Chapter 6 · Part 6 — NRB Ratios and Performance Ratios
Per-share measures, liquidity, and the table together
Net worth and assets per share, the PE trap, the liquidity ratio, and what seventeen ratios say when read as one.
Formula
Market Price per Share
PE Ratio = ────────────────────────────────
Annualised Basic EPSVerifying NMB's figure. The report discloses the market data:
Maximum Price NPR 257 · Minimum Price NPR 230 · Closing Price NPR 239.50 Trading number 8,289 · Days of Trading 64 Bank Basic EPS (Annualized) NPR 20.18 PE = 239.50 ÷ 20.18 = 11.87 OK matches the reported figure Group Basic EPS (Annualized) NPR 28.47 PE = 239.50 ÷ 28.47 = 8.41 x does NOT match → CONFIRMED: the published PE uses the STANDALONE BANK EPS, even in the Group column.
Reading the change.
FY2082/83 FY2081/82
PE Ratio 11.87 18.22
The PE fell 35% — but this is NOT because the price collapsed.
It is because EPS ROSE 36.4% (14.80 → 20.18).
Implied prior-year price = 18.22 × 14.80 = NPR 269.66
Current price = NPR 239.50
───────────
Price fell ~11%, EPS rose ~36% → PE fell 35%.Interpretation.
HIGH PE → investors expect strong future growth
→ OR the share is expensive
→ OR current earnings are temporarily depressed
LOW PE → investors are pessimistic about growth
→ OR the share is cheap
→ OR current earnings are temporarily inflated ← relevant hereLimitations.
- Backward-looking — uses historical EPS, while price reflects expectations.
- Distorted by one-offs — NMB's EPS includes a rate-cycle benefit, a VRS credit and a deferred tax credit.
- Ignores balance-sheet risk entirely. A bank with terrible asset quality can have a low PE for very good reasons.
- Sensitive to the EPS basis (Group vs standalone), as demonstrated.
- Market liquidity matters — NMB traded on only 64 days with 8,289 trades. A thinly traded share's price is a less reliable signal.
- For banks, Price-to-Book is often more informative than PE, because book value is a more stable anchor than earnings.
A complementary measure worth computing.
Market price per share
Price-to-Book (P/B) = ───────────────────────
Net worth per share
NMB Bank: 239.50 ÷ 181.15 = 1.32×
NMB Group: 239.50 ÷ 185.43 = 1.29×
→ The market values the bank at ~1.3× its book equity.Related terms. Part 3.15 Basic EPS · Net-Worth per share · Part 12 Maximum/Minimum/Closing Price
Net-Worth per share (NPR)
Simple definition. The book value of the bank behind each share.
Technical definition. Total shareholders' equity attributable to ordinary equity holders divided by the number of ordinary shares outstanding.
Formula
Equity attributable to ordinary equity holders
Net-Worth per share = ──────────────────────────────────────────────────
Number of ordinary shares outstandingComponent note. For a bank with AT1 preference shares, the PNCPS should be excluded from both the equity numerator and the share count, consistent with the report's stated approach of considering only ordinary shares for per-share measures.
Example calculation. Illustrative, reproducing the reported figure.
Equity attributable to equity holders (Bank) NPR 38,059,771,000
Less: PNCPS NPR 3,000,000,000
──────────────────
Ordinary shareholders' equity NPR 35,059,771,000
Ordinary shares = (22,285,041,000 − 3,000,000,000) ÷ 100
= 192,850,410 shares
Net worth per share = 35,059,771,000 ÷ 192,850,410 = NPR 181.79
Reported: NPR 181.15 OK (small difference from rounding/share count basis)Reading NMB's numbers.
FY2082/83 FY2081/82 Change Bank NPR 181.15 NPR 174.49 +3.82% Group NPR 185.43 NPR 177.50 +4.47%
Compare to profit growth of 40.6%. Net worth per share grew only 3.8%. Why?
Profit +4,013,671
OCI (210,053)
Cash dividend (918,335)
───────────
Net retained by ordinary shareholders +2,885,283
But the SHARE COUNT rose 5% from the bonus issue
(183,667,060 → 192,850,410).
→ Book value per share grew far less than book value in total,
because the same equity is divided among 5% more shares.This is the bonus-share dilution effect made concrete. Total equity grew strongly; per- share book value barely moved.
Interpretation. Net worth per share is the liquidation-value anchor — roughly what a shareholder would receive per share if the bank were wound up at book values (before any realisation losses). Comparing market price to it gives Price-to-Book.
Limitations.
- Book value ≠ market value. Loans are carried at amortised cost, not at what they would fetch in a sale. In a stressed sale, realisable value could be far below book.
- Includes goodwill and DTA — assets with little or no realisable value, and which regulators deduct from capital.
- Does not reflect off-balance-sheet risk.
- Bonus issues mechanically suppress the growth rate without any economic change.
A cleaner variant.
Tangible net worth per share =
(Ordinary equity − Goodwill − Intangibles − DTA) ÷ Ordinary shares
Bank: (35,059,771 − 125,732 − 467,672) ÷ 192,850.41
= 34,466,367 ÷ 192,850.41
= NPR 178.72 (vs NPR 181.15 reported)Related terms. Part 1.34 Total equity attributable · Assets per share · PE Ratio
Assets per share (NPR)
Simple definition. How much of the bank's total balance sheet sits behind each share.
Technical definition. Total assets divided by the number of ordinary shares outstanding.
Formula
Total Assets
Assets per share = ────────────────────────────────
Number of ordinary shares outstandingExample calculation.
Total assets (Bank) NPR 397,381,306,000 Ordinary shares 192,850,410 Assets per share = 397,381,306,000 ÷ 192,850,410 = NPR 2,060.60 Reported: NPR 2,060.57 OK
Reading NMB's numbers.
FY2082/83 FY2081/82 Change Bank NPR 2,060.57 NPR 1,914.29 +7.64% Group NPR 2,102.10 NPR 2,013.29 +4.41%
The relationship to leverage — this is the useful part.
Assets per share
───────────────── = Equity multiplier (leverage)
Net worth per share
Bank FY2082/83: 2,060.57 ÷ 181.15 = 11.38×
Bank FY2081/82: 1,914.29 ÷ 174.49 = 10.97×
──────
Leverage INCREASED from 10.97× to 11.38×Note the tension with the ROE decomposition (6.11). Using total equity including PNCPS, leverage fell (10.93× → 10.44×). Using ordinary equity only, leverage rose (10.97× → 11.38×). Both are correct; they answer different questions.
From the BANK's risk perspective: total equity is the cushion
→ leverage fell → safer
From the ORDINARY SHAREHOLDER's perspective: only ordinary equity
is theirs → leverage rose →
their claim supports more assetsThe AT1 issue de-risked the bank while increasing ordinary shareholders' effective gearing. That is precisely what AT1 is designed to do — and precisely why you must be explicit about which equity base you are using.
Interpretation. Rising assets per share means the bank is growing its balance sheet faster than its share count. Combined with flat net worth per share, it means leverage is rising.
Limitations.
- Says nothing about asset quality — NPR 2,060 of assets per share is worth much less if 5% of them are non-performing.
- Ignores risk weighting entirely.
- Mechanically affected by bonus issues.
Related terms. Part 1.17 Total Assets · Net-Worth per share · ROE
Liquidity Ratio (NLA)
Simple definition. How much of the bank's short-term obligations it could meet immediately from liquid assets.
Technical definition. Net Liquid Assets expressed as a percentage of total deposit liabilities, computed per NRB's prescribed methodology.
Formula (conceptual)
Net Liquid Assets
Liquidity Ratio (NLA) = ──────────────────────── × 100
Total Deposit LiabilitiesWhat counts as a liquid asset (conceptually — the precise eligible list and any haircuts are prescribed by NRB [R]):
┌────────────────────────────────────────────────────────┐ │ TYPICALLY INCLUDED │ │ • Cash in hand │ │ • Balances with NRB (free portion) │ │ • Balances with banks (domestic and foreign) │ │ • Money at call and short notice │ │ • Government securities (treasury bills, bonds) │ │ • NRB bonds │ ├────────────────────────────────────────────────────────┤ │ TYPICALLY EXCLUDED / DEDUCTED │ │ • Restricted or pledged balances │ │ • Statutory portion of the NRB balance │ │ • Illiquid investments │ └────────────────────────────────────────────────────────┘
Why liquidity is a separate risk from capital.
┌──────────────────────────────────────────────────────────────────┐ │ A bank can be SOLVENT and still FAIL. │ │ │ │ SOLVENCY = assets exceed liabilities → measured by CAR │ │ LIQUIDITY = can meet obligations WHEN DUE → measured by NLA │ │ │ │ A bank whose assets are 20-year loans and whose liabilities │ │ are demand deposits is SOLVENT but ILLIQUID. If depositors │ │ ask for their money on the same day, it cannot pay — even │ │ though every loan will eventually be repaid in full. │ │ │ │ This maturity transformation IS banking. Liquidity regulation │ │ exists to keep it from becoming fatal. │ └──────────────────────────────────────────────────────────────────┘
Reading NMB's numbers.
FY2082/83 FY2081/82 Change Both Group & Bank 28.99% 27.39% +1.60pp
Corroborating it from the balance sheet. (Bank, NPR thousand.)
Cash and cash equivalent 21,166,742
Due from Nepal Rastra Bank 18,698,021
Placement with BFIs 13,520,007
Investment securities 51,624,469
───────────
Broad liquid assets 105,009,239
Total deposits 315,118,455
Rough ratio = 105,009,239 ÷ 315,118,455 = 33.32%Higher than the published 28.99% — because NRB's method excludes the statutory NRB balance, applies haircuts and uses a prescribed deposit base [R]. Again: you cannot reproduce NRB ratios exactly. Use the published figure.
Interpretation.
HIGHER NLA → more resilient to deposit outflows
→ BUT liquid assets earn less than loans
→ excess liquidity DRAGS on ROA and NIM
LOWER NLA → more assets deployed in high-yielding loans
→ BUT vulnerable to a liquidity squeeze
→ may breach the NRB minimum [R]The link to everything else in this bank's year.
Deposits grew 13.1%, loans grew ~10%
│
▼
CD ratio fell 84.33% → 82.77%
│
▼
Surplus deployed into government securities (+NPR 19bn)
│
▼
NLA rose 27.39% → 28.99%
│
▼
Cash fell (Part 4) — but into LIQUID securities,
so liquidity IMPROVED despite the cash balance halving.Regulatory significance. Breaching the minimum attracts supervisory action [R]. NRB monitors liquidity closely because Nepal's banking system has experienced repeated liquidity crunches.
Limitations.
- A point-in-time snapshot, manageable at period ends.
- Says nothing about maturity mismatch in detail — for that you need a maturity-gap analysis, which is in the annual report's risk disclosures, not the quarterly ratio table.
- Assumes liquid assets stay liquid. In a systemic crisis, everyone sells government securities at once and prices fall.
- Ignores concentration. A bank whose twenty largest depositors hold 21.80% of deposits (NMB's actual disclosure — see Part 11) faces a much larger potential outflow than the ratio alone suggests.
Related terms. Part 1.1 Cash and cash equivalent · Part 1.8 Investment securities · CD Ratio · Part 11 Concentration of Deposits
Capital Adequacy Ratio
Simple definition. The umbrella term for the capital-to-RWA measures.
Technical definition. The regulatory capital requirement expressed as the ratio of eligible regulatory capital to risk-weighted assets, comprising the CET1, Tier 1 and total capital fund ratios prescribed by NRB's Capital Adequacy Framework.
Relationship to the other capital terms.
"CAPITAL ADEQUACY RATIO" is the family name. Its members, in ascending order of inclusiveness: ┌──────────────────────────────────────────────────────┐ │ CET 1 ratio 8.99% ← purest │ │ + │ │ AT1 0.91% │ │ ──────────────────────────── │ │ Tier 1 ratio 9.90% ← going-concern capital │ │ + │ │ Tier 2 2.83% │ │ ──────────────────────────── │ │ Capital fund to RWA 12.73% ← total, "the CAR" │ └──────────────────────────────────────────────────────┘ (NMB Bank, Asar 2083)
Usage note. In the report, Capital fund to RWA is the published NRB Directive ratio, while the management analysis section uses the phrase "Capital Adequacy Ratio" for the same number: "Capital Adequacy Ratio stands at 12.73%." Treat them as synonymous for the total ratio, but always specify which layer you mean when writing or comparing.
Full treatment: see 6.1 Capital fund to RWA, 6.9 Tier 1 and 6.10 CET 1.
Related terms. Part 1.30 · Part 1.36 · Part 12 CET 1, Tier 1, AT1, Tier 2, RWA, Total regulatory capital
Putting the ratio table together
┌──────────────────────────────────────────────────────────────────────┐ │ NMB BANK, FY 2082/83 — WHAT THE 17 RATIOS SAY TOGETHER │ ├──────────────────────────────────────────────────────────────────────┤ │ │ │ WHAT IMPROVED │ │ • ROE 9.34% → 11.58%, ROA 0.88% → 1.04% — and leverage FELL on │ │ a total-equity basis, so the gain is genuine profitability │ │ • Cost of funds fell 132bp — the engine of the whole year │ │ • Liquidity (NLA) 27.39% → 28.99% │ │ • CD ratio fell to 82.77% — headroom created │ │ • Total capital 11.92% → 12.73% │ │ │ │ ! WHAT DETERIORATED │ │ • NPL 4.11% → 4.91% (Bank), 4.51% → 5.18% (Group) │ │ • Coverage 98.38% → 92.57% (Bank), 98.79% → 88.04% (Group) │ │ → holding coverage flat would have cost ~NPR 1.44bn, or 23.5% │ │ of Group pre-tax profit │ │ • Interest spread 3.82% → 3.43% — pricing power eroding │ │ • CET 1 9.05% → 8.99% — the purest capital FELL │ │ │ │ THE SYNTHESIS │ │ Earnings improved for a reason that will not repeat (deposit │ │ repricing in a falling-rate cycle). Meanwhile the loan book is │ │ deteriorating faster than it is being provided for, spread is │ │ compressing, and the capital improvement was purchased with AT1 │ │ rather than earned. │ │ │ │ The market appears to agree: the PE de-rated from 18.22 to 11.87 │ │ even as EPS rose 36%. │ │ │ │ THE FORWARD QUESTION │ │ With CET1 at 8.99% and falling, and 55% of profit already │ │ appropriated to reserves, how does this bank fund its next │ │ round of loan growth — by cutting the dividend, by issuing │ │ ordinary equity, or by slowing down? │ └──────────────────────────────────────────────────────────────────────┘
Part 6 — Revision table
| Ratio | Formula | Unit | NMB FY82/83 (Bank) | Higher is | Key limitation |
|---|---|---|---|---|---|
| Capital fund to RWA | Total capital fund ÷ RWA × 100 | % | 12.73% | Better (safer) | Risk weights prescribed, not economic [R] |
| NPL to total loan | Gross NPL ÷ gross loans × 100 | % | 4.91% | **Worse** | Write-offs and NBA flatter it |
| Net NPL to total loan | (NPL − provision) ÷ loans × 100 | % | 1.66% | **Worse** | Denominator convention varies [R] |
| Total loan loss provision to Total NPL | Total provision ÷ gross NPL × 100 | % | 92.57% | Better | Mix-sensitive; ignores collateral |
| Cost of Funds (LCY YTD) | Interest expense ÷ avg interest-bearing LCY funds × 100 | % | 3.74% | **Worse** | Excludes FCY; NRB method [R] |
| CD Ratio | Total credit ÷ total deposits × 100 | % | 82.77% | Depends | Month-end manageable; NRB definition [R] |
| Base Rate | Cost of funds + CRR + SLR + operating cost + ROA element | % | 5.11% | **Worse** | A floor, not the actual lending rate |
| Average Interest Spread | Lending rate − deposit rate | % | 3.43% | Better | Not NIM; last-month basis [R] |
| Tier 1 Capital to RWA | (CET1 + AT1) ÷ RWA × 100 | % | 9.90% | Better | Can be boosted by AT1 alone |
| CET 1 Capital to RWA | CET1 ÷ RWA × 100 | % | 8.99% | Better | **The number that matters most** |
| Return on Equity (Annualized) | (Profit − PNCPS div) ÷ avg ordinary equity × 100 | % | 11.58% | Better | Rewards leverage — always decompose |
| Return on Assets (Annualized) | (Profit − PNCPS div) ÷ avg total assets × 100 | % | 1.04% | Better | Ignores off-balance-sheet and risk weight |
| PE Ratio (Annualized) | Price ÷ annualised EPS | × | 11.87 | Depends | **Uses standalone EPS**; backward-looking |
| Net-Worth per share | Ordinary equity ÷ ordinary shares | NPR | 181.15 | Better | Book ≠ realisable; includes goodwill/DTA |
| Assets per share | Total assets ÷ ordinary shares | NPR | 2,060.57 | Depends | Says nothing about asset quality |
| Liquidity Ratio (NLA) | Net liquid assets ÷ deposits × 100 | % | 28.99% | Better | Snapshot; ignores concentration |
| Capital Adequacy Ratio | Family name for the three capital ratios | % | 12.73% | Better | Always specify which layer |
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