Chapter 3 · Part 3 — Other Comprehensive Income
OCI tax, comprehensive income and basic EPS
Why tax follows the item it relates to, the measure that grew 19% while profit grew 40%, and how EPS is really computed in Nepal.
Income tax relating to above items
Simple definition. The tax effect of the OCI items, shown separately so you can see OCI both before and after tax.
Technical definition. Current and deferred tax attributable to items recognised in other comprehensive income, recognised in OCI rather than in profit or loss, per NAS 12.
The governing principle.
╔═══════════════════════════════════════════════════════════╗ ║ TAX FOLLOWS THE ITEM IT RELATES TO. ║ ║ ║ ║ Item in PROFIT → tax in PROFIT ║ ║ Item in OCI → tax in OCI ║ ║ Item in EQUITY → tax in EQUITY ║ ╚═══════════════════════════════════════════════════════════╝
This is why the OCI statement has its own tax line and why it does not appear in the Income tax expense line of the P&L. Failing to apply this principle is one of the most common NAS 12 errors.
The reported figures. (NMB, Asar 2083, YTD, NPR thousand.)
Group Bank
Gains/(losses) from equity investments (244,545) (247,668)
Actuarial gains/(losses) (58,594) (52,408)
Income tax relating to above items 90,942 90,023
───────── ─────────
Net OCI for the period (212,197) (210,053)
Check (Group): −244,545 − 58,594 + 90,942 = −212,197 OK
Check (Bank): −247,668 − 52,408 + 90,023 = −210,053 OKNote the sign. Because the OCI items are losses, the tax effect is a credit — the losses reduce future taxable income, generating a deferred tax asset. Had the OCI items been gains, the tax line would be a debit.
Verifying the implied rate.
Pre-tax OCI (Bank) = −247,668 − 52,408 = −300,076 Tax credit = 90,023 Implied rate = 90,023 ÷ 300,076 = 30.00%
Exactly 30%, consistent with the statutory rate applied to banks [R]. This kind of arithmetic check confirms both your reading and the report's internal consistency.
Related terms. Part 1.15, 1.25 Deferred tax · Part 2.23 Deferred Tax expense/(Income) · Part 8 Deferred Tax
Items that are or may be reclassified to profit or loss
Simple definition. OCI items that will eventually pass through the profit statement when a triggering event occurs.
Technical definition. The category of other comprehensive income comprising items that NFRS requires or permits to be reclassified ("recycled") to profit or loss on derecognition, settlement or when a hedged transaction affects profit.
What belongs here.
| Item | Recycling trigger |
|---|---|
| Cash flow hedge gains/losses | When the hedged forecast transaction affects profit |
| Foreign operation translation differences | On disposal of the foreign operation |
| FVOCI **debt** instrument gains/losses | On sale of the instrument |
| Share of associate's reclassifiable OCI | Per the associate's own items |
Why this category is entirely nil for NMB. All three of the bank's potential sources are absent:
- No hedge accounting applied (see Part 1.4)
- No foreign operations — NMB operates only in Nepal
- FVOCI-debt classification apparently not used, or immaterial
Analytical significance of a non-nil balance. Because these amounts will eventually hit profit, a large accumulated balance here is a forward indicator of future earnings. A bank with a large accumulated translation loss will book that loss in profit when it sells the foreign operation. Category (a) items carry no such implication.
Related terms. 3.9, 3.10, 3.11 · Items that will not be reclassified
Gains/(losses) on cash flow hedge
Simple definition. The effective portion of gains or losses on a derivative used to lock in the price of a future transaction.
Technical definition. The portion of the gain or loss on a hedging instrument designated in a cash flow hedge that is determined to be an effective hedge, recognised in OCI and accumulated in a cash flow hedge reserve, subsequently reclassified to profit or loss in the period the hedged item affects profit.
How cash flow hedge accounting works.
WITHOUT hedge accounting WITH cash flow hedge accounting
──────────────────────── ──────────────────────────────
Derivative fair value Effective portion → OCI
change → P&L IMMEDIATELY │
│ │ held in a reserve
▼ │ until…
Hedged item affects P&L ▼
LATER Hedged transaction occurs
│ │
▼ ▼
TIMING MISMATCH → Reserve RECYCLED to P&L
artificial earnings at the same time
volatility │
▼
Gain and loss MATCH.
No artificial volatility.
Ineffective portion → P&L immediately, in both cases.Why NMB shows nil. The line exists in the format but is unpopulated, meaning the bank holds derivatives (large balances — Part 1.4) but has not designated them in hedge relationships. All derivative fair value movement therefore goes straight to Net trading income.
Why banks often skip hedge accounting. NFRS 9 hedge accounting requires:
- Formal designation and documentation at inception
- An economic relationship between hedged item and hedging instrument
- Ongoing effectiveness assessment
- Rebalancing when the hedge ratio changes
The administrative burden is considerable. Many Nepali banks judge that the earnings volatility is acceptable rather than build the infrastructure.
Related terms. Part 1.4 Derivative financial instruments · Part 2.8 Net trading income
Exchange gains/(losses) arising from translating financial assets of foreign operation
Simple definition. The gain or loss from converting a foreign subsidiary's or branch's accounts into Nepali rupees.
Technical definition. Exchange differences arising on translation of the results and financial position of a foreign operation whose functional currency differs from the presentation currency, recognised in OCI under NAS 21 The Effects of Changes in Foreign Exchange Rates and accumulated in a foreign currency translation reserve, reclassified to profit or loss on disposal of the foreign operation.
The crucial distinction — translation vs transaction.
┌─────────────────────────────────────────────────────────────────┐ │ TRANSACTION differences │ │ The bank itself holds a USD asset or liability. │ │ Revalued at the NRB mid-point rate. │ │ ↓ │ │ PROFIT OR LOSS (Other operating income) │ │ — NMB's actual treatment, per its policy note │ └─────────────────────────────────────────────────────────────────┘ ┌─────────────────────────────────────────────────────────────────┐ │ TRANSLATION differences │ │ A whole foreign OPERATION (subsidiary/branch) whose books │ │ are kept in another currency must be translated into NPR │ │ for consolidation. │ │ ↓ │ │ OCI │ │ — nil for NMB: no foreign operations │ └─────────────────────────────────────────────────────────────────┘
Why it is nil. NMB's functional and presentation currency is NPR for all Group entities, as its policy note states: "The Interim financial statements are presented in Nepalese Rupees (NPR), the functional currency of Group entities. There is no change in the Group's presentation and functional currency during the period under review." All three subsidiaries operate in Nepal. Nothing to translate.
Related note — the Exchange Equalisation Reserve. Do not confuse this OCI line with the Exchange equalisation reserve in the SoCE (NPR 256,839 thousand for the Bank). That reserve is an NRB-mandated appropriation of realised FX revaluation gain from retained earnings — a distribution restriction, not an OCI item. See Part 5 and Part 7.
OCI translation reserve ≠ Exchange equalisation reserve
─────────────────────── ─────────────────────────────
NAS 21, foreign operations NRB Directive appropriation [R]
Recycled on disposal Blocks FX gains from
Nil for NMB distribution
NPR 256,839 thousand for NMBRelated terms. Part 2.9 Other operating income · Part 5 Exchange equalisation reserve · Part 8 Foreign Exchange Transactions, Functional and presentation currency
Share of other comprehensive income of associate accounted as per equity method
Simple definition. The bank's share of OCI recognised by a company it has significant influence over.
Technical definition. The investor's share of the other comprehensive income of an associate accounted for using the equity method under NAS 28, presented in the investor's OCI and classified between the reclassifiable and non-reclassifiable categories according to the nature of the associate's underlying items.
Nil for NMB because it has no associates — see Part 1.11.
Related terms. Part 1.11 Investment in associates · Part 8 Basis of Consolidation
Other comprehensive income for the period, net of income tax
Simple definition. All OCI items added together, after tax.
Formula.
OCI for the period, Items that will not Items that are or may
net of income tax = be reclassified + be reclassified
(net of tax) (net of tax)Full build-up. (NMB, Asar 2083, YTD, NPR thousand.)
Group Bank
Items that will NOT be reclassified:
Gains/(losses) from equity investments (244,545) (247,668)
Gains/(losses) on revaluation − −
Actuarial gains/(losses) (58,594) (52,408)
Income tax relating to above items 90,942 90,023
───────── ─────────
Subtotal (212,197) (210,053)
Items that ARE or MAY BE reclassified:
Gains/(losses) on cash flow hedge − −
Exchange gains/(losses) on foreign ops − −
Income tax relating to above items − −
───────── ─────────
Subtotal − −
Share of OCI of associate − −
───────── ─────────
OTHER COMPREHENSIVE INCOME, NET OF TAX (212,197) (210,053)Related terms. All of Part 3
Total comprehensive income for the period
Simple definition. Everything that changed shareholders' wealth this period, other than transactions with shareholders themselves.
Technical definition. The change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners. It equals profit or loss plus other comprehensive income.
Formula.
Total Comprehensive Income = Profit for the period
+ Other comprehensive income, net of taxWorked, with the analytical point. (NMB, Asar 2083, YTD, NPR thousand.)
Group Bank
Profit for the period 4,280,765 4,013,671
Other comprehensive income (212,197) (210,053)
───────── ─────────
Total comprehensive income 4,068,568 3,803,618
Prior year corresponding 3,416,729 3,203,097
Growth +19.08% +18.75%Now compare the two growth stories:
Group Bank
Profit growth +39.74% +40.60%
Total comprehensive
income growth +19.08% +18.75%
─────── ───────
Gap 20.7pp 21.9ppProfit grew about 40%. Shareholder wealth grew about 19%. The difference is entirely OCI — and it is invisible if you read only the P&L and EPS.
Why the gap? Last year OCI was positive (equity gains of NPR 692m more than offsetting actuarial losses); this year it is negative. So the prior-year comprehensive income base was boosted and this year's is depressed, widening the divergence.
Why NAS 1 requires this statement. Precisely to prevent the P&L from being the only performance narrative. An entity cannot park unwelcome losses in OCI and present only profit — comprehensive income must be shown.
Analyst practice. Compute comprehensive income per share alongside EPS:
Comprehensive income per share (Group, illustrative approach)
= Total comprehensive income attributable to equity holders
÷ weighted average ordinary shares
= 3,997,320 ÷ (ordinary share count)
Compare against reported Basic EPS of NPR 28.47.
The gap is the per-share OCI effect.Related terms. 3.1, 3.12, 3.14 · Part 2.24 Profit for the period · Part 5
Total comprehensive income attributable to: Equity holders of the Bank / Non-controlling interest
Simple definition. Splitting total comprehensive income between the bank's own shareholders and the minority owners of partly-owned subsidiaries.
Technical definition. The allocation of total comprehensive income between the owners of the parent and non-controlling interests, required by NAS 1 for consolidated statements.
The reported allocation. (NMB, Asar 2083, YTD, NPR thousand.)
Group Bank
Equity holders of the Bank 3,997,320 3,803,618
Non-controlling interest 71,248 −
───────── ─────────
Total 4,068,568 3,803,618NCI is nil in the standalone column because the standalone accounts consolidate nothing.
Why the split matters.
| Use | Which figure |
|---|---|
| **EPS** | Equity holders of the Bank only |
| **ROE** | Equity holders of the Bank only |
| **Dividend capacity** | Bank standalone (see Part 7) |
| **Group scale / footprint** | Total |
The NCI proportion.
NCI share = 71,248 ÷ 4,068,568 × 100 = 1.75%
Small — so for NMB the Group/parent distinction barely moves the per-share numbers. In a group with a large partly-owned subsidiary it would matter substantially.
Related terms. Part 1.35 Non-controlling interest · Part 2.24 · Part 6 ROE
Basic earnings per share (Common Equity)
Simple definition. How much profit the bank earned for each ordinary share.
Technical definition. Profit or loss attributable to ordinary equity holders of the parent entity divided by the weighted average number of ordinary shares outstanding during the period, computed under NAS 33 Earnings per Share.
Formula — the general form.
Profit attributable to ordinary equity holders of the parent
Basic EPS = ─────────────────────────────────────────────────────────────────
Weighted average number of ordinary shares outstandingFormula — as actually applied by NMB. The report specifies its method:
Annualised Earnings − Dividend to PNCPS of this fiscal year
Basic EPS = ───────────────────────────────────────────────────────────────────
Number of common equity sharesComponent explanation.
| Component | Meaning | Nepal-specific note |
|---|---|---|
| **Annualised earnings** | YTD profit scaled to a full year | At Q4 the factor is 1 — already annual |
| **Dividend to PNCPS** | The preference dividend for the year | **Must be deducted** — it belongs to preference holders, not ordinary shareholders |
| **Number of common equity shares** | Ordinary shares only | Excludes the 30,000,000 PNCPS Kitta |
| **Weighted average** | Time-weighted for shares issued mid-year | **Restated retrospectively for bonus issues** |
The two NAS 33 adjustments a Nepali bank must make.
(1) Bonus share retrospective restatement
The report states: "In a capitalisation or 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. The number of ordinary shares outstanding before the event is adjusted for the proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest period presented. Hence, bonus share has been adjusted in EPS accordingly."
WHY: A bonus issue gives shareholders more paper for the same
underlying value. No new money came in. Resources are unchanged.
│
▼
If you divided the SAME profit by MORE shares without restating
the prior year, EPS would appear to FALL — implying performance
deteriorated when nothing changed.
│
▼
SOLUTION: restate ALL prior periods as if the bonus shares
had always existed. Comparison becomes honest.Illustrative demonstration.
Without restatement With restatement
Year 1 profit NPR 1,000,000,000 NPR 1,000,000,000
Year 1 shares 100,000,000 105,000,000 ← restated
Year 1 EPS NPR 10.00 NPR 9.52
Year 2: 5% bonus issue
Year 2 profit NPR 1,100,000,000 NPR 1,100,000,000
Year 2 shares 105,000,000 105,000,000
Year 2 EPS NPR 10.48 NPR 10.48
Reported growth +4.8% +10.1%
MISLEADING CORRECT
(understates growth (matches the
because Year 1 was actual 10% profit
not restated) growth)(2) PNCPS dividend deduction
The PNCPS holders are NOT ordinary shareholders.
Their 8.25% dividend is NOT available to ordinary shareholders.
│
▼
Deduct it from earnings BEFORE dividing by ordinary shares.Worked example. Illustrative — HCBL, showing the full method.
Profit for the period NPR 4,013,671,000
PNCPS: 30,000,000 Kitta @ NPR 100 = NPR 3,000,000,000 @ 8.25%
Full-year PNCPS dividend NPR 247,500,000
─────────────────
Earnings attributable to ordinary shareholders NPR 3,766,171,000
Ordinary share capital:
Total share capital NPR 22,285,041,000
Less PNCPS NPR 3,000,000,000
──────────────────
Ordinary share capital NPR 19,285,041,000
÷ par value NPR 100 = 192,850,410 shares
Basic EPS = 3,766,171,000 ÷ 192,850,410 = NPR 19.53(NMB reports Bank Basic EPS of NPR 20.18. The small difference from this illustration reflects the actual PNCPS dividend being time-apportioned — the instrument was capitalized on Magh 04, 2082, part-way through the year, so the actual charge was NPR 122,055 thousand, not the full-year NPR 247,500 thousand. Recomputing with the actual figure: (4,013,671 − 122,055) ÷ 192,850.41 = NPR 20.18 OK — which ties exactly.)
The reported figures. (NMB, Asar 2083.)
Group Bank Basic EPS (Common Equity) NPR 28.47 NPR 20.18 Prior year corresponding NPR 15.84 NPR 14.80 Growth +79.7% +36.4%
Effect on the market. EPS drives the PE ratio (Part 6). NMB reports PE (Annualized) of 11.87 for both Group and Bank, against a closing market price of NPR 239.50.
Check: PE = Price ÷ EPS Group: 239.50 ÷ 28.47 = 8.41 Bank: 239.50 ÷ 20.18 = 11.87 ← matches the reported figure
So the published PE ratio is computed on the standalone Bank EPS, not Group. That is worth knowing when comparing NMB's PE to another bank's — check which EPS the other bank used.
Related terms. Part 1.30 Share capital · Part 2.24 Profit for the period · Annualized Basic EPS · Diluted EPS · Part 6 PE Ratio · Part 7 Annualised Distributable Profit/Loss per share · Part 8 NAS 33
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