Capital instruments, provisions and earnings per share

Perpetual Non-Cumulative Preference Shares (PNCPS)

Fully covered in Part 1.30, with the word-by-word decode, the AT1 qualification, the EPS and ROE deduction, and the distributable-profit claim (Part 7.23).

The report's disclosure, twice:

Why every feature is deliberate:

PERPETUAL       → no repayment obligation → not a liability
NON-CUMULATIVE  → skipped dividends vanish → no accrued obligation
DISCRETIONARY   → the bank chooses whether to pay → no obligation
NON-CONVERTIBLE → cannot become ordinary shares → no EPS dilution
                  (which is why diluted EPS = basic EPS, Part 3.17)
                         │
                         ▼
⇒ EQUITY under NAS 32
⇒ AT1 under NRB's Capital Adequacy Framework [R]
⇒ But its dividend is deducted before ordinary shareholders
  in EPS, ROE and distributable profit

Additional Tier I (AT1) capital

Regulatory capital that is loss-absorbing and permanent but is not common equity. Sits between CET1 and Tier 2 in the loss hierarchy (Part 6.10).

(NMB: the NPR 3 billion PNCPS, contributing ~0.91 percentage points to the Tier 1 ratio.)

Kitta

Nepali for "piece" or "unit" — the standard Nepali term for a share or unit of a security.

30,000,000 Kitta @ NPR 100 each = NPR 3,000,000,000

Used routinely in Nepali capital-market documents, IPO notices and NEPSE reporting.

Stationery

The report's policy: "Stationery purchased are stated at cost and charged to revenue at the time of consumption."

An inventory-like treatment: capitalised on purchase, expensed on consumption rather than on purchase. Immaterial for a bank, but included in NRB's prescribed policy note set.

Provisions

NAS 37 liabilities of uncertain timing or amount. Fully covered in Part 1.24, including the three-part recognition test, the decision tree, and the crucial distinction from loan-loss provisions.

Contingent Liabilities

Definition. A possible obligation arising from past events whose existence will be confirmed only by uncertain future events; or a present obligation that is not recognised because an outflow is not probable or the amount cannot be measured reliably.

Treatment: disclosed, not recognised — unless the possibility of outflow is remote, in which case nothing is disclosed.

In a Nepali bank, the major contingent liabilities are off-balance-sheet banking business:

• Letters of credit issued
• Guarantees issued (bid bonds, performance bonds)
• Acceptances and endorsements
• Undrawn loan commitments
• Legal claims against the bank
• Tax assessments in dispute

The report's Details of Legal Action note addresses the litigation category: "No material cases except for regular cases of debt recovery and Income Tax."

Related terms. Part 1.24 · Part 11 · 8.D.11

Contingent Assets

Definition. A possible asset arising from past events whose existence will be confirmed only by uncertain future events.

The report's policy:

The deliberate asymmetry in NAS 37:

┌───────────────────────────────────────────────────────────┐
│                    LIABILITY        ASSET                 │
│  Recognise when    PROBABLE     VIRTUALLY CERTAIN         │
│  Disclose when     POSSIBLE     PROBABLE                  │
│  Ignore when       REMOTE       POSSIBLE or REMOTE        │
│                                                           │
│  ⇒ A much higher bar for recognising gains than losses.   │
│    This is PRUDENCE built into the standard.              │
└───────────────────────────────────────────────────────────┘

Present obligation / Outflow of resources

The first two limbs of the NAS 37 recognition test — a present obligation (legal or constructive) arising from a past event, and a probable outflow of resources embodying economic benefits. The third limb is reliable measurement. All three required. See the decision tree at Part 1.24.

Grant / Deferred Grant Income

The report's policy:

The matching principle at work.

GRANT RELATED TO INCOME
→ recognise in profit as the related costs are incurred
→ presented in OTHER OPERATING INCOME

GRANT RELATED TO ASSETS
→ set up DEFERRED GRANT INCOME (a liability)
→ release to profit over the asset's useful life,
  matching the depreciation

Nepali relevance. Nepali banks receive grants and technical assistance from development finance institutions — consistent with NMB's FMO partnership and Global Alliance for Banking on Values membership. Typical purposes: SME lending programmes, climate finance, financial-inclusion initiatives, capacity building.

Earnings Per Share (NAS 33)

Objective. To prescribe principles for the determination and presentation of earnings per share, improving performance comparisons between entities and between periods.

Scope. Entities whose ordinary shares are publicly traded — which includes every NEPSE-listed bank.

Fully worked in Parts 3.15–3.17, including the PNCPS deduction and the bonus-share retrospective restatement.

Weighted average number of equity shares outstanding

The denominator of basic EPS. Shares are weighted by the fraction of the period they were outstanding.

Worked illustration.

Opening shares (Shrawan 1)              180,000,000
New shares issued for cash on Poush 1
(start of month 6, so outstanding
 for 7 of 12 months)                     12,000,000

Weighted average
= 180,000,000 × (12/12)
+ 12,000,000 × (7/12)
= 180,000,000 + 7,000,000
= 187,000,000 shares

But bonus shares are treated differently — no time-weighting.

A bonus issue adds NO RESOURCES, so it is treated as if it
had ALWAYS existed. Apply the bonus factor to the ENTIRE
period AND restate all comparatives.

5% bonus on the above:
Weighted average = 187,000,000 × 1.05 = 196,350,000
Prior year comparative also × 1.05

Related terms. Part 3.15 · Part 5.25 · 8.H.24

Capitalisation or bonus issue

The report's NAS 33 language for a bonus issue: "ordinary shares are issued to existing shareholders for no additional consideration. Therefore, the number of ordinary shares outstanding is increased without an increase in resources."

Fully covered in Parts 3.15, 5.25 and 7.20.

Ordinary shares

Equity instruments subordinate to all other classes of equity — the residual claim. Excludes the PNCPS, which rank ahead. All per-share measures in this report — EPS, net worth per share, assets per share, distributable profit per share — are computed on ordinary shares only, per the bank's stated method.

Total share capital        NPR 22,285,041 thousand
Less PNCPS                 NPR  3,000,000 thousand
                           ─────────────────────
Ordinary share capital     NPR 19,285,041 thousand
÷ par NPR 100           =      192,850,410 shares

Part 8 — Revision table