The current banking industry’s scenario is no different from a battlefield. While one side of the warriors is focused to retain their weapons (customers), the other side is trying to build a competitive advantage utilizing the opponent’s weakness (lower deposit rate). The general public has seen the current context of banking industry as a fight for survival. However, seeing things from different perspective, it actually resembles that all commercial banks will finally come to the same level given the similar range of paid up capital. The dominant market players in banking industry will be identified in the near future on the basis of net profit, deposit collection and loan portfolio.
The investors in secondary market are inquisitive on “which commercial banks will lead in the secondary market?” The precise answer to the stated question might not be pictured by all the investors instantly because nine of the commercial banks are yet to meet the paid up capital requirement. However, these nine commercial banks have already provided clues regarding their capital plan. Those banks that were sort of paid up capital have either used merger and acquisition approach or have utilized reserve fund to meet the paid up capital requirement. With the approaching deadline, banks are left with the alternatives of bonus share and right share to set the mark of Rs 8 arba in the first row of their balance sheets.
Banks offering right shares to the shareholders have already announced it to the general public. Also, the disappointment for these banks after the under subscription of the right shares is no hidden from the general public. Commercial banks which have discarded the right share approach are likely to go forward with bonus share approach. With all the scenario wrapped up, this makes easier for investors in secondary market to understand what their portfolio constituting of commercial banks has to offer in terms of Earning per Share (EPS) in the upcoming days.
The article aims to provide a tentative guess on the ranking of the commercial banks based on their new adjusted EPS provided that all these banks have same level of paid up capital.
Before attaining the paid up capital requirement:
As per the second quarter report of these commercial banks, NABIL Bank (NABIL) has been ranked in the first position whereas Janata Bank (JBNL) has been ranked in the last position with respect to their EPS. The ranking of these banks are attached below in a descending order on the basis of EPS. Furthermore, banks highlighted in grey such as NMB Bank Limited (NMB), Siddhartha Bank (SBL), Prabhu Bank (PRVU), Bank of Kathmandu (BOKL), Kumari Bank (KBL), Nepal Credit and Commercial Bank (NCCB), Mega Bank (MEGA), Century Commercial Bank (CCBL) and Civil bank (CBL) have not attained the mark of Rs 8 arba.
After attaining the paid up capital requirement:
Once all the commercial banks will attain the paid up capital requirement, the listed shares are likely to increase. This will lead to decline in EPS of these banks. The attached table shows the adjusted paid up capital, reserve and EPS of the commercial banks which are in the process of attaining the mark of Rs 8 arba.
Note:
The mentioned capital plan is not a full picture of the commercial banks. For instance, BOKL is yet to decide its 28.09% bonus share. CBL has already floated 40% right share but has not disclosed the 11% bonus share proposal. CCBL has already announced and endorsed from its AGM both its 5% bonus and cash dividend. MEGA bank has already announced its 9.45% bonus share and is in process of merger with TDBL. NMB is in its final stage for the FPO approval and has not announced the 6% bonus share. NCCB has already received ICRA grading for 50% right share and is yet to disclose the 14% bonus share. PRVU has already undergone the process of 40% right share. Finally, SBL has announced and floated its 10% right share and 14% bonus share.
With the adjusted EPS of these commercial banks after attaining paid up capital; the ranking of these commercial banks on the basis of EPS will be as follows:
Has the ranking changed?
With the adjusted paid up capital, the EPS of all these banks will fall and hence, might not provide the same earning. A tentative ranking comparing before and after adjustment of paid up capital has been established below:
With the proposed right share and bonus share of these nine banks, the market price will also differ from the current market price. It can further be illustrated in the provided table:
Hence, the article provides an insight regarding the impact on EPS and market price of the commercial banks within the same range of paid up capital. With the market’s decreasing trend, do you believe it is a good time to build your portfolio with commercial banks? Please provide your views in the comment section.
(Disclaimer: Any kind of information that is provided in the article should not be used as a sole advice or recommendation by investors in order to design their investment portfolio. So, before taking steps for any kind of the information, the investors are required to base their judgment on their own financial analysis, appropriateness of the information and seek independent financial advice. The information of the company has been taken from the authorized sources such as website of the company, NEPSE, financial reports and press releases of the companies so, any changes not updated in these may differ in the analysis.)
Source: ShareSansar - March 16, 2018.
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