Chapter 9 · Part 9 — Segment Information
Revenue, transfer pricing and what the note reveals
Funds transfer pricing, segment returns on assets, and seven findings invisible in the consolidated statements.
Revenues from external customers
Simple definition. Money earned from actual customers, excluding internal transfers between segments.
Technical definition. Revenue from transactions with parties external to the entity, attributed to segments in accordance with NFRS 8.
Why "external" matters.
TOTAL of the external revenue row = 24,396 TOTAL of the intersegment row = 0 ← always nets to zero Internal transfers between segments are NOT revenue to the bank. Only external revenue is real. Segment totals must therefore be built on external revenue, with intersegment shown separately.
The reconciliation issue. Note that total segment external revenue of NPR 24,396 million does not equal any single line in the P&L. It approximates Interest income + Fees and commission income + Net trading income + Other operating income:
Interest income 21,042
Fees and Commission Income 2,830
Net trading income 681
Other operating income 326
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24,879 (NPR million, Bank YTD)
Segment external revenue 24,396
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Difference 483The difference reflects the "Others" segment's negative external revenue (−451) and allocation conventions. Segment revenue is measured on the basis management uses, which need not tie exactly to a statutory line — NFRS 8 requires only that segment totals reconcile to the entity's reported amounts, which the report does for profit before tax (see 9.14).
Intersegment revenues/(Expenses)
Simple definition. Internal charges between business units — principally the price one segment pays another for funding.
Technical definition. Revenues and expenses arising from transactions between operating segments, disclosed separately and eliminated in arriving at entity totals.
Funds Transfer Pricing — what this row actually is
┌──────────────────────────────────────────────────────────────────┐ │ THE PROBLEM IT SOLVES │ │ │ │ Retail gathers NPR 167bn of deposits and lends only NPR 59bn. │ │ Corporate lends NPR 128bn but only gathers NPR 112bn. │ │ │ │ If Retail got no credit for the funding it supplies, it would │ │ look unprofitable and Corporate would look brilliant — even │ │ though Retail is doing the harder and more valuable job. │ │ │ │ │ ▼ │ │ SOLUTION: FUNDS TRANSFER PRICING │ │ An internal rate at which surplus segments "sell" funds and │ │ deficit segments "buy" them. │ └──────────────────────────────────────────────────────────────────┘
Reading the row.
Retail +3,891 ← RECEIVES: supplies surplus funding
Treasury +414 ← RECEIVES: supplies funding/liquidity services
Corporate (423) ← PAYS: consumes funding
SME & MSME (1,654) ← PAYS: consumes funding
Deprived (383) ← PAYS: consumes funding
Others (1,845) ← PAYS
────────
TOTAL 0 ← must always net to zeroWhy the transfer price matters to your analysis.
The FTP rate is a MANAGEMENT CHOICE, not an observable market price. Changing it shifts profit between segments without changing the bank's total profit by one rupee. ⇒ Segment profitability is partly a POLICY OUTCOME. ⇒ Retail's intersegment credit fell 20.7% this year (4,907 → 3,891). Some of that is a smaller funding surplus; some may be a lower transfer rate as market rates fell. ⇒ You cannot separate the two from the disclosure.
Nepali relevance. Note that SME & MSME pays NPR 1,654 million of internal funding charge against external revenue of NPR 4,582 million — 36% of its external revenue goes to internal funding cost. That heavy charge is a large part of why SME profitability looks weak.
Segment profit/(loss) before tax
Simple definition. Each business unit's profit before tax.
Technical definition. The measure of segment profit or loss reported to the chief operating decision maker, which under NFRS 8 is whatever measure management actually uses — not necessarily an NFRS-compliant measure.
The report's scope note: "Income tax is managed on a group basis and are not allocated to operating segments." This is why segments report profit before tax.
The full picture, ranked by contribution to the improvement.
FY2082/83 FY2081/82 Change Share of the
NPR 1,663m
improvement
Others (2,998) (3,998) +1,000 60.1%
Treasury 1,452 821 +631 37.9%
Retail 3,780 3,254 +526 31.6%
Deprived 148 154 (6) (0.4%)
Corporate 1,869 2,124 (255) (15.3%)
SME & MSME 1,498 1,730 (232) (13.9%)
────── ────── ────── ──────
TOTAL 5,748 4,085 +1,663 100.0%Read that table carefully. It reframes the entire year:
FACT IMPROVED: Others (unallocated), Treasury (rate cycle), Retail
MYTH DECLINED: Corporate, SME & MSME, Deprived
— i.e. EVERY CUSTOMER-LENDING SEGMENT except RetailThe bank's three lending businesses to non-retail customers all earned less than last year. The profit growth came from Treasury (a rate-cycle windfall) and from a NPR 1 billion movement in an unallocated cost centre.
This is a materially less impressive picture than "profit up 40.7%," and it is only visible in the segment note.
Cross-check. Total segment profit before tax of NPR 5,748 million ties exactly to the P&L's Profit before income tax (Bank) of NPR 5,748,026 thousand. OK See 9.14.
Segment assets
Simple definition. The assets each business unit uses.
Technical definition. The total assets attributed to a segment, reported to the chief operating decision maker.
The composition and its movement.
FY2082/83 FY2081/82 Change % of total
Corporate 128,101 111,881 +14.5% 32.2%
Treasury 101,591 88,766 +14.4% 25.6%
Retail 58,797 46,282 +27.0% 14.8%
SME & MSME 55,814 57,273 −2.5% 14.0%
Others 40,996 36,322 +12.9% 10.3%
Deprived 12,083 11,068 +9.2% 3.0%
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TOTAL 397,381 351,593 +13.0% 100.0%Verify the tie. Total segment assets of NPR 397,381 million = Total Assets (Bank) of NPR 397,381,306 thousand. OK Exact.
Return on segment assets — the efficiency ranking.
Retail 3,780 ÷ 58,797 = 6.43% ← by far the best SME & MSME 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% Others (2,998) ÷ 40,996 = (7.31%)
Segment liabilities
Simple definition. The funding each business unit provides or uses.
The composition.
FY2082/83 FY2081/82 Change % of total
Retail 167,420 146,600 +14.2% 42.1%
Corporate 112,470 97,573 +15.3% 28.3%
Others 90,172 78,050 +15.5% 22.7%
Treasury 13,839 19,199 −27.9% 3.5%
SME & MSME 11,647 8,837 +31.8% 2.9%
Deprived 1,834 1,334 +37.5% 0.5%
─────── ───────
TOTAL 397,381 351,593 +13.0% 100.0%The funding gap by segment — the internal capital market laid bare.
Assets Liabilities NET POSITION
Retail 58,797 167,420 −108,623 ← SUPPLIES funding
Treasury 101,591 13,839 +87,752 ← USES funding
SME & MSME 55,814 11,647 +44,167 ← USES funding
Corporate 128,101 112,470 +15,631 ← USES funding
Deprived 12,083 1,834 +10,249 ← USES funding
Others 40,996 90,172 −49,176 ← SUPPLIES funding
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0 OKArm's length basis
Simple definition. Internal transactions priced as if the two segments were unrelated parties.
The report's statement: "All transactions between segments are conducted on an arm's length basis, with inter-segment revenue and costs being eliminated in 'Others'."
Why it matters.
If internal funding were priced arbitrarily, segment profits
would be meaningless — management could make any segment look
good by adjusting the transfer rate.
│
▼
The arm's-length assertion is a claim that the FTP rate
approximates what the segment could have obtained externally.
│
▼
! BUT: it is an ASSERTION, not an audited market price.
There is no observable market for "internal funding," so
arm's length here means "a defensible internal methodology,"
not a verifiable price.Related terms. 9.7, 9.9, 9.14 · Part 10 (arm's length for related parties)
Elimination of intersegment profit
Simple definition. Removing profits that segments made from each other, so the total reflects only real external profit.
The reconciliation table, as published.
Reconciliation of reportable segment profit or loss (NPR Mio.)
Asar End 2083 Asar End 2082
Total Profit before tax for
reportable segments 5,748 4,085
Profit before tax for other segments − −
Elimination of intersegment profit − −
Elimination of discontinued operation − −
Unallocated amount:
- Other Corporate Expenses − −
───── ─────
Profit before tax 5,748 4,085The tie to the P&L.
Segment note: Profit before tax NPR 5,748 million
P&L (Bank): Profit before income tax NPR 5,748,026 thousand
═══════════════════════
OK EXACT MATCHWhy the elimination line is nil here. Because intersegment revenues and expenses already net to zero within the segment table itself (9.9), there is no residual intersegment profit to strip out at the reconciliation stage.
Elimination of discontinued operation
Definition. The removal from continuing-operation segment results of any component that has been disposed of or is classified as held for sale, presented separately under NFRS 5.
(NMB: nil. Consistent with Note 39 — no change in the composition of the entity.)
Related terms. Part 8.F.12 NFRS 5
Unallocated amount
Definition. Amounts not attributed to any reporting segment, disclosed separately in the reconciliation so that the segment total plus unallocated equals the entity total.
*(NMB: nil in the reconciliation — because unallocated central costs are carried inside the "Others" segment rather than shown as a separate reconciling item.)*
Two valid presentations exist:
(a) Put unallocated costs in an "Others" SEGMENT
→ NMB's approach; Others shows a large loss
(b) Show them as an UNALLOCATED reconciling item
→ the segment table shows only business unitsNeither is wrong, but they look very different. Check which a bank uses before comparing segment margins across banks.
Other Corporate Expenses
Definition. Central corporate costs shown as an unallocated reconciling item.
(NMB: nil, for the same reason as 9.16 — these costs sit within the "Others" segment.)
Where the costs actually are. Look at "Others": profit before tax of NPR (2,998) million. That is where head office, risk, compliance, IT, HR and unallocated impairment reside.
What the segment note tells you that the P&L cannot
╔══════════════════════════════════════════════════════════════════════╗ ║ THE CONSOLIDATED P&L SAYS: ║ ║ Total operating income +19.7%, Profit before tax +40.7% ║ ║ → "a strong year" ║ ╠══════════════════════════════════════════════════════════════════════╣ ║ THE SEGMENT NOTE SAYS: ║ ║ ║ ║ 1. External revenue was FLAT (−0.3%). The profit growth came ║ ║ from costs, not from customers. ║ ║ ║ ║ 2. THREE OF FOUR CUSTOMER-LENDING SEGMENTS DECLINED: ║ ║ Corporate −12.0% SME & MSME −13.4% Deprived −3.9% ║ ║ Only Retail grew (+16.2%). ║ ║ ║ ║ 3. 38% of the profit improvement came from TREASURY (+76.9%) — ║ ║ a pure rate-cycle gain that will not repeat. ║ ║ ║ ║ 4. 60% came from "OTHERS" — a NPR 1 billion movement in an ║ ║ unallocated cost centre that the note does not explain. ║ ║ ║ ║ 5. CORPORATE YIELD COLLAPSED 165bp (9.14% → 7.49%) while the ║ ║ bank grew that book by NPR 16.2 billion. Growth at ║ ║ deteriorating economics. ║ ║ ║ ║ 6. SME & MSME — the segment most exposed to domestic credit ║ ║ stress — SHRANK on every measure. ║ ║ ║ ║ 7. RETAIL is the engine: 42% of funding, 6.43% return on ║ ║ segment assets, supplying NPR 108.6bn of net internal funding. ║ ╚══════════════════════════════════════════════════════════════════════╝
Part 9 — Revision table
| Term | Meaning | NMB FY82/83 | Key issue |
|---|---|---|---|
| Reporting segment | A unit management reviews separately | 6 segments | Management approach → **not comparable across banks** |
| Retail | Individual customers | PBT 3,780 (+16.2%) | The deposit engine; supplies NPR 108.6bn of net funding |
| SME & MSME | Small and micro enterprises | PBT 1,498 (−13.4%) | **Only segment to shrink on every measure** |
| Corporate | Large companies | PBT 1,869 (−12.0%) | Assets +14.5% while yield fell **165bp** |
| Deprived | NRB-mandated priority lending | PBT 148 (−3.9%) | Compliance segment [R]; lowest return on assets |
| Treasury | Own-account liquidity, investments, FX | PBT 1,452 (+76.9%) | Star performer — and pure rate cycle |
| Others | Head office and unallocated | PBT (2,998), +NPR 1,000m | **60% of the profit improvement, unexplained** |
| Revenues from external customers | Real customer revenue | 24,396 (−0.3%) | External only; **flat revenue** |
| Intersegment revenues/(Expenses) | Funds transfer pricing | Nets to 0 | A management policy choice that shapes segment profit |
| Segment profit/(loss) before tax | Unit profit | 5,748 total | **Every non-retail lending segment declined** |
| Segment assets | Assets per unit | 397,381 | Ties exactly to total assets OK |
| Segment liabilities | Funding per unit | 397,381 | Convention: equals total **assets**, not liabilities |
| Arm's length basis | Fair internal pricing | Asserted | An assertion, not a verifiable market price |
| Elimination of intersegment profit | Removing internal profit | Nil | Reconciliation ties **exactly** to the P&L OK |
| Elimination of discontinued operation | Removing disposed units | Nil | NFRS 5 |
| Unallocated amount | Not attributed to a segment | Nil | NMB puts these inside "Others" instead |
| Other Corporate Expenses | Central costs | Nil | Real, but sitting inside "Others" |
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