Chapter 17 · Part 17 — Formula Sheet
Formulas: profit, per-share, returns, asset quality and capital
Every formula with its variables defined, the period basis stated, and accounting versus regulatory flagged.
47 of 51 · 14 min
Every formula in the guide, in one place. No formula is given without stating what each variable means, which period basis applies, and whether the calculation is accounting-based or regulatory.
Profit or loss
┌─────────────────────────────────────────────────────────────────────────┐ │ NET INTEREST INCOME (NII) │ │ │ │ NII = Interest Income − Interest Expense │ │ │ │ Interest income — accrual, effective interest method; STOPS accruing │ │ on Stage 3 exposures (cash basis) │ │ Interest expense — accrual on deposits, borrowings, debentures and │ │ lease liabilities │ │ Basis — YTD │ │ Type — ACCOUNTING │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ NET FEE AND COMMISSION INCOME │ │ │ │ = Fees and Commission Income − Fees and Commission Expense │ │ │ │ ! Fees INTEGRAL to yield are in EIR/interest income, not here │ │ Basis — YTD · Type — ACCOUNTING │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ NET INTEREST, FEE AND COMMISSION INCOME │ │ │ │ = Net Interest Income + Net Fee and Commission Income │ │ │ │ * THE BEST CROSS-BANK COMPARISON LINE — immune to the │ │ EIR-vs-NFRS 15 fee classification choice │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ TOTAL OPERATING INCOME │ │ │ │ = Net interest income │ │ + Net fee and commission income │ │ + Net trading income │ │ + Other operating income │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ NET OPERATING INCOME (risk-adjusted revenue) │ │ │ │ = Total Operating Income − Impairment charge/(reversal) │ │ │ │ * Growth in total operating income MINUS growth in net operating │ │ income = THE DRAG FROM CREDIT COST │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ OPERATING PROFIT │ │ │ │ = Net Operating Income │ │ − Personnel expenses │ │ − Other operating expenses │ │ − Depreciation & Amortisation │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ PROFIT BEFORE INCOME TAX │ │ │ │ = Operating Profit + Non operating income − Non operating expense │ │ │ │ OK Must tie to the SEGMENT NOTE total │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ PROFIT FOR THE PERIOD │ │ │ │ = Profit before income tax − (Current Tax + Deferred Tax exp/(inc)) │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ EFFECTIVE TAX RATE │ │ │ │ = Income tax expense ÷ Profit before income tax × 100 │ │ │ │ Compare to the statutory rate for BFIs [R] and explain any gap │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ COST-TO-INCOME RATIO │ │ │ │ = (Personnel + Other operating expenses + D&A) │ │ ÷ Total Operating Income × 100 │ │ │ │ ! ADJUST FOR ONE-OFFS FIRST (NMB: NPR 204.5m VRS credit) │ │ ! Not comparable across the NFRS 16 adoption boundary │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ CREDIT COST │ │ │ │ = Impairment charge ÷ Average gross loans and advances × 100 │ │ │ │ Average = (opening + closing) ÷ 2 · Basis — YTD │ │ * Use this, not absolute impairment, to compare banks │ └─────────────────────────────────────────────────────────────────────────┘
Per-share measures
┌─────────────────────────────────────────────────────────────────────────┐ │ BASIC EARNINGS PER SHARE — general form (NAS 33) │ │ │ │ Profit attributable to ordinary equity holders of the parent │ │ EPS = ────────────────────────────────────────────────────────────── │ │ Weighted average number of ordinary shares outstanding │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ BASIC EPS — as applied in Nepal with preference shares │ │ │ │ Annualised Earnings − Dividend to PNCPS of the fiscal year │ │ EPS = ────────────────────────────────────────────────────────────── │ │ Number of common (ordinary) equity shares │ │ │ │ Annualised earnings — YTD × annualisation factor (×1 at Q4) │ │ PNCPS dividend — TIME-APPORTIONED if issued mid-year │ │ Ordinary shares — EXCLUDES preference shares │ │ — RESTATED RETROSPECTIVELY for bonus issues │ │ Type — ACCOUNTING (NAS 33), with the bank's stated method │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ WEIGHTED AVERAGE ORDINARY SHARES │ │ │ │ Cash issues → weight by months outstanding ÷ 12 │ │ Bonus issues → NO time-weighting; apply to the WHOLE period │ │ AND restate all comparatives │ │ │ │ e.g. 180,000,000 + 12,000,000 × (7/12) = 187,000,000 │ │ then × 1.05 for a 5% bonus = 196,350,000 │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ DILUTED EPS │ │ │ │ Profit to ordinary holders + after-tax adjustment for │ │ dilutive instruments │ │ = ───────────────────────────────────────────────────────────── │ │ Weighted average ordinary shares + potential ordinary shares │ │ │ │ ! INCLUDE ONLY IF DILUTIVE (i.e. it REDUCES EPS). Anti-dilutive │ │ instruments are excluded. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ ANNUALISED FIGURE │ │ │ │ = YTD figure × Annualisation factor │ │ │ │ Q1 → ×4 · Q2 → ×2 · Q3 → ×4/3 · Q4 → ×1 │ │ │ │ ! [R] The exact convention is set by NRB's format and the bank's method │ │ ! NEVER annualise a STOCK ratio (NPL, CD, NLA, capital ratios) │ │ ! Q1 annualisation systematically OVERSTATES — year-end true-ups │ │ (actuarial, impairment, deferred tax) all land in Q4 │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ NET-WORTH PER SHARE │ │ │ │ = Equity attributable to ORDINARY equity holders │ │ ÷ Number of ordinary shares outstanding │ │ │ │ Exclude PNCPS from BOTH numerator and denominator │ │ │ │ TANGIBLE variant (cleaner): │ │ = (Ordinary equity − Goodwill − Intangibles − DTA) ÷ ordinary shares │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ ASSETS PER SHARE │ │ │ │ = Total Assets ÷ Number of ordinary shares outstanding │ │ │ │ * Assets per share ÷ Net worth per share = EQUITY MULTIPLIER │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ ANNUALISED DISTRIBUTABLE PROFIT PER SHARE (Common Equity) │ │ │ │ = Total Profit Distributable to Common Equity Share holders │ │ ÷ Number of ordinary shares outstanding │ │ │ │ Type — REGULATORY (NRB distributable profit statement) │ │ * Compare to Basic EPS. The ratio is the single best measure of │ │ earnings quality available for a Nepali bank. │ └─────────────────────────────────────────────────────────────────────────┘
Profitability and returns
┌─────────────────────────────────────────────────────────────────────────┐ │ RETURN ON EQUITY (ROE) — Annualized │ │ │ │ Annualised profit attributable to ordinary equity holders │ │ ROE = ───────────────────────────────────────────────────────── ×100 │ │ Average ordinary shareholders' equity │ │ │ │ Numerator — profit LESS PNCPS dividend │ │ Denominator — equity attributable to the PARENT, excluding NCI │ │ and excluding PNCPS │ │ [R] average vs closing convention varies — state yours │ │ Basis — annualised YTD · Type — ACCOUNTING (NRB-prescribed format) │ │ │ │ ! ROE REWARDS LEVERAGE. Always decompose. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ RETURN ON ASSETS (ROA) — Annualized │ │ │ │ Annualised profit attributable to ordinary equity holders │ │ ROA = ───────────────────────────────────────────────────────── ×100 │ │ Average Total Assets │ │ │ │ * IMMUNE TO LEVERAGE — the purer measure of operating skill │ │ ! Ignores off-balance-sheet exposure (LCs, guarantees generate fee │ │ income in the numerator with no denominator effect) │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ DUPONT DECOMPOSITION │ │ │ │ ROE = ROA × Equity Multiplier │ │ │ │ where Equity Multiplier = Total Assets ÷ Total Equity │ │ │ │ * If ROE rose but the multiplier also rose, the improvement is │ │ GEARING, not performance. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ ROA DECOMPOSITION FOR A BANK │ │ │ │ ROA = Net interest income ÷ Avg assets │ │ + Non-interest income ÷ Avg assets │ │ − Impairment charge ÷ Avg assets │ │ − Operating expenses ÷ Avg assets │ │ − Tax ÷ Avg assets │ │ │ │ * Do this for two years and the source of any ROA change is │ │ unambiguous. The most useful single analytical tool in the guide. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ NET INTEREST MARGIN (NIM) │ │ │ │ NIM = Net Interest Income ÷ Average interest-EARNING assets × 100 │ │ │ │ Interest-earning assets — loans, investments, placements, NRB and │ │ bank balances. EXCLUDES PPE, goodwill, deferred tax, other assets. │ │ │ │ ! NIM ≠ INTEREST SPREAD. NIM captures the benefit of ZERO-COST │ │ funding (current accounts, equity), so NIM > spread normally. │ │ ! NIM is an ANALYTICAL measure; NRB publishes SPREAD, not NIM. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ RETURN ON SEGMENT ASSETS │ │ │ │ = Segment profit before tax ÷ Segment assets × 100 │ │ │ │ * Ranks the businesses. NMB: Retail 6.43% vs Corporate 1.46% │ └─────────────────────────────────────────────────────────────────────────┘
Asset quality
┌─────────────────────────────────────────────────────────────────────────┐ │ NPL RATIO (Non performing loan to total loan) │ │ │ │ = Gross Non-Performing Loans ÷ Gross Total Loans and Advances × 100 │ │ │ │ NPL = Substandard + Doubtful + Loss (! WATCHLIST IS NOT NPL) │ │ Basis — POINT IN TIME. NEVER annualise. │ │ Type — REGULATORY (NRB classification [R]) │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ PROVISION COVERAGE RATIO │ │ (Total loan loss provision to Total NPL) │ │ │ │ = Total Loan Loss Provision ÷ Gross NPL × 100 │ │ │ │ ! Numerator is TOTAL provision (including on Pass and Watchlist), │ │ which is why it can exceed 100% │ │ Type — REGULATORY (as per NRB Directives) │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ NET NPL RATIO │ │ │ │ = (Gross NPL − Provision held against NPL) ÷ Total Loans × 100 │ │ │ │ [R] DENOMINATOR CONVENTION VARIES (gross vs net loans) — state yours │ │ ! Can IMPROVE while gross NPL worsens. Never read it alone. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ * COVERAGE NORMALISATION (the most valuable calculation in the guide) │ │ │ │ Additional impairment that would have been needed to hold │ │ coverage at the prior-year level: │ │ │ │ = Gross loans × Current NPL% │ │ × (Prior coverage% − Current coverage%) │ │ │ │ NMB Group: 258,400 × 5.18% × (98.79% − 88.04%) │ │ = 13,385 × 10.75% ≈ NPR 1,439 million │ │ = 23.5% of Group pre-tax profit │ │ │ │ * Quantifies exactly how much profit came from NOT maintaining │ │ prior-year provisioning discipline. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ EXPECTED CREDIT LOSS (ECL) │ │ │ │ ECL = PD × LGD × EAD × Discount factor │ │ │ │ Probability-weighted across scenarios: │ │ ECL = Σᵢ [ Pᵢ × (PDᵢ × LGDᵢ × EADᵢ × DFᵢ) ] │ │ │ │ PD — Probability of Default. 12-month for Stage 1; │ │ LIFETIME for Stages 2 and 3. Use remaining-maturity PD │ │ where maturity < 12 months. │ │ LGD — Loss Given Default = (EAD − PV of recoveries) ÷ EAD │ │ EAD — Exposure at Default = drawn + (undrawn × CCF) + accrued │ │ interest − expected repayments │ │ DF — 1 ÷ (1 + EIR)ⁿ │ │ Pᵢ — probability of each macroeconomic scenario │ │ │ │ ! LOSSES ARE CONVEX. The probability-weighted result EXCEEDS the │ │ base case — which is exactly why NFRS 9 mandates weighting. │ │ Type — ACCOUNTING (NFRS 9) │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ * IMPAIRMENT RECOGNISED IN NEPAL — THE HIGHER-OF RULE │ │ │ │ Impairment = MAX( NFRS 9 ECL , NRB regulatory provision [R] ) │ │ │ │ Source: NFRS 9 Expected Credit Loss (ECL) Related Guidelines, 2024 │ │ ⇒ If applied correctly, Part 7.10 "Short loan loss provision in │ │ accounts" is NIL. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ IMPAIRMENT CHARGE FOR THE PERIOD │ │ │ │ = Closing allowance required − Opening allowance held │ │ + Amounts written off during the period │ │ − Recoveries of amounts previously written off │ │ │ │ ! A WRITE-OFF HAS NO P&L EFFECT where the allowance already exists │ └─────────────────────────────────────────────────────────────────────────┘
Capital
┌─────────────────────────────────────────────────────────────────────────┐ │ CAPITAL ADEQUACY RATIO (Capital fund to RWA) │ │ │ │ CAR = Total Capital Fund ÷ Risk Weighted Assets × 100 │ │ │ │ Total Capital Fund = Tier 1 + Tier 2 │ │ RWA = Credit RWA + Operational RWA + Market RWA │ │ Type — REGULATORY (NRB Capital Adequacy Framework [R]) │ │ [R] Minimum levels and buffers are prescribed — VERIFY │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ TIER 1 CAPITAL TO RWA │ │ │ │ = (CET1 + AT1) ÷ RWA × 100 ← GOING-CONCERN capital │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ * CET 1 CAPITAL TO RWA — THE NUMBER THAT MATTERS MOST │ │ │ │ = CET1 ÷ RWA × 100 │ │ │ │ CET1 ≈ Ordinary share capital + Share premium + Eligible reserves │ │ + Eligible retained earnings │ │ − Goodwill − Deferred tax assets − Other deductions [R] │ │ │ │ * ALWAYS COMPARE CET1 ACROSS BANKS, NEVER TOTAL CAR. │ │ Total capital can be dressed with AT1 and Tier 2; CET1 cannot. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ DERIVING THE CAPITAL STRUCTURE FROM PUBLISHED RATIOS │ │ │ │ AT1 = Tier 1 ratio − CET1 ratio │ │ Tier 2 = Total capital ratio − Tier 1 ratio │ │ │ │ NMB: AT1 = 9.90 − 8.99 = 0.91pp (the PNCPS) │ │ T2 = 12.73 − 9.90 = 2.83pp │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ ACCOUNTING LEVERAGE (not a regulatory ratio) │ │ │ │ Equity / Assets = Total Equity ÷ Total Assets × 100 │ │ Equity Multiplier = Total Assets ÷ Total Equity │ │ │ │ ! NOT a substitute for CAR — different numerator AND denominator │ │ NMB: Equity/assets 9.58% vs CET1 8.99% vs CAR 12.73% │ └─────────────────────────────────────────────────────────────────────────┘
Liquidity and funding
┌─────────────────────────────────────────────────────────────────────────┐ │ CD RATIO (Credit to Deposit) — Average of the Month │ │ │ │ = Total Credit ÷ Total Deposits × 100 │ │ │ │ [R] NRB prescribes the definition of credit and deposits, any │ │ exclusions, the monthly-average convention, and the CEILING │ │ ! Cannot be reproduced from year-end balance sheet figures │ │ (NMB: simple calc 79.26% vs published 82.77%) │ │ Basis — monthly average, point in time. NEVER annualise. │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ LIQUIDITY RATIO (NLA) │ │ │ │ = Net Liquid Assets ÷ Total Deposit Liabilities × 100 │ │ │ │ [R] NRB prescribes eligible liquid assets, haircuts, the deposit base │ │ and the minimum ratio │ │ ! READ IT WITH DEPOSIT CONCENTRATION (see 17.7) │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ COST OF FUNDS (LCY YTD) │ │ │ │ = Interest expense on local-currency funds │ │ ÷ Average interest-bearing local-currency funds × 100 │ │ │ │ LCY — local currency only; EXCLUDES foreign-currency funding │ │ YTD — cumulative from Shrawan 1 │ │ [R] NRB prescribes the exact base and averaging method │ │ * The purest measure of DEPOSIT FRANCHISE QUALITY │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ BASE RATE — Average for the quarter │ │ │ │ ≈ Cost of Funds │ │ + Cost of CRR │ │ + Cost of SLR │ │ + Operating Cost │ │ + Return on Assets component │ │ │ │ [R] THE EXACT FORMULA IS PRESCRIBED BY NRB — this is the structure only │ │ * Mandated formula ⇒ GENUINELY COMPARABLE ACROSS BANKS │ │ ! It is a FLOOR, not the actual lending rate │ │ Actual lending rate = Base Rate + risk premium │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ AVERAGE INTEREST SPREAD │ │ │ │ = Weighted Average Lending Rate − Weighted Average Deposit Rate │ │ │ │ [R] Calculated as per NRB Directives, measured on the LAST MONTH OF │ │ THE QUARTER — a different basis from Cost of Funds (YTD) │ │ [R] NRB has at times CAPPED the permitted spread — verify │ │ ! SPREAD ≠ NIM │ └─────────────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────────────┐ │ CASA RATIO (analytical, not published) │ │ │ │ = (Current account + Savings account deposits) ÷ Total deposits × 100 │ │ │ │ * The driver of cost of funds. Compute it from the deposit note. │ └─────────────────────────────────────────────────────────────────────────┘
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