Chapter 3 · Part 3 — Other Comprehensive Income
Why OCI exists, and what never reaches profit
Real gains and losses kept deliberately out of the P&L: the FVOCI election, revaluation, and actuarial remeasurement.
17 terms. OCI is the statement most readers skip and most often should not. It captures real gains and losses that deliberately bypass profit or loss — and in a Nepali bank it holds two things that matter: unrealised investment gains and the actuarial cost of employee benefits.
Part 3 checklist
Profit for the period · Other comprehensive income · Items that will not be reclassified to profit or loss · Gains/(losses) from investments in equity instruments measured at fair value · Gains/(losses) on revaluation · Actuarial gains/(losses) on defined benefit plans · Income tax relating to above items · Items that are or may be reclassified to profit or loss · Gains/(losses) on cash flow hedge · Exchange gains/(losses) arising from translating financial assets of foreign operation · Share of other comprehensive income of associate accounted as per equity method · Other comprehensive income for the period, net of income tax · Total comprehensive income for the period · Total comprehensive income attributable to: Equity holders of the Bank / Non-controlling interest · Basic earnings per share (Common Equity) · Annualized Basic earnings per share (Common Equity) · Diluted earnings per share (Common Equity)
Why OCI exists
The problem OCI solves
A bank holds shares in a listed company, bought for NPR 50 million.
At year end they are worth NPR 58 million.
Has the bank EARNED NPR 8 million?
│
┌───────────────┴───────────────┐
│ │
ARGUMENT FOR ARGUMENT AGAINST
putting it in PROFIT putting it in PROFIT
─────────────────── ────────────────────
The bank is genuinely It is UNREALISED.
NPR 8m richer. Ignoring The price may fall
it hides economic reality. tomorrow. Running it
through profit makes
reported earnings swing
with the stock market,
which has nothing to do
with how well the bank
is being run.
│
▼
THE COMPROMISE: OCI
Recognise the gain — so the balance sheet is honest —
but keep it OUT of profit, so the P&L stays clean.Comprehensive income = profit + OCI
┌───────────────────────────────────────────────────────────────┐ │ TOTAL COMPREHENSIVE INCOME │ │ (every change in equity except transactions │ │ with owners) │ ├──────────────────────────────┬────────────────────────────────┤ │ PROFIT OR LOSS │ OTHER COMPREHENSIVE INCOME │ │ │ │ │ • Realised │ • Unrealised or remeasured │ │ • Performance of the │ • Value changes outside │ │ business │ management's control │ │ • Feeds EPS │ • Does NOT feed EPS │ │ • → Retained earnings │ • → specific reserves │ └──────────────────────────────┴────────────────────────────────┘
The two OCI categories
OTHER COMPREHENSIVE INCOME
│
┌─────────────────────┴──────────────────────┐
▼ ▼
┌─────────────────────────────┐ ┌──────────────────────────────┐
│ (a) WILL NOT be reclassified │ │ (b) ARE or MAY BE │
│ to profit or loss │ │ reclassified to P&L │
│ │ │ │
│ • FVOCI EQUITY gains/losses │ │ • Cash flow hedge gains │
│ • Revaluation surplus (PPE) │ │ • Foreign operation │
│ • ACTUARIAL gains/losses │ │ translation differences │
│ │ │ • FVOCI DEBT gains/losses │
│ On disposal → transferred │ │ │
│ WITHIN EQUITY to retained │ │ On disposal/settlement → │
│ earnings. NEVER through P&L. │ │ RECYCLED THROUGH P&L. │
└─────────────────────────────┘ └──────────────────────────────┘Why the split matters to an analyst. Category (b) items are future profit or loss waiting to happen — they will eventually pass through the P&L. Category (a) items never will. So a large accumulated balance in category (b) is a forward indicator of earnings; a large balance in category (a) is not.
Profit for the period
The opening line of the OCI statement, brought forward from the P&L. See Part 2.24 for full treatment.
(NMB, Asar 2083, YTD: Group NPR 4,280,765 thousand; Bank NPR 4,013,671 thousand.)
Its role here is simply to be the base to which OCI is added to arrive at total comprehensive income.
Other comprehensive income
Simple definition. Gains and losses the bank has genuinely experienced but which are kept out of profit because they are unrealised or outside management's control.
Technical definition. Items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by NFRS.
Framework. NAS 1 Presentation of Financial Statements governs the structure; the individual standards (NFRS 9, NAS 16, NAS 19, NAS 21, NAS 28) determine what goes in.
Presentation requirement. NAS 1 requires OCI items to be grouped into the two categories shown above, and requires the tax effect of each to be disclosed either individually or as a single line with a breakdown in the notes. The NRB format follows the "single line per category with an associated tax line" approach — which is why you see Income tax relating to above items immediately after each group.
*(NMB, Asar 2083, YTD: Group NPR (212,197) thousand — a net OCI loss.)*
Effect on equity. Full. OCI flows to specific reserves — the Fair value reserve for FVOCI movements, and typically retained earnings or a dedicated reserve for actuarial remeasurement, depending on the bank's presentation.
Effect on EPS. None. This is the defining characteristic.
Related terms. All of Part 3 · Part 1.33 Reserves · Part 5
Items that will not be reclassified to profit or loss
Simple definition. OCI items that will never pass through the profit statement, no matter what happens later.
Technical definition. The category of other comprehensive income comprising items that NFRS prohibits from being recycled to profit or loss, principally FVOCI-designated equity investments, revaluation surpluses under the revaluation model, and remeasurements of defined benefit plans.
Why the prohibition exists. Different reasons for each:
| Item | Why never recycled |
|---|---|
| **FVOCI equity** | The election under NFRS 9 is irrevocable and its whole purpose is to keep equity price volatility permanently out of the P&L. Allowing recycling would defeat that. |
| **Revaluation surplus** | Under NAS 16 the surplus is a capital adjustment to the asset's carrying amount, not an earnings event. |
| **Actuarial remeasurement** | Under NAS 19 remeasurements reflect changes in assumptions and experience, not the cost of employee service. Recycling would double-count the service cost already in profit. |
What happens instead on disposal. The accumulated amount is transferred within equity — from the relevant reserve to retained earnings. Total equity is unchanged; only its composition shifts.
Dr Fair value reserve 8,000,000
Cr Retained earnings 8,000,000
→ Total equity unchanged.
→ Profit unchanged.
→ EPS unchanged.
→ The gain is now distributable (subject to NRB rules).(NMB, Asar 2083, YTD: Group NPR (212,197) thousand — the whole of NMB's OCI falls in this category, since the reclassifiable category is nil.)
Related terms. 3.4, 3.5, 3.6, 3.7 · Part 1.33 Reserves
Gains/(losses) from investments in equity instruments measured at fair value
Simple definition. The change in market value of shares the bank owns, where the bank has chosen to keep those swings out of profit.
Technical definition. Fair value movements on equity instruments for which the bank made the irrevocable election at initial recognition under NFRS 9 to present subsequent changes in fair value in other comprehensive income (the FVOCI-equity designation).
The NFRS 9 election.
The bank buys equity shares.
│
▼
DEFAULT under NFRS 9: equity instruments are FVTPL.
All fair value changes → PROFIT OR LOSS.
│
▼
BUT: at INITIAL RECOGNITION only, and instrument by
instrument, the bank may make an IRREVOCABLE ELECTION
to present changes in OCI.
│
┌───────┴────────┐
▼ ▼
FVTPL FVOCI-EQUITY
Changes → P&L Changes → OCI
Volatile EPS Stable EPS
Gains realised Gains NEVER
through profit reach profit —
on sale even on sale
Dividends STILL
go to profitWhy Nepali banks use this election heavily. Nepali banks hold listed shares for several reasons, not all voluntary:
- Strategic stakes in payment systems, credit information companies, clearing houses
- Shares acquired through underwriting obligations
- Investment portfolio holdings
NEPSE is a volatile, relatively thin market. Running those price swings through profit would make a bank's reported earnings look like a stock index. The FVOCI election insulates reported performance from that.
Journal-entry logic.
Fair value RISES by NPR 8,000,000:
Dr Investment securities 8,000,000
Cr OCI — Gains from equity investments at FV 8,000,000
Deferred tax at 30% (illustrative [R]):
Dr OCI — Income tax relating to above items 2,400,000
Cr Deferred tax liability 2,400,000
Net OCI = 8,000,000 − 2,400,000 = NPR 5,600,000
Fair value reserve increases by NPR 5,600,000The reported figures, read. (NMB, Asar 2083, YTD, NPR thousand.)
Group Bank Gains/(losses) from investments in equity instruments at fair value (244,545) (247,668) Prior year corresponding 692,568 680,504
A swing from a +NPR 692 million gain to a −NPR 245 million loss — a NPR 937 million negative swing at Group level. This is a direct read-out of the Nepali equity market's performance over the year.
Cross-check with the balance sheet. (Bank, Fair value reserve.)
Fair value reserve, Asar end 2082 819,054
Other comprehensive income (173,367)
────────
Fair value reserve, Asar End 2083 645,687Note the SoCE movement (−173,367) is the after-tax figure, while the OCI statement shows the pre-tax loss (−247,668) and the tax credit (+71,720 for the Bank) separately. −247,668 + 71,720 = −175,948 — close to but not exactly the −173,367 in the SoCE, the difference reflecting the actuarial component also flowing through. Always reconcile OCI to the reserve movement; it is a good arithmetic check on your understanding.
Effect on regulatory capital. The fair value reserve forms part of equity and generally of CET1, subject to any prudential filters the Capital Adequacy Framework applies [R]. A large unrealised loss therefore reduces regulatory capital even though it never touched profit.
Analyst interpretation.
- Always read this line. It is the single biggest reason reported profit can diverge from shareholder value creation in a Nepali bank.
- Compute total comprehensive income per share alongside EPS. For NMB Group: 4,068,568 ÷ ordinary shares versus EPS of NPR 28.47 — the gap is the OCI drag.
- A bank with a large FVOCI-equity portfolio has embedded volatility that will never show in earnings. Size it from the note.
Related terms. Part 1.8 Investment securities · Part 1.33 Reserves (fair value reserve) · Income tax relating to above items · Part 8 FVTPL, FVOCI, Business model
Gains/(losses) on revaluation
Simple definition. The increase in value of property when a bank chooses to carry it at current market value rather than at cost.
Technical definition. The surplus arising on remeasurement of property, plant and equipment under the revaluation model in NAS 16, recognised in OCI and accumulated in a Revaluation Reserve, except to the extent it reverses a previously recognised revaluation decrease of the same asset, which is recognised in profit or loss.
Why it is nil in the source report. NMB applies the cost model, as stated in its policy note: "Property, plant and equipment and Intangible assets (software) are stated at cost less accumulated depreciation (Cost Model)." Under the cost model no revaluation arises, which is why both this OCI line and the Revaluation Reserve column in the SoCE are nil.
NAS 16 offers a POLICY CHOICE:
COST MODEL REVALUATION MODEL
────────── ─────────────────
Carry at cost − accumulated Carry at fair value at
depreciation − impairment revaluation date − subsequent
depreciation
No OCI effect Surplus → OCI → Revaluation Reserve
Simpler, verifiable Deficit → P&L (unless reversing a
Most Nepali banks use this prior surplus)
Requires regular valuationsIf a bank did apply it:
Building at cost NPR 500m, accumulated depreciation NPR 100m,
carrying amount NPR 400m. Revalued to NPR 550m.
Dr Property and equipment 150,000,000
Cr OCI — Gains on revaluation 150,000,000
Deferred tax (illustrative [R]):
Dr OCI — Income tax relating to above items 45,000,000
Cr Deferred tax liability 45,000,000Related terms. Part 1.13 Property and equipment · Part 1.33 Reserves · Part 8 NAS 16, Cost Model
Actuarial gains/(losses) on defined benefit plans
Simple definition. The change in the estimated cost of promises made to employees — gratuity and accumulated leave — caused by assumptions turning out differently than expected.
Technical definition. Remeasurements of the net defined benefit liability, comprising actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions, and the return on plan assets excluding amounts included in net interest — recognised in OCI under NAS 19 and never reclassified to profit or loss.
What an actuary actually does.
THE PROMISE: "When you leave after 20 years, we will pay you
gratuity based on your final salary."
To value that today, the actuary must assume:
┌────────────────────────────────────────────────────────┐
│ • DISCOUNT RATE — what rate to discount future payments│
│ • SALARY GROWTH — how much salaries will rise │
│ • ATTRITION — how many employees will actually stay │
│ • MORTALITY — life expectancy │
│ • RETIREMENT AGE — when they leave │
└────────────────────────────────────────────────────────┘
│
▼
Present value of the obligation
│
Next year, reality differs from every assumption, AND
the assumptions themselves are updated.
│
▼
The change is an ACTUARIAL GAIN or LOSS
│
▼
RECOGNISED IN OCI
(never in profit, never recycled)The discount-rate sensitivity — the dominant driver.
Discount rate FALLS → future payments discounted less
→ present value of obligation RISES
→ ACTUARIAL LOSS → OCI debit
Discount rate RISES → obligation FALLS
→ ACTUARIAL GAIN → OCI creditIn Nepal the discount rate is typically referenced to government bond yields. So a fall in government bond yields — good news for the bank's investment portfolio — simultaneously produces an actuarial loss on its employee obligations. The two effects partly offset, and both sit in OCI.
Why it goes to OCI and not profit. NAS 19 splits defined benefit cost into three:
| Component | Where recognised |
|---|---|
| **Current service cost** — benefit earned by employees this year | Profit or loss (personnel expenses) |
| **Net interest** on the net obligation | Profit or loss |
| **Remeasurement** — actuarial gains/losses | **OCI, permanently** |
The logic: the first two reflect the cost of this year's employment, which is genuine operating performance. The third reflects revised estimates about the future, which is not. Putting remeasurement in profit would make personnel expense swing with bond yields.
The annual-valuation consequence. The report states: "The actuary valuation is done on annual basis only."
Q1 Q2 Q3 Q4
── ── ── ────────────────
0 0 0 ENTIRE YEAR'S
ACTUARIAL
REMEASUREMENT
lands hereThe reported figures. (NMB, Asar 2083, YTD, NPR thousand.)
Group Bank Actuarial gains/(losses) on defined benefit plans (58,594) (52,408) Prior year corresponding (187,625) (182,706)
A loss in both years, but a much smaller loss this year — NPR 129 million less at Group level. Combined with the equity-investment loss, this gives the total OCI picture.
Journal entry.
Actuarial LOSS of NPR 58,594,000:
Dr OCI — Actuarial gains/(losses) 58,594,000
Cr Defined benefit obligation (Other liabilities) 58,594,000
Deferred tax effect:
Dr Deferred tax asset 17,578,200
Cr OCI — Income tax relating to above items 17,578,200Effect on equity. Reduces equity directly. Accumulates in retained earnings or a dedicated reserve depending on presentation. Effect on cash flow. None. It is a remeasurement of a future obligation. Effect on regulatory capital. Reduces equity and hence CET1 [R].
Analyst interpretation. Large recurring actuarial losses suggest either falling discount rates or assumptions that were previously too optimistic. Check the actuarial assumptions note year on year — a bank that keeps revising assumptions adversely was under-providing before.
Related terms. Part 1.26 Other liabilities · Part 2.14 Personnel expenses · Part 8 NAS 19, Gratuity, Actuarial valuation, Defined benefit obligations
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