Chapter 13 · Part 13 — A Complete Worked Bank
A complete bank, with every statement tying
Seven statements for a hypothetical Class A bank, built so that all fourteen consistency checks pass — verify them yourself.
42 of 51 · 14 min
Everything in Parts 1–12, assembled into one complete, internally consistent set of statements — then fifteen transactions traced through every statement they touch.
HCBL at a glance
Himalaya Commercial Bank Limited Class "A" commercial bank, licensed by NRB Listed on NEPSE · Reporting date: Asar end 2083 Figures: NPR '000 unless stated Par value: NPR 100 · Ordinary shares only (no PNCPS)
1. Condensed Statement of Financial Position
Asar end 2083 Asar end 2082
ASSETS
Cash and cash equivalent 18,000,000 19,600,000
Due from Nepal Rastra Bank 15,000,000 13,500,000
Placement with Bank and Financial Instns. 8,000,000 7,000,000
Derivative financial instruments 5,000,000 3,200,000
Other trading assets − −
Loan and advances to B/FIs 6,000,000 5,500,000
Loans and advances to customers 190,000,000 172,600,000
Investment securities 48,000,000 42,000,000
Current tax assets 200,000 150,000
Investment in subsidiaries − −
Investment in associates − −
Investment property 1,500,000 1,400,000
Property and equipment 3,000,000 2,900,000
Goodwill and Intangible assets 800,000 850,000
Deferred tax assets 500,000 450,000
Other assets 4,000,000 2,850,000
─────────────────────────────────────────────────────────────────────
TOTAL ASSETS 300,000,000 271,000,000
LIABILITIES
Due to Bank and Financial Institutions 3,000,000 4,000,000
Due to Nepal Rastra Bank − −
Derivative financial instruments 5,100,000 3,300,000
Deposits from customers 240,000,000 216,000,000
Borrowing 2,000,000 2,300,000
Current Tax Liabilities − −
Provisions 100,000 80,000
Deferred tax liabilities − −
Other liabilities 6,880,000 5,820,000
Debt securities issued 10,000,000 10,000,000
Subordinated Liabilities − −
─────────────────────────────────────────────────────────────────────
TOTAL LIABILITIES 267,080,000 241,500,000
EQUITY
Share capital 17,850,000 17,000,000
Share premium − −
Retained earnings 2,450,000 1,800,000
Reserves 12,620,000 10,700,000
─────────────────────────────────────────────────────────────────────
TOTAL EQUITY 32,920,000 29,500,000
─────────────────────────────────────────────────────────────────────
TOTAL LIABILITIES AND EQUITY 300,000,000 271,000,000
═══════════ ═══════════OK Check 1: 267,080,000 + 32,920,000 = 300,000,000 = Total assets
2. Condensed Statement of Profit or Loss
FY2082/83 FY2081/82
Interest income 22,800,000 21,500,000
Interest expense (12,000,000) (12,400,000)
─────────────────────────────────────────────────────────────────────
NET INTEREST INCOME 10,800,000 9,100,000
Fees and Commission Income 2,400,000 2,050,000
Fees and commission expense (200,000) (180,000)
─────────────────────────────────────────────────────────────────────
NET FEE AND COMMISSION INCOME 2,200,000 1,870,000
NET INTEREST, FEE AND COMMISSION INCOME 13,000,000 10,970,000
Net trading income 600,000 420,000
Other operating income 300,000 310,000
─────────────────────────────────────────────────────────────────────
TOTAL OPERATING INCOME 13,900,000 11,700,000
Impairment charge/(reversal) for loans
and other losses (2,900,000) (1,700,000)
─────────────────────────────────────────────────────────────────────
NET OPERATING INCOME 11,000,000 10,000,000
Operating expense
Personnel expenses (3,200,000) (2,950,000)
Other operating expenses (1,300,000) (1,180,000)
Depreciation & Amortisation (400,000) (390,000)
─────────────────────────────────────────────────────────────────────
OPERATING PROFIT 6,100,000 5,480,000
Non operating income 100,000 60,000
Non operating expense (200,000) (240,000)
─────────────────────────────────────────────────────────────────────
PROFIT BEFORE INCOME TAX 6,000,000 5,300,000
Income tax expense
Current Tax (1,850,000) (1,620,000)
Deferred Tax expense/(Income) 50,000 30,000
─────────────────────────────────────────────────────────────────────
PROFIT FOR THE PERIOD 4,200,000 3,710,000
══════════ ══════════OK Check 2: Effective tax rate = 1,800,000 ÷ 6,000,000 = 30.00% — consistent with the statutory rate for BFIs [R]
3. Condensed Statement of Other Comprehensive Income
FY2082/83 FY2081/82
Profit for the period 4,200,000 3,710,000
Other comprehensive income
a) Items that will not be reclassified to profit or loss
Gains/(losses) from investments in equity
instruments measured at fair value 200,000 (150,000)
Gains/(losses) on revaluation − −
Actuarial gains/(losses) on defined
benefit plans (100,000) (120,000)
Income tax relating to above items (30,000) 81,000
b) Items that are or may be reclassified to profit or loss
Gains/(losses) on cash flow hedge − −
Exchange gains/(losses) on foreign operations − −
─────────────────────────────────────────────────────────────────────
OTHER COMPREHENSIVE INCOME, NET OF TAX 70,000 (189,000)
─────────────────────────────────────────────────────────────────────
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 4,270,000 3,521,000
═════════ ═════════
Earnings per share
Basic earnings per share (Common Equity) NPR 23.53 NPR 20.79
Annualized Basic EPS (Common Equity) NPR 23.53 NPR 20.79
Diluted earnings per share (Common Equity) NPR 23.53 NPR 20.79OK Check 3: Pre-tax OCI = 200,000 − 100,000 = 100,000. Tax at 30% = (30,000). Net = 70,000
OK Check 4 — EPS, with the bonus-share restatement:
Shares at Asar end 2083 = 17,850,000,000 ÷ 100 = 178,500,000 Basic EPS = 4,200,000,000 ÷ 178,500,000 = NPR 23.53 PRIOR YEAR RESTATED for the 5% bonus issue (NAS 33, Part 3.15): Shares at Asar end 2082 = 170,000,000 Restated for bonus = 170,000,000 × 1.05 = 178,500,000 Restated EPS = 3,710,000,000 ÷ 178,500,000 = NPR 20.79 ! WITHOUT restatement the prior year would show 3,710,000,000 ÷ 170,000,000 = NPR 21.82, making growth look like +7.8% instead of the correct +13.2%.
Diluted = Basic because HCBL has no convertible instruments and no share options (Part 3.17).
4. Condensed Statement of Cash Flows (Direct Method)
FY2082/83
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received 21,000,000
Fees and other income received 2,500,000
Dividend received −
Receipts from other operating activities −
Interest paid (11,900,000)
Commission and fees paid (200,000)
Cash payment to employees (2,900,000)
Other expense paid (1,400,000)
─────────────────────────────────────────────────────────────────────
Operating cash flows before changes in operating
assets and liabilities 7,100,000
(Increase)/Decrease in operating assets
Due from Nepal Rastra Bank (1,500,000)
Placement with bank and financial institutions (1,000,000)
Loan and advances to bank and financial institutions (500,000)
Loans and advances to customers (18,000,000)
Other assets (1,200,000)
(22,200,000)
Increase/(Decrease) in operating liabilities
Due to bank and financial institutions (1,000,000)
Deposit from customers 24,000,000
Borrowings (300,000)
Other liabilities 800,000
23,500,000
─────────────────────────────────────────────────────────────────────
Net cash flow from operating activities before tax paid 8,400,000
Income taxes paid (1,900,000)
─────────────────────────────────────────────────────────────────────
NET CASH FLOW FROM OPERATING ACTIVITIES 6,500,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities (410,000,000)
Receipts from sale of investment securities 402,000,000
Purchase of property and equipment (600,000)
Receipt from the sale of property and equipment 100,000
Purchase of intangible assets (100,000)
Purchase of investment properties (150,000)
Interest received 1,400,000
Dividend received 50,000
─────────────────────────────────────────────────────────────────────
NET CASH USED IN INVESTING ACTIVITIES (7,300,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipt from issue of debt securities −
Repayment of debt securities −
Receipt from issue of shares −
Dividends paid (850,000)
─────────────────────────────────────────────────────────────────────
NET CASH FROM FINANCING ACTIVITIES (850,000)
─────────────────────────────────────────────────────────────────────
Net increase/(decrease) in cash and cash equivalents (1,650,000)
Cash and cash equivalents at the beginning of the year 19,600,000
Cash and cash equivalents acquired from the merger −
Effect of exchange rate fluctuations on cash held 50,000
─────────────────────────────────────────────────────────────────────
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 18,000,000
══════════OK Check 5: Closing cash 18,000,000 = balance sheet "Cash and cash equivalent" OK OK Check 6: Opening cash 19,600,000 = prior-year balance sheet OK OK Check 7: 7,100,000 − 22,200,000 + 23,500,000 − 1,900,000 = 6,500,000 OK
5. Condensed Statement of Changes in Equity
Share General Exch. Regul. Fair Retained Other Total
Capital Reserve Equal. Reserve Value Earning Reserve Equity
───────────────────────────────────────────────────────────────────────────────────────────
Balance Asar end 2082 17,000,000 6,200,000 180,000 2,400,000 700,000 1,800,000 1,220,000 29,500,000
Adjustment/Restatement − − − − − − − −
Adjusted balance 17,000,000 6,200,000 180,000 2,400,000 700,000 1,800,000 1,220,000 29,500,000
Profit for the period − − − − − 4,200,000 − 4,200,000
Other comprehensive income − − − − 140,000 − (70,000) 70,000
───────────────────────────────────────────────────────────────────────────────────────────
Total comprehensive income − − − − 140,000 4,200,000 (70,000) 4,270,000
Transfer to Reserves − 840,000 30,000 550,000 − (1,850,000) 430,000 0
Transfer from Reserves − − − − − − − −
Bonus shares capitalized 850,000 − − − − (850,000) − 0
Cash dividend paid − − − − − (850,000) − (850,000)
Share based payments − − − − − − − −
───────────────────────────────────────────────────────────────────────────────────────────
Balance Asar End 2083 17,850,000 7,040,000 210,000 2,950,000 840,000 2,450,000 1,580,000 32,920,000
══════════ ═════════ ═══════ ═════════ ═══════ ═════════ ═════════ ══════════OK Check 8 — reserve transfers net to ZERO:
840,000 + 30,000 + 550,000 + 430,000 − 1,850,000 = 0 OK
OK Check 9 — bonus shares net to ZERO: 850,000 − 850,000 = 0 OK OK Check 10 — closing equity:
29,500,000 + 4,270,000 + 0 + 0 − 850,000 = 32,920,000 OK = balance sheet Total Equity OK
OK Check 11 — OCI splits correctly:
Fair value reserve +140,000 (200,000 gain less 60,000 tax)
Other reserve (70,000) (100,000 actuarial loss less 30,000 tax)
─────────
+ 70,000 = OCI statement OK6. Ratios as per NRB Directives
FY2082/83 FY2081/82 Capital fund to RWA 15.65% 15.20% Non performing loan (NPL) to total loan 4.05% 3.60% Net Non performing loan (NPL) to total loan 0.21% 0.24% Total loan loss provision to Total NPL 95.00% 97.00% Cost of Funds (LCY YTD) 4.90% 5.60% CD Ratio – Average of the Month 82.33% 81.10% Base Rate – Average for the quarter 6.20% 6.90% Average Interest Spread 3.60% 3.85% Additional Information Tier 1 Capital to RWA 12.65% 12.30% CET 1 Capital to RWA 12.65% 12.30% Return on Equity (Annualized) 13.46% 12.80% Return on Assets (Annualized) 1.47% 1.42% PE Ratio (Annualized) 12.75 13.90 Net-Worth per share (NPR) 184.43 165.27 Assets per share (NPR) 1,680.67 1,594.12 Liquidity Ratio (NLA) 26.00% 25.40%
Every ratio, derived:
RWA (given, from the capital computation) 250,000,000
CET 1 = Total equity − Goodwill/intangibles − DTA
= 32,920,000 − 800,000 − 500,000 = 31,620,000
CET1 ratio = 31,620,000 ÷ 250,000,000 = 12.65%
Tier 1 = CET1 (no AT1 instruments) = 12.65%
Tier 2 = Qualifying debentures 6,000,000
+ General loan-loss provision (capped) 1,500,000
= 7,500,000
Total capital fund = 31,620,000 + 7,500,000 = 39,120,000
Capital fund to RWA = 39,120,000 ÷ 250,000,000 = 15.65%
GROSS LOANS = Net 190,000,000 + Allowance 7,600,000 = 197,600,000
NPL (Substandard + Doubtful + Loss) = 8,000,000
NPL ratio = 8,000,000 ÷ 197,600,000 = 4.05%
Coverage = 7,600,000 ÷ 8,000,000 = 95.00%
Net NPL = (8,000,000 − 7,600,000) ÷ 190,000,000= 0.21%
CD ratio = 197,600,000 ÷ 240,000,000 = 82.33%
Cost of funds = Interest expense ÷ avg interest-bearing funds
= 12,000,000 ÷ 244,900,000 = 4.90%
Spread = Avg lending rate − Avg deposit rate = 3.60% [R] NRB method
ROE = Profit ÷ average equity
= 4,200,000 ÷ ((29,500,000+32,920,000)÷2)
= 4,200,000 ÷ 31,210,000 = 13.46%
ROA = Profit ÷ average total assets
= 4,200,000 ÷ ((271,000,000+300,000,000)÷2)
= 4,200,000 ÷ 285,500,000 = 1.47%
Net worth per share = 32,920,000,000 ÷ 178,500,000 = NPR 184.43
Assets per share = 300,000,000,000 ÷ 178,500,000 = NPR 1,680.67
PE (price NPR 300) = 300 ÷ 23.53 = 12.75
Price-to-Book = 300 ÷ 184.43 = 1.63×7. Statement of Distributable Profit/Loss (as per NRB Regulations)
FY2082/83
Net Profit or Loss as per Statement of profit or loss 4,200,000
1. Appropriations
a. General Reserve (840,000)
b. Capital (Debenture) Redemption Reserve (400,000)
c. Exchange Fluctuation Fund (30,000)
d. Corporate Social Responsibility Fund (20,000)
e. Employees Training Fund (10,000)
f. Other −
─────────────────────────────────────────────────────────────────────
Profit or Loss Before Regulatory adjustment 2,900,000
Regulatory Adjustment
a. Interest receivable (-)/previous accrued
interest received (+) (250,000)
b. Short loan loss provision in accounts (-)/reversal (+) −
c. Short provision for possible losses on investment −
d. Short loan loss provision on Non Banking Assets (80,000)
e. Deferred tax assets recognised (-)/reversal (+) (50,000)
f. Goodwill recognised (-)/impairment of Goodwill (+) −
g. Bargain purchase gain recognised (-)/reversal (+) −
h. Actuarial loss recognised (-)/reversal (+) (100,000)
i. Other (Interest Capitalised Term Loan) (70,000)
─────────────────────────────────────────────────────────────────────
Net Profit available for distribution 2,350,000
Opening Retained Earning as on Shrawan 1, 2082 1,800,000
Adjustment (+/-) −
Distribution:
Bonus shares issued (850,000)
Cash Dividend Paid (850,000)
─────────────────────────────────────────────────────────────────────
Total Distributable profit as on Asar End 2083 2,450,000
Cash Dividend Distributable to PNCPS holders −
─────────────────────────────────────────────────────────────────────
Total Profit Distributable to Common Equity Share holders 2,450,000
Annualised Distributable Profit/Loss per share (Common Equity) NPR 13.73OK Check 12 — regulatory adjustments = regulatory reserve transfer:
250,000 + 80,000 + 50,000 + 100,000 + 70,000 = 550,000 SoCE "Transfer to Regulatory Reserve" = 550,000 OK EXACT
OK Check 13 — appropriations reconcile to the SoCE:
General Reserve 840,000 → General reserve column OK
Exchange Fluctuation Fund 30,000 → Exchange equalisation OK
Debenture Redemption 400,000 ┐
CSR Fund 20,000 ├→ 450,000 → Other reserve OK
Training Fund 10,000 ┘
Regulatory adjustments 550,000 → Regulatory reserve OK
─────────
Total transfers 1,850,000 OK ties to the SoCE rowOK Check 14 — distributable profit = balance-sheet retained earnings:
2,450,000 = 2,450,000 OK
The headline comparison:
Basic EPS NPR 23.53
Distributable profit per share NPR 13.73
─────────
Distributable as % of EPS 58.4%
⇒ Only 58% of reported earnings is legally available for
distribution. Read Part 7 before assuming EPS = dividend
capacity.8. Selected notes and disclosures
SEGMENT INFORMATION (NPR Mio.)
Retail SME Corporate Deprived Treasury Others Total
External revenue 6,100 3,900 9,200 600 3,100 1,500 24,400
Intersegment 4,200 (1,300) (900) (300) 300 (2,000) 0
Segment PBT 2,900 1,100 1,600 130 1,400 (1,130) 6,000
Segment assets 42,000 44,000 118,000 11,000 72,000 13,000 300,000
Segment liabilities 128,000 9,000 96,000 1,600 10,400 55,000 300,000
OK Segment PBT total 6,000 = P&L Profit before income tax OK
OK Segment assets total 300,000 = Total assets OK
OK Intersegment nets to zero OK
EXPOSURE CONCENTRATION
Borrowings from 10 largest lenders NPR 2,000,000,000
as % of total deposits 0.83%
Exposure to 20 largest borrowers (group basis) NPR 34,000,000,000
as % of total loans and advances 17.21%
Deposits from 20 largest depositors NPR 50,400,000,000
as % of total deposits 21.00%
RELATED PARTY
Loans and Advances extended to Promoters NIL
Key Management Personnel compensation NPR 48,000,000
EVENTS AFTER INTERIM PERIOD None
CHANGES IN COMPOSITION OF THE ENTITY NoneThe fifteen transactions
Each shows the journal entry, then every statement it touches, then the effect on ratios.
Transaction 1 — Customer deposits NPR 100,000,000 in cash
Dr Cash and cash equivalent 100,000,000
Cr Deposits from customers 100,000,000| Statement | Effect |
|---|---|
| **Balance sheet** | Cash **+100,000**, Deposits **+100,000**. Total assets and liabilities both up |
| **P&L** | **None** — a deposit is not income |
| **OCI** | None |
| **Equity** | **None** |
| **Cash flow** | Operating: Deposit from customers **+100,000** |
Ratio effects:
CD ratio 197,600 ÷ 240,100 = 82.30% ▼ (falls — more deposits) NLA more liquid assets ▲ CRR requirement rises [R] — some cash must move to NRB CAR equity unchanged, RWA barely moves (cash ~0 weight) ▲ marginally ROA same profit, more assets ▼ marginally
Transaction 2 — Bank lends NPR 100,000,000 to a corporate customer
Dr Loans and advances to customers 100,000,000
Cr Cash and cash equivalent 100,000,000
Immediately, Stage 1 ECL at 1.2% (illustrative):
Dr Impairment charge for loans 1,200,000
Cr Allowance for impairment 1,200,000| Statement | Effect |
|---|---|
| **Balance sheet** | Loans **+100,000** gross, less allowance **1,200**; Cash **−100,000** |
| **P&L** | Impairment charge **−1,200** → profit **−1,200** |
| **Cash flow** | Operating: Loans and advances to customers **−100,000** (outflow) |
| **Equity** | Retained earnings **−1,200** (via profit) |
Ratio effects:
CD ratio 297,600... no: 197,700 ÷ 240,000 = 82.38% ▲ RWA +100,000 × corporate risk weight [R] ▲ CAR RWA up, capital slightly down → CAR ▼▼ Cash / NLA ▼ Operating cash flow ▼
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