Chapter 10 · Part 10 — Related Party Disclosures
Key management, subsidiaries and upstream dividends
Executive compensation, eleven intra-group transaction types, and why group earnings per share overstates dividend capacity.
Short Term Employee Benefits
Definition (NAS 19). Benefits expected to be settled wholly within 12 months after the period in which the employees render the service — salary, allowances, bonus, paid annual leave.
*(NMB KMP: NPR 57,535,663 — the entire disclosed KMP compensation falls in this category.)*
Full NAS 19 treatment at Part 8.G.1.
Post-Employment Benefits
Definition (NAS 19). Benefits payable after the completion of employment — provident fund (defined contribution) and gratuity (defined benefit).
*(NMB KMP: Nil for the period.)*
Note the tension with the CEO table, which shows NPR 792,364 of provident fund. The CEO disclosure is presented on a different basis from the KMP table — a reminder to read both and not assume they are prepared identically.
Other Long Term Benefits
Definition (NAS 19). Benefits not expected to be settled wholly within 12 months, other than post-employment and termination benefits — accumulated sick leave, accumulated home leave, long service leave.
*(NMB KMP: Nil.)*
Recall the NAS 19 asymmetry (Part 8.G.1): remeasurement of other long-term benefits goes to profit or loss, not OCI — unlike defined benefit plans.
Termination Benefits (Gratuity and Sick Leave Encashment)
Definition (NAS 19). Benefits provided in exchange for the termination of employment, either from the entity's decision to terminate or an employee's decision to accept an offer in exchange for those benefits.
*(NMB KMP: Nil.)*
Related terms. Part 8.G.8 VRS
Share Based Payment
Definition (NFRS 2). Transactions in which the entity receives goods or services in exchange for its own equity instruments, or incurs liabilities based on the price of its equity instruments.
*(NMB KMP: Nil.)*
Three disclosures corroborate this:
1. Part 10 KMP table: Share Based Payment — Nil
2. Part 5 SoCE: Share based payments — nil in all columns
3. Part 3.17 Diluted EPS: equals Basic EPS, because there are no
dilutive potential ordinary sharesWhy nil is structurally normal in Nepal. Employee share option schemes are uncommon in Nepali banks: regulatory constraints on share issuance, the promoter/public share-class structure, and the absence of an established ESOP framework all discourage them.
Related terms. Part 3.17 · Part 5.23
Transaction with Subsidiaries
Simple definition. Dealings between the bank and the companies it owns.
The full disclosure.
NMB NMB Laghubitta N.M.B.
S.No Particulars Capital Bittiya Sanstha Securities
──────────────────────────────────────────────────────────────────────────────
1 Investment by NMB Bank Ltd. 400,000 172,488 200,000
2 Deposits in NMB Bank Ltd. 346,887 119,676 4,420
3 Borrowing from NMB Bank Ltd. − 2,591,889 −
4 Interest Payment by NMB Bank Ltd. 13,659 − 49
5 Interest Payment to NMB Bank Ltd. − 107,790 −
6 Rent Payment to NMB Bank Ltd. − − 1,100
7 Share Registrar Fee payment by
NMB Bank 1,100 − −
8 Debenture RTS Fee payment by
NMB Bank 450 − −
9 Dividend Distribution of Sulav
Investment Fund -2 to NMB Bank 25,641 − −
10 Dividend Distribution of NMB 50
to NMB Bank 26,553 − −
11 Dividend Distribution by NMB
Capital to NMB Bank (Net) 64,600 − −
(NPR thousand)Decoding each transaction type.
① INVESTMENT — the parent's equity stake
400,000 + 172,488 + 200,000 = 772,488
OK Ties EXACTLY to "Investment in subsidiaries" on the
standalone balance sheet (Part 1.10)
→ Eliminated on consolidation
② DEPOSITS — subsidiaries park cash at the parent
346,887 + 119,676 + 4,420 = 470,983
→ Part of the parent's "Deposits from customers"
→ Eliminated on consolidation
⇒ The bank's standalone deposit base is ~NPR 471m
inflated by intra-group money
③ BORROWING — the parent funds the microfinance subsidiary
NPR 2,591,889 thousand to NMB Laghubitta
→ THIS is the Group-vs-Bank gap in "Loan and advances
to B/FIs" (Part 1.6):
Bank 12,015,936
Group 9,424,047
Gap 2,591,889 OK EXACT MATCH
④⑤ INTEREST — both directions
Paid BY the bank on subsidiaries' deposits: 13,708
Paid TO the bank on the microfinance loan: 107,790
→ Both eliminated; net interest income unaffected at Group
⑥ RENT — the broker pays the bank for premises: 1,100
⑦⑧ SERVICE FEES — the bank pays NMB Capital for:
Share Registrar services 1,100
Debenture RTS services 450
→ NMB Capital acts as the bank's own share registrar
and debenture trustee/registrar
⑨⑩⑪ DIVIDENDS UP to the parent
Sulav Investment Fund-2 25,641
NMB 50 26,553
NMB Capital (net) 64,600
───────
116,794Why item ③ deserves particular attention.
┌──────────────────────────────────────────────────────────────────┐ │ THE PARENT LENDS NPR 2.59 BILLION TO ITS OWN MICROFINANCE │ │ SUBSIDIARY. │ │ │ │ Why this structure exists: │ │ • Microfinance institutions cannot take retail deposits │ │ at scale, so they must borrow wholesale │ │ • Lending to microfinance counts toward the parent's │ │ DEPRIVED SECTOR obligation [R] (Part 9.5) │ │ • The parent earns a spread on the funding │ │ │ │ Why it matters to an analyst: │ │ • The parent's credit risk to the subsidiary is REAL │ │ but disappears on consolidation │ │ • If the microfinance book deteriorates, the parent's │ │ NPR 2.59bn is at risk │ │ • The Group NPL (5.18%) EXCEEDS the Bank NPL (4.91%) — │ │ consistent with the microfinance book being weaker │ │ (Part 6.2) │ └──────────────────────────────────────────────────────────────────┘
The arm's-length assertion. The report states: "All the contracts and transactions with the subsidiaries have been performed on arms-length basis." As with segment reporting (Part 9.13), this is an assertion, not a market-verified price.
Intra-group related figures
Definition. Balances and transactions between entities within the group, eliminated on consolidation so the Group statements present only external transactions.
The report's statement: "The intra-group related figures have been excluded for presentation of the financial statements of the Group" and "These related party transactions have been excluded in Consolidated Financial Statement of the Group."
The complete elimination list for NMB — every Group-vs-Bank difference in Parts 1–7 traces to one of these:
| Eliminated item | Amount (NPR '000) | Where it shows |
|---|---|---|
| Investment in subsidiaries | 772,488 | Part 1.10 |
| Loan to NMB Laghubitta | 2,591,889 | Part 1.6 |
| Subsidiaries' deposits at the bank | 470,983 | Part 1.21 |
| Interest both directions | 121,498 | Part 2.1, 2.2 |
| Service fees and rent | 2,650 | Part 2.4, 2.15 |
| Dividends upstream | 116,794 | Part 2.9 |
Related terms. Part 8.A.7 Basis of Consolidation · Part 1.6, 1.10, 1.21
Share Registrar Fee
Definition. The fee paid to the entity that maintains the bank's share register — recording ownership, processing transfers, managing dividend distribution and AGM notices.
(NMB pays NMB Capital NPR 1,100 thousand.)
The related-party point. The bank pays its own 100%-owned subsidiary for this service. That is efficient and common — NMB Capital is a licensed merchant banker with registrar capability. But it is a related-party transaction requiring disclosure and arm's-length pricing, because the bank controls both sides of the negotiation.
Debenture RTS Fee
Definition. Fees for Registrar to the Securities services in respect of the bank's issued debentures — maintaining the debenture holder register, processing interest payments and redemptions.
(NMB pays NMB Capital NPR 450 thousand.)
Cross-reference. The bank has NPR 12,382,000 thousand of Debt securities issued (Part 1.27) and appropriates NPR 621,825 thousand annually to the Capital (Debenture) Redemption Reserve (Part 7.3). This fee is the administrative cost of servicing that debenture book.
Dividend Distribution
Definition. Dividends flowing up from subsidiaries and managed funds to the parent bank.
The three streams.
Dividend from Sulav Investment Fund -2 NPR 25,641 thousand
Dividend from NMB 50 NPR 26,553 thousand
Dividend from NMB Capital (Net) NPR 64,600 thousand
──────────────────
Total received by the Bank NPR 116,794 thousandWhy this matters for dividend capacity — an important structural point.
┌──────────────────────────────────────────────────────────────────┐ │ DIVIDENDS ARE PAID FROM THE STANDALONE BANK, │ │ NOT FROM THE GROUP. │ │ │ │ │ ▼ │ │ A subsidiary's profit does NOT become available for the │ │ bank's shareholders until the subsidiary DECLARES A │ │ DIVIDEND UPWARD. │ │ │ │ │ ▼ │ │ This is why: │ │ Group EPS NPR 28.47 │ │ Bank EPS NPR 20.18 │ │ ───────── │ │ Gap NPR 8.29 ← earned in subsidiaries │ │ │ │ But dividend capacity is computed on the BANK (Part 7): │ │ Distributable profit per share NPR 9.08 │ │ │ │ ⇒ The NPR 8.29 of subsidiary EPS only reaches shareholders │ │ to the extent it is upstreamed — NPR 116,794 thousand │ │ this year. │ └──────────────────────────────────────────────────────────────────┘
The upstream ratio.
Group profit NPR 4,280,765 thousand
Bank profit NPR 4,013,671 thousand
─────────────────────
Profit earned in subsidiaries NPR 267,094 thousand
(net of NCI and eliminations)
Dividends upstreamed NPR 116,794 thousand
─────────────────────
Upstream ratio ~43.7%Note also the NCI leakage. The Group SoCE shows dividends of NPR (982,734) thousand versus the Bank's NPR (918,335) thousand — the NPR 64,399 thousand difference is dividends paid by subsidiaries to their minority shareholders. That cash leaves the Group entirely (Part 4.30, Part 5.26).
Related terms. Part 3.15 Basic EPS · Part 7.22–7.25 · Part 1.35 NCI · Part 4.30
What Part 10 tells you about this bank
╔══════════════════════════════════════════════════════════════════════╗ ║ GOVERNANCE READ-OUT — NMB BANK, FY 2082/83 ║ ╠══════════════════════════════════════════════════════════════════════╣ ║ ║ ║ POSITIVE SIGNALS ║ ║ • NO loans to promoters — the single most important disclosure ║ ║ • 20 board meetings — an active board ║ ║ • Audit, Risk and HR committees chaired by NON-EXECUTIVE directors ║ ║ • An Independent Director on the board ║ ║ • A dedicated Chief Risk Officer on the Executive Committee ║ ║ • Institutional shareholders with board representation (FMO, ║ ║ Employees Provident Fund) — external discipline ║ ║ • AML committee meets MOST frequently (7×), matching the FATF ║ ║ grey-list risk the bank names in its own challenges section ║ ║ • Management analysis names NPA deterioration EXPLICITLY rather ║ ║ than burying it ║ ║ ║ ║ ! WORTH WATCHING ║ ║ • NPR 2.59bn lent to the microfinance subsidiary — real credit ║ ║ exposure that vanishes on consolidation, into a sector with a ║ ║ history of stress (Group NPL 5.18% > Bank NPL 4.91%) ║ ║ • Arm's-length pricing on intra-group transactions is ASSERTED, ║ ║ not market-verified ║ ║ • Only ~44% of subsidiary profit was upstreamed — Group EPS ║ ║ overstates dividend capacity ║ ║ • KMP disclosure shows Nil for post-employment and long-term ║ ║ benefits while the CEO table shows provident fund — different ║ ║ presentation bases, worth clarifying ║ ╚══════════════════════════════════════════════════════════════════════╝
Part 10 — Revision table
| Term | Meaning | NMB disclosure | Key issue |
|---|---|---|---|
| Related Party Disclosures | NAS 24 disclosure of connected dealings | Full note | Disclosure (NAS 24) **plus** restriction (NRB) [R] |
| Board Member Allowances and Facilities | Director pay | NPR 3.36m total, 20 meetings | Immaterial in size; disclosed for the relationship |
| Meeting fees / Monthly allowance | Two pay components | NPR 20k/18k per meeting; NPR 12k monthly | Authorised by AOA and AGM respectively |
| Audit Committee | Financial reporting oversight | 5 meetings | **Must be chaired by a non-executive** |
| Risk Management Committee | Risk oversight | 6 meetings | Met 6× in a year NPL rose 80bp |
| Human Resource Service Committee | People and remuneration | 4 meetings | Would have overseen the VRS |
| Assets Laundering Prevention Committee | AML/CFT oversight | **7 meetings — the most** | FATF grey list = correspondent-banking survival risk |
| Loans and Advances extended to Promoters | Connected lending | **NIL** | **The most important line in Part 10** |
| Key Management Personnel | Executive Committee | 7 members, NPR 57.5m | Allowances exceed basic salary |
| Short Term Employee Benefits | Settled within 12 months | NPR 57,535,663 | 100% of disclosed KMP pay |
| Post-Employment Benefits | PF and gratuity | Nil | Yet the CEO table shows PF — different bases |
| Other Long Term Benefits | Accumulated leave | Nil | Remeasurement → profit, not OCI |
| Termination Benefits | Gratuity, sick leave encashment on exit | Nil | The VRS did not extend to KMP |
| Share Based Payment | NFRS 2 equity compensation | Nil | Confirmed in 3 places; why diluted EPS = basic |
| Transaction with Subsidiaries | Intra-group dealings | 11 types | NPR 2.59bn loan to microfinance is the largest |
| Intra-group related figures | Eliminated on consolidation | Full list | **Every Group-vs-Bank difference traces here** |
| Share Registrar Fee | Register maintenance | NPR 1,100k to NMB Capital | Paid to its own subsidiary |
| Debenture RTS Fee | Debenture registrar services | NPR 450k to NMB Capital | Servicing the NPR 12.4bn debenture book |
| Dividend Distribution | Subsidiary profits upstreamed | NPR 116,794k (~44%) | **Group EPS overstates dividend capacity** |
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