This Analysis will be based on the Commercial Bank Q-2 report of 2080-81 in comparison to Q-2 of 2079-80.
The reason for doing a Y-O-Y-based analysis is to kill cyclic trends and the Big time frame gives us a clear view of growth and progress.
This post will contain a Y-O-Y comparison ofÂ
-Non-Performing Loan – (NPL)
-Interest Spread & Cost of Fund (COF)
-Size of Loan Book
-Customer Deposit
–Interest income & Net Profit
-Ranking
Non-Performing Loan (NPL)
NPLs are Non-Performing Loans, indicating loans at risk of default. High NPL levels can impede a bank’s financial health, diminishing profitability
and hindering its capacity to support economic growth through lending. Higher the NPL, the Higher provisioning will be done.
The provision Impacts on the profitability of the entity, The Below annexure has sorted Banks on the basis of NPL.
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Interest Rate Spread & Cost of Fund (COF)
Interest rate spread refers to the difference between the interest rate a bank earns on its assets, such as loans, and the rate it pays on its liabilities, like deposits.
A wider interest rate spread generally indicates higher profitability for the bank, while a narrower spread may impact earnings.
Whereas COF is the rate at which banks raise money for providing loans i.e. functioning of its business. The lower the COF the better it would be for the profitability of banks
Where in the case of Interest Rate spread, the higher the better it would be for the bank.
Size of Loan Book
In simple terms, it means, the size of the business. A loan book is an aggregate total of loans given by banks.
Expanding the loan book increases the potential for profit generation, provided that the loans are of high quality.
Since lending is a core business activity for banks, a larger loan book is akin to expanding their business, presenting opportunities
for increased revenue and profitability when coupled with prudent lending practices. Loans to customers are risker than loans to B/Fis Loans
Customer Deposit
Customer deposits are a preferred funding source for banks due to their cost-effectiveness, with lower interest rates making them an economical option.
The higher the volume of customer deposits, the better. It is considered the cheapest source of funding, due to the reason only, the majority of banks focus on
increasing savings & Fixed deposit accounts.
Interest Income & Net Profit
The analysis linking net profit to net interest income is termed Net Interest Margin (NIM).
It reveals the efficiency of a bank’s interest-related operations, with a higher NIM indicating better profitability from interest activities
Ranking
This ranking is provided for educational purposes only and should not be construed as a recommendation for buying or selling stocks.
The rankings are determined based on individual assessments using the criteria mentioned above.
If any errors are identified in the data presented, please feel free to reach out for corrections.
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