjustment swung NPR 890m negative → the largest single cause 2. Debenture redemption reserve appropriation tripled → NPR 385m more locked away 3. Actuarial loss adjustment rose NPR 67m 4. The bonus issue permanently consumed NPR 918m of distributable profit 5. The PNCPS introduced a new NPR 122m prior claim (rising to NPR 247m next year) Meanwhile EPS rose because the P&L benefited from: • a 132bp fall in cost of funds (rate cycle) • a NPR 204.5m VRS credit to personnel expenses • a NPR 61m deferred tax credit ⇒ EPS captured the accounting gains. Distributable profit captured the cash reality.
How to use this ratio.
| Test | Reading |
|---|---|
| Distributable per share ÷ EPS | The proportion of earnings that is real, cash-backed and free. NMB: 45%, down from 70% |
| Distributable per share vs declared dividend per share | Is the dividend covered? NMB declared NPR 5 cash + NPR 5 stock per NPR 100 share = NPR 10 total against NPR 9.08 distributable — **not fully covered** |
| Trend over 3–5 years | The most reliable indicator of sustainable dividend capacity |
Limitations.
- Annualisation at interim dates is unreliable (Part 3.16).
- Uses year-end share count; a mid-year bonus issue distorts comparability unless restated.
- Reflects NRB's prescribed adjustments, which change [R].
- Says nothing about whether the board will actually declare a dividend — capacity is not intention.
Related terms. Part 3.15 Basic EPS · 7.22–7.24 · Part 6.13 PE Ratio
Part 7 — Revision table
| Term | Meaning | Effect | Key issue |
|---|---|---|---|
| Net Profit as per Statement of P&L | Accounting profit | Starting point | Must tie to the P&L |
| General Reserve | Statutory retention | −NPR 803m | ~20% of profit [R]; largest appropriation |
| Capital (Debenture) Redemption Reserve | Debenture repayment provision | −NPR 622m | **Tripled** with debentures flat |
| Exchange Fluctuation Fund | FX gain block | −NPR 41m | Same as SoCE exchange equalisation reserve |
| Corporate Social Responsibility Fund | Mandatory CSR | −NPR 22m | Rose ~6×; must be spent, not just appropriated |
| Employees Training Fund | Mandatory training | −NPR 8m | **Falling is good** — it is the unspent shortfall |
| Profit or Loss Before Regulatory adjustment | After statutory reserves | NPR 2,518m | 37.3% of profit already gone |
| Interest receivable (-)/received (+) | Uncollected interest | −NPR 297m | **NPR 890m adverse swing** — the dominant driver |
| Short loan loss provision in accounts | Provisioning shortfall | Nil | Nil confirms correct higher-of application |
| Short provision on investment | Investment provisioning shortfall | Nil | Catches FVOCI losses that bypassed profit |
| Short loan loss provision on NBA | Foreclosed property shortfall | −NPR 89m | Closes the foreclosure loophole; nil disposals is a concern |
| Deferred tax assets recognised | Non-cash tax credit | −NPR 61m | **The same number that added to profit** |
| Goodwill recognised / impairment | Merger premium | Nil | Impairment releases distributable profit |
| Bargain purchase gain recognised | Cheap-acquisition gain | Nil | Self-assessed; never distributable |
| Actuarial loss recognised | Employee obligation remeasurement | −NPR 195m | Not double-counting — OCI never touched profit |
| Other (Interest Capitalised Term Loan) | Interest rolled into principal | −NPR 68m | Up 41%; forbearance red flag when NPL is rising |
| Net Profit available for distribution | Genuinely distributable | NPR 1,808m | **45.1% of profit, down from 69.9%** |
| Opening Retained Earning | Carried-forward capacity | NPR 1,901m | Was **negative** two years ago — thin buffer |
| Bonus shares issued | Capitalised to share capital | −NPR 918m | Free shares permanently consume dividend capacity |
| Cash Dividend Paid | Cash distributed | −NPR 918m | Total distribution exceeded the year's capacity |
| Total Distributable profit (or loss) | Carried forward | NPR 1,873m | Ties to balance-sheet retained earnings — this year |
| Cash Dividend Distributable to PNCPS holders | Preference claim | −NPR 122m | Time-apportioned; **NPR 247m from next year** |
| Total Profit Distributable to Common Equity | Ordinary shareholders' share | NPR 1,751m | 43.6% of reported profit |
| Annualised Distributable Profit/Loss per share | Per-share dividend capacity | NPR 9.08 | **Fell 12% while EPS rose 36%** — read this, not EPS |
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