Chapter 9 · Part 9 — Segment Information
Reporting segments and the six business lines
Retail, SME, corporate, deprived, treasury and others — and why segment definitions are not comparable across banks.
17 terms. A bank's consolidated P&L tells you it made money. Segment reporting tells you where — which businesses earn, which consume capital, and which are subsidised by the others. It is the single most useful disclosure for understanding a bank's strategy, and the one most readers skip.
Part 9 checklist
Reporting segment · Retail · SME & MSME · Corporate · Deprived · Treasury · Others · Revenues from external customers · Intersegment revenues/(Expenses) · Segment profit/(loss) before tax · Segment assets · Segment liabilities · Arm's length basis · Elimination of intersegment profit · Elimination of discontinued operation · Unallocated amount · Other Corporate Expenses
The published segment table
*(NMB Bank Limited, Asar End 2083 vs Asar End 2082. NPR in millions.)*
Retail SME&MSME Corporate Deprived Treasury Others Total
2083 2082 2083 2082 2083 2082 2083 2082 2083 2082 2083 2082 2083 2082
─────────────────────────────────────────────────────────────────────────────────────────────────
Revenues from
external customers 6,598 5,935 4,582 5,757 9,597 10,223 698 850 3,372 2,881 (451)(1,170) 24,396 24,476
Intersegment
revenues/(Expenses) 3,891 4,907 (1,654)(2,455)(423)(554) (383)(493) 414 838 (1,845)(2,243) − −
Segment profit/(loss)
before tax 3,780 3,254 1,498 1,730 1,869 2,124 148 154 1,452 821 (2,998)(3,998) 5,748 4,085
Segment assets 58,797 46,282 55,814 57,273 128,101 111,881 12,083 11,068 101,591 88,766 40,996 36,322 397,381 351,593
Segment liabilities 167,420 146,600 11,647 8,837 112,470 97,573 1,834 1,334 13,839 19,199 90,172 78,050 397,381 351,593The first thing to notice
┌──────────────────────────────────────────────────────────────────┐ │ TOTAL REVENUE FROM EXTERNAL CUSTOMERS │ │ FY2082/83 NPR 24,396 million │ │ FY2081/82 NPR 24,476 million │ │ ────────────────── │ │ CHANGE −0.3% ← essentially FLAT │ │ │ │ TOTAL SEGMENT PROFIT BEFORE TAX │ │ FY2082/83 NPR 5,748 million │ │ FY2081/82 NPR 4,085 million │ │ ────────────────── │ │ CHANGE +40.7% │ └──────────────────────────────────────────────────────────────────┘ ⇒ Profit rose 40.7% on FLAT revenue. This is the segment note confirming, from a completely different angle, the central finding of Parts 2 and 6: the earnings growth came from the COST side (a 132bp fall in cost of funds), not from revenue growth.
The structural picture
WHERE THE ASSETS ARE WHERE THE FUNDING IS ──────────────────── ──────────────────── Corporate 128,101 32.2% Retail 167,420 42.1% Treasury 101,591 25.6% Corporate 112,470 28.3% Retail 58,797 14.8% Others 90,172 22.7% SME & MSME 55,814 14.0% Treasury 13,839 3.5% Others 40,996 10.3% SME & MSME 11,647 2.9% Deprived 12,083 3.0% Deprived 1,834 0.5% ╔════════════════════════════════════════════════════════════════╗ ║ RETAIL holds 14.8% of assets but provides 42.1% of funding. ║ ║ CORPORATE holds 32.2% of assets and provides 28.3%. ║ ║ ║ ║ ⇒ RETAIL IS THE DEPOSIT ENGINE. ║ ║ It gathers deposits from the branch network and lends ║ ║ them internally to Corporate and Treasury. ║ ║ ║ ║ This is exactly what the intersegment line shows: ║ ║ Retail +3,891 (receives internal funding credit) ║ ║ Corporate (423) SME (1,654) Deprived (383) ║ ║ (pay internal funding charge) ║ ╚════════════════════════════════════════════════════════════════╝
Reporting segment
Simple definition. A distinct part of the bank whose results management reviews separately.
Technical definition. An operating segment under NFRS 8 is a component that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the chief operating decision maker to allocate resources and assess performance, and for which discrete financial information is available.
The report's statement:
The "management approach" — the defining feature of NFRS 8.
┌──────────────────────────────────────────────────────────────────┐ │ NFRS 8 does NOT prescribe what the segments should be. │ │ │ │ It requires disclosure of the segments MANAGEMENT ACTUALLY │ │ USES to run the business — "through the eyes of management." │ │ │ │ │ ┌───────────────────┴────────────────────┐ │ │ ▼ ▼ │ │ ADVANTAGE DISADVANTAGE │ │ You see the business the way Segments are NOT │ │ the board sees it — genuinely COMPARABLE between │ │ decision-useful information banks. One bank's │ │ "Retail" may include │ │ SME; another's may not. │ └──────────────────────────────────────────────────────────────────┘
Nepali context. The six segments NMB uses are close to a Nepali industry norm, and the inclusion of Deprived as a separate segment is distinctly Nepali — it exists because NRB mandates deprived-sector lending [R], so management must monitor it separately for compliance, not only for profit.
Disclosure required by NFRS 8. Factors used to identify segments; types of products and services; measure of profit or loss; segment assets and liabilities; reconciliation to the entity's totals.
Retail
Simple definition. Individual customers — savings accounts, personal loans, home loans, auto loans, credit cards, remittance.
The numbers, and what they reveal.
FY2082/83 FY2081/82 Change Revenue from external 6,598 5,935 +11.2% Intersegment revenue +3,891 +4,907 −20.7% Profit before tax 3,780 3,254 +16.2% Segment assets 58,797 46,282 +27.0% Segment liabilities 167,420 146,600 +14.2%
Retail is the funding engine — the key structural insight
Retail liabilities 167,420 (deposits gathered from the public)
Retail assets 58,797 (loans made to individuals)
────────
Net funding surplus 108,623 ← lent INTERNALLY to other segments
For this, Retail receives an INTERSEGMENT REVENUE CREDIT
of NPR 3,891 million — an internal transfer price for the
funding it supplies.The year's movement, read properly.
Retail assets +27.0% ← retail LENDING grew fast
Retail liabilities +14.2% ← deposits grew more slowly
────────
⇒ Retail is consuming more of its own funding, so its
internal funding surplus grew more slowly
⇒ Intersegment revenue FELL 20.7% (3,891 vs 4,907)
⇒ Yet profit still rose 16.2%, because the deposits it
does gather became much cheaper (cost of funds −132bp)Nepali context. Retail banking in Nepal is driven by remittance inflows (a large share of GDP), branch network reach, and the CASA competition described in Part 1.21. A strong retail franchise is the most durable competitive advantage a Nepali bank can have, because it produces cheap, sticky funding.
SME & MSME
Simple definition. Small, micro and medium enterprises — working capital, term loans and trade finance for businesses too small for corporate banking.
The numbers — and the segment with the worst year.
FY2082/83 FY2081/82 Change Revenue from external 4,582 5,757 −20.4% ▼▼ Intersegment (expense) (1,654) (2,455) Profit before tax 1,498 1,730 −13.4% ▼ Segment assets 55,814 57,273 −2.5% ▼ Segment liabilities 11,647 8,837 +31.8%
Nepali context. SME and MSME lending is a policy priority — NRB has promoted it through directed lending requirements and refinance facilities [R] — and it is also where credit risk concentrates in a slowing economy. Nepali SMEs are typically thinly capitalised, collateral- dependent and vulnerable to import disruption and demand shocks.
Cross-reference to the management analysis. The report's own Problems and Challenges section lists "Challenges in Recovery and Collection", "Under/Over Liquidity concerns" and "Increasing cost of operations against Income" — consistent with SME stress.
Corporate
Simple definition. Large companies — term loans, working capital, project finance, trade finance, cash management.
The numbers.
FY2082/83 FY2081/82 Change Revenue from external 9,597 10,223 −6.1% Intersegment (expense) (423) (554) Profit before tax 1,869 2,124 −12.0% Segment assets 128,101 111,881 +14.5% ▲ Segment liabilities 112,470 97,573 +15.3%
The most important observation in the whole segment note
┌──────────────────────────────────────────────────────────────────┐
│ CORPORATE ASSETS GREW 14.5% │
│ CORPORATE REVENUE FELL 6.1% │
│ CORPORATE PROFIT FELL 12.0% │
│ │
│ The bank lent NPR 16.2 billion MORE to corporates and earned │
│ NPR 626 million LESS from them. │
└──────────────────────────────────────────────────────────────────┘
Implied yield on corporate assets:
FY2082/83: 9,597 ÷ 128,101 = 7.49%
FY2081/82: 10,223 ÷ 111,881 = 9.14%
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Yield compression: −165 basis pointsNepali context. Corporate lending in Nepal concentrates in hydropower, manufacturing, trading and import businesses, construction, and hotels — the same sectors named in the report's Problems and Challenges section and in NMB's sustainable-energy positioning (the Executive Committee includes a Chief Sustainable Energy Banking).
Deprived
Simple definition. Lending to disadvantaged groups and priority sectors that NRB requires banks to serve.
Technical definition. A regulatory lending category prescribed by NRB, comprising credit to low-income and marginalised borrowers, delivered directly or through wholesale lending to microfinance institutions (Class "D" Laghubitta Bittiya Sanstha).
Why it exists — a policy instrument, not a business line.
Nepal has large financially-excluded populations, particularly
rural, and historically limited formal credit access.
│
▼
NRB MANDATES that every commercial bank deploy a minimum
proportion of its loan book to the deprived sector [R].
│
▼
Banks meet it by:
• Direct microcredit and small-ticket lending
• WHOLESALE lending to microfinance institutions
← this is the *Loan and advances to B/FIs* line, Part 1.6
• Deprived-sector qualifying agriculture and enterprise lending
│
▼
⇒ It is a COMPLIANCE segment first and a profit centre second.The numbers.
FY2082/83 FY2081/82 Change Revenue from external 698 850 −17.9% Intersegment (expense) (383) (493) Profit before tax 148 154 −3.9% Segment assets 12,083 11,068 +9.2% Segment liabilities 1,834 1,334 +37.5% Deprived assets as % of total: 12,083 ÷ 397,381 = 3.04%
Profitability, computed.
Return on segment assets = 148 ÷ 12,083 = 1.22% Compare: Retail 3,780 ÷ 58,797 = 6.43% SME 1,498 ÷ 55,814 = 2.68% Corporate 1,869 ÷ 128,101 = 1.46% Treasury 1,452 ÷ 101,591 = 1.43% Deprived 148 ÷ 12,083 = 1.22% ← LOWEST
Cross-reference. The Group's NPL (5.18%) exceeds the Bank's (4.91%) — and the microfinance subsidiary is the main difference between the two. See Part 1.6 and Part 6.2.
Treasury
Simple definition. The unit that manages the bank's own money — liquidity, investments, foreign exchange and interbank activity.
The numbers — the segment that transformed.
FY2082/83 FY2081/82 Change Revenue from external 3,372 2,881 +17.0% ▲ Intersegment revenue +414 +838 −50.6% Profit before tax 1,452 821 +76.9% ▲▲ Segment assets 101,591 88,766 +14.4% Segment liabilities 13,839 19,199 −27.9%
Why Treasury had such a good year — three reinforcing effects.
1. RATES FELL
→ the bank's existing bond portfolio gained value
→ and new deployment at NPR 19bn (Part 1.8) captured
the carry between cheap deposits and government yields
2. FX VOLUMES ROSE
→ net trading income +89% (Part 2.8)
→ derivative balances more than doubled (Part 1.4)
3. FUNDING GOT CHEAP
→ Treasury liabilities FELL 27.9% (interbank borrowing
repaid — consistent with *Due to BFIs* falling from
NPR 6,029m to NPR 2,857m, Part 1.18)
→ it no longer needed expensive wholesale fundingThe strategic reading.
Treasury assets 101,591 = 25.6% of the balance sheet
Treasury liabs 13,839 = 3.5%
────────
Net asset position 87,752
⇒ Treasury is a large NET USER of internal funding —
it takes the surplus that Retail gathers and deploys it
into government securities and interbank markets.
⇒ Its 14.4% asset growth IS the NPR 19bn investment
securities build seen in Parts 1.8 and 4.15.Others
Simple definition. Head office, support functions and everything not allocated to a business segment.
The numbers — and why they are negative.
FY2082/83 FY2081/82 Change Revenue from external (451) (1,170) Intersegment (expense) (1,845) (2,243) Profit before tax (2,998) (3,998) +25.0% improvement Segment assets 40,996 36,322 Segment liabilities 90,172 78,050
Why a segment reports a large loss.
┌──────────────────────────────────────────────────────────────────┐ │ "OTHERS" CARRIES THE COSTS THAT SERVE EVERYONE: │ │ • Head office and executive management │ │ • Risk, compliance, internal audit, legal │ │ • IT infrastructure and core banking systems │ │ • Human resources, finance, corporate affairs │ │ • Central impairment charges not allocated to segments │ │ │ │ The report explains the allocation policy: │ │ "Support costs are also allocated to Retail, Corporate, SME & │ │ MSME, Deprived, Treasury and others based on Management's │ │ estimates of the benefits accruing to these segments for the │ │ costs incurred." │ │ │ │ ⇒ Some support cost IS allocated out. What remains in │ │ "Others" is the unallocated residual — which is why it │ │ reports a large negative. │ └──────────────────────────────────────────────────────────────────┘
The NPR 1,000 million improvement.
Others loss FY2081/82 (3,998)
Others loss FY2082/83 (2,998)
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Improvement 1,000 = 60% of the total NPR 1,663m
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