Performance Analysis of Finance Companies- Ashadh 2082.

Analysis -1: Loans and Advances

What does Loans and Advances mean to Finance Company? Loans and Advance is the Balance Sheet items classified under Assets side of the Finance Company’s Balance Sheets. Loans and Advances includes Loans provided to normal customers by the Finance Company as well as institutional loans provided by Finance Company to BFIs

Year-on-Year growth of Loans and Advances of Finance Companies stood at 5.57% in Ashadh 2082. A majority of the Finance Companies managed to expand their credit portfolio, while a few witnessed contractions during the review period. Manjushree Finance Ltd. continued to lead the industry with the highest credit portfolio of Rs. 18.40 Billion, recording a growth of 20.07% compared to the previous year. ICFC Finance Ltd. ranked second with Rs. 17.51 Billion, up by 18.02%, followed by Goodwill Finance Ltd. with Rs. 8.19 Billion, though its portfolio contracted by 5.82% year-on-year. The most significant growth was reported by Multipurpose Finance Ltd., which expanded its loan portfolio by 121.21%, reaching Rs. 3.19 Billion. Samriddhi Finance and Nepal Finance Ltd. also posted strong growth of 22.45% and 20.62%, respectively. On the contrary, Pokhara Finance recorded the sharpest decline with its credit portfolio shrinking by 35.98% to Rs. 4.83 Billion, followed by Janaki Finance (-15.25%) and Gurkha Finance (-14.32%). Overall, the industry average credit portfolio reached Rs. 6.53 Billion in Ashadh 2082, up from Rs. 6.17 Billion in Ashadh 2081.

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Analysis -2: Deposits

What does Deposit mean to Finance Company? Deposits if the total fund collected by the Finance Company from its customers. Deposit is shown in liability side of Finance Company’s Balance Sheet which consists of “Due to Bank and Financial Institutions” and “Deposit from Customers”. Finance Companies normally collect deposit in a form of Fixed, Saving, Current, Call, Margin, Recurring accounts.

Deposit Performance Analysis:

During the review period, deposits of Finance Companies grew modestly by 2.57% on average. While several Finance Companies managed to expand their deposit base, a few reported notable contractions. Manjushree Finance Ltd. recorded the highest deposit portfolio of Rs.22.50 Billion, reflecting a robust growth of 27.71% compared to Ashadh 2081. ICFC Finance Ltd. followed with Rs.20.26 Billion, growing by 7.77% year-on-year, while Goodwill Finance Ltd. held the third-largest portfolio at Rs.12.14 Billion, though it contracted by 4.15%. In terms of year-on-year growth, Multipurpose Finance Ltd. led the industry with a significant 69.64% increase, reaching Rs.3.17 Billion. Nepal Finance Ltd. (44.18%) and Manjushree Finance Ltd. (27.71%) also posted strong growth. On the other hand, Pokhara Finance witnessed the steepest decline in deposits, falling by 45.85% to Rs.7.15 Billion. Janaki Finance (-23.56%), Gurkha Finance (-2.43%), and Guheshwori Merchant Banking & Finance (-2.09%) were among the other institutions that recorded a contraction in their deposit base. Overall, the industry’s average deposit portfolio increased to Rs.8.68 Billion in Ashadh 2082 from Rs.8.46 Billion in the previous year.

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Analysis -3: Net Interest Income (NII)

What does Net Interest Income (NII) mean to Finance Company? Interest Income is recognized on interest bearing advances and financial assets whose income is booked to statement of profit or loss under interest income, whereas Interest Expenses is booked on interest bearing deposits or financial liabilities whose expenses is booked in statement of profit or loss under interest expenses. The net difference between these income and expenses is referred as Net Interest Income (NII).

Net Interest Income (NII) Performance Analysis:

Net Interest Income (NII), being the major source of Finance Companies’ revenue, remains a primary performance indicator. During the review period, the overall industry NII increased by 5.98% on average. Out of 15 Finance Companies, 9 recorded positive growth in NII, while 6 witnessed a decline. Manjushree Finance Ltd. reported the highest NII of Rs.873.21 Million, reflecting a strong growth of 16.51% compared to Ashadh 2081. ICFC Finance Ltd. followed with Rs.616.92 Million, growing by 13.15% year-on-year. In terms of year-on-year growth rate, Janaki Finance Ltd. led the industry with an impressive 47.40% rise in NII, reaching Rs.166.70 Million. Central Finance Ltd. (33.09%) and Shree Finance Ltd. (15.30%) also posted healthy growth. On the other hand, Gurkha Finance (-17.52%) and Pokhara Finance (-13.74%) recorded the steepest declines in NII, followed by Goodwill Finance (-11.94%). In terms of absolute amount, Samriddhi Finance reported the lowest NII at Rs.88.53 Million, despite achieving a modest 9.19% year-on-year growth. Overall, the Finance Companies’ industry demonstrated resilience, with average NII increasing to Rs.253.84 Million in Ashadh 2082 from Rs.238.65 Million in the previous year.         

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Analysis -4: Net Fee and Commission Income (NFCI)

What does Net Fee and Commission Income (NFCI) mean to Banks? Net Fees and Commission Income is supplementary source of revenue in addition to Net Interest Income of the Finance Company consisting of charges, fees or commission on products or services offered by the Finance Company. Finance Company’s normally collect loan administration fees, renewal fees, digital banking fees, card issuance fees, remittance commission among others.

Net Fees and Commission Income Performance Analysis:

During the review period, Manjushree Finance reported the highest Net Fee and Commission Income (NFCI) of Rs.112.19 Million, an increase of 28.08% compared to Ashadh 2081, followed by ICFC Finance with Rs.103.59 Million, up by 20.71%. Reliance Finance also posted a notable growth of 32.46%, reaching Rs.52.00 Million. Samriddhi Finance recorded the highest growth rate of 114.27% during the review period, although from a low base, with NFCI rising to Rs.15.23 Million. Multi Finance (30.76%) and GMBFL (20.42%) also achieved strong double-digit growth. On the contrary, Janaki Finance faced the steepest decline in NFCI, dropping by 92.03% to just Rs.0.44 Million. Pokhara Finance (-71.08%), Gurkha Finance (-36.50%), Goodwill Finance (-27.12%), and Progressive Finance (-21.89%) also reported significant negative growth. In terms of the lowest NFCI, Janaki Finance remained at the bottom with only Rs.0.44 Million. On average, the Finance Companies’ industry posted a modest growth of 3.65% in NFCI during the review period, with the sector’s average rising to Rs.35.16 Million in Ashadh 2082 compared to Rs.33.88 Million a year earlier.

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Analysis -5: Impairment Charges

What does Impairment Charges mean to Finance Company? Impairment Charges are charges recognized as expenses by Finance Companies when Bank expects that they will not recover full amount of expected cash flows of loans. Impairment Charges are reversed if the expected cash flows are lateral realized. Finance Companies try to minimize their Impairment Charges to increase their profitability through stronger recovery actions.

Impairment Charges Performance Analysis: 

During the review period, overall industry impairment charges declined sharply by 91.86% on average, with the sector’s impairment charges reducing from Rs.109.98 Million in Ashadh 2081 to Rs.8.95 Million in Ashadh 2082. Pokhara Finance, which had reported the highest impairment charges of Rs.452.69 Million in the previous year, posted a significant reversal of Rs.281.81 Million in Ashadh 2082, reflecting a decline of 162.25%. Central Finance and ICFC Finance also reported major reversals of Rs.389.17 Million (down 108.17%) and Rs.195.68 Million (down 142.22%) respectively. Samriddhi Finance (-117.95%) and Nepal Finance Ltd. (-126.47%) followed the same trend with sharp reductions in impairment charges. On the other hand, Gurkha Finance Company moved from a reversal of Rs.19.88 Million in Ashadh 2081 to recording impairment charges of Rs.194.32 Million in Ashadh 2082, marking the highest YoY deterioration at -1077.26%. Shree Finance (up 111.06%), Reliance Finance (up 328.57%), and Goodwill Finance (up 90.32%) also reported significant increases in impairment charges. Janaki Finance continued to post the highest impairment charges among finance companies, reaching Rs.218.19 Million in Ashadh 2082, up by 3.02% from the previous year. In contrast, Progressive Finance remained in impairment reversal of Rs.187.93 Million, improving by 48.90% from Ashadh 2081.

Overall, the industry showed a substantial improvement in impairment profile, mainly driven by reversals reported by Pokhara, Central, and ICFC Finance.

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Analysis -6: Personnel Expenses (Excluding Bonus)

What does Personnel Expenses mean to Finance Company? Personnel expenses includes expenses related to employees of the Finance Company. Personnel Expenses mostly include staff’s salary, allowances, pension, gratuity, contribution to provident fund, training expenses, uniform expenses, insurance, staff bonus, finance expense under NFRS etc. Banks are required to create provision for staff bonus which is a mandatory requirement under the requirement of the Bonus Act, 2074. Amount of bonus is not included here under analysis.

Personnel Expenses (Excluding Bonus) Performance Analysis: 

Janaki Finance Company has lowest personnel expenses with Rs. 22.11 Million followed by Multipurpose Finance Company reported the lowest personnel expenses of Rs. 40.40 Million as of Ashadh 2082, The highest personnel expenses were reported by ICFC Finance at Rs. 266.18 Million, followed closely by Manjushree Finance with Rs. 263.85 Million. In terms of Year-on-Year (Y-o-Y) growth amount, ICFC Finance posted the highest increase of Rs. 50.47 Million (23.40%), On the contrary, Gurkha Finance Company witnessed the largest decline in personnel expenses, decreasing by Rs. 24.52 Million (15.20%). At the industry level, the average personnel expenses stood at Rs. 121.61 Million in Ashadh 2082, up by Rs. 10.54 Million compared to Ashadh 2081, reflecting an overall growth of 9.49% Y-o-Y.

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Analysis -7: Operating Expenses

What does Operating Expenses mean to Finance Company? Operating expenses of the Finance Company includes day to day operation related expenses and consists of Personnel Expenses, Depreciation and Amortization and other operating expenses of the Finance Company like Operating Expenses consists of Administration Expenses, Audit Fees, Lease Expenses among others.

Operating Expenses Performance Analysis:

Multipurpose Finance Company reported the lowest operating expenses of Rs. 20.91 Million as of Ashadh 2082, followed by Samridddhi Finance Ltd. (Rs. 34.57 Million). On the other hand, Janaki Finance Company recorded the highest operating expenses at Rs. 136.58 Million, followed by Manjushree Finance at Rs. 105.89 Million. In terms of Year-on-Year (Y-o-Y) growth, Janaki Finance Company reported the highest surge in operating expenses with an increase of 484.61% (Rs. 113.22 Million), followed by Nepal Finance Ltd. with 71.37% growth (Rs. 19.15 Million) and Gurkha Finance with 58.26% growth (Rs. 33.31 Million). Conversely, ICFC Finance experienced the sharpest decline in operating expenses, down by 42.04% (Rs. 55.84 Million), followed by Guheshwori Merchant Banking & Finance (GMBFL) with a 17.49% drop (Rs. 8.49 Million) and Samriddhi Finance with a 12.30% reduction (Rs. 4.85 Million). At the industry level, the average operating expenses stood at Rs. 69.65 Million in Ashadh 2082, an increase of Rs. 14.61 Million compared to Ashadh 2081, reflecting overall growth of 26.54% Y-o-Y.

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Analysis -8: Loan Write-offs

What does Loan Write-offs mean to Finance Company? Loans are written off by the Finance Companies when Finance Company’s consider loans to be uncollectable even after necessary recovery efforts from the Finance Company. Written off loans are removed from Finance Company’s Balance Sheet and are booked as expenses under non-operating expenses of the Finance Company reducing Finance Company’s profit.

Loan Write-offs Performance Analysis:

During the review period Nepal Finance Company, Goodwill Finance,  Shree Investment, Janaki Finance, Central Finance and Reliance Finance have not written-offs any loans whereas highest value of loan was written-off by Pokhara Finance Company Limited of Rs.151.95  Million followed by Manjushress Finance Company with written off loan of Rs.43.84 Million. In terms of Y-o-Y comparison Manjushree Finance Company’s write-off expenses surged by 193.38%. Overall Industry’s average Loan Write-off expenses increase by 128.64% y-o-y.          

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Analysis -9: Net Profit After Tax (NPAT)

What does Net Profit After Tax (NPAT) mean to Finance Company? Net Profit After Tax (NPAT) means the final profit  after deduction of all the expenses and taxes of the Finance Company. Net Profit helps to judge the profitability healthiness of the Finance Company. Higher the NPAT better is the Finance Company’s performance in terms of return to shareholders.

Net Profit After Tax Performance Analysis: 

Average Net Profit After Tax (NPAT) of Finance Companies increased significantly by 518.30% Y-o-Y, turning around from an industry average loss of Rs. 13.78 Million in Ashadh 2081 to a profit of Rs. 57.63 Million in Ashadh 2082. ICFC Finance Ltd. reported the highest NPAT at Rs. 344.94 Million, recording an exceptional 204.60% year-on-year growth. Manjushree Finance Ltd. followed with Rs. 314.38 Million, up by 39.97% from the previous year. Multipurpose Finance also showed remarkable improvement with NPAT rising to Rs. 23.32 Million, a 122.45% increase, while Pokhara Finance turned around from a loss of Rs. 106.46 Million to a profit of Rs. 113.91 Million. Among other notable performers, Shree Investment & Finance reported a 13.41% increase to Rs. 69.93 Million, and Reliance Finance remained stable with Rs. 42.70 Million, a 0.22% rise. Conversely, Gurkha Finance Ltd. experienced the steepest decline, with NPAT falling by Rs. 169.77 Million to Rs. -127.39 Million, and Janaki Finance continued to report a loss of Rs. 207.28 Million. Goodwill Finance also saw its NPAT decline sharply by 85.45% to Rs. 5.12 Million. Overall, the review period demonstrates strong recovery and profit growth in several finance companies, although a few continue to face negative earnings pressures.

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Analysis -10: Distributable Profit and DPS

What does Distributable Profit and DPS mean to Finance Company? Distributable Profit (DP) means the final profit which is available for distribution to shareholders. If the same distributable profit is divided by number of available shares with Finance Company then Dividend Per Share (DPS) is derived which shows how much dividend a share will generate. Higher the distributable profit and DPS better will be the Finance Company from Shareholders perspective.

Distributable Profit and DPS Performance Analysis:

Majority of Finance Companies reported negative distributable profit as on Ashadh 2082, except five companies. Manjushree Finance Ltd. remained at the top position with a distributable profit of Rs. 354.49 Million, followed by ICFC Finance Ltd. with Rs. 240.06 Million. Shree Investment & Finance recorded a distributable profit of Rs. 62.80 Million, while Multipurpose Finance Company showed a remarkable turnaround with distributable profit rising from Rs. 0.56 Million to Rs. 23.32 Million. Guheshwori Merchant Finance Ltd. also improved to Rs. 14.29 Million from a previous loss. Significant recoveries were observed in these companies, contributing to an overall improvement in the industry average distributable profit, which moved from a negative Rs. 321.07 Million in Ashadh 2081 to negative Rs. 280.28 Million in Ashadh 2082, reflecting a marginal improvement of Rs. 40.79 Million or 12.71%.

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Analysis -11: Non-Banking Assets (NBA)

What does Non-Banking Assets (NBA) mean to Finance Company? If a loan provided is defaulted, then Finance Company may sell the collateral held and recover the dues of borrower from such collateral sales. However, sometimes the collateral may not be sold and Finance Company may have to itself take such assets. Such assets are Non-Banking Assets to the Finance Company, which are shown under Investment Property under Balance Sheets.

Non- Banking Assets Performance Analysis:

During the review period, All Finance Companies reported an increase in Non-Banking Assets (NBA), except Best Finance. Shree Investment has lowest NBA of Rs 14.60 Million  with no change as compared to previous corresponding period. Goodwill Finance has highest NBA of Rs 546.63 Million with growth rate of 1.65%.  Pokhara Finance has highest growth of NBA amount of Rs 400.37 Million. Overall, the industry’s NBA increased by 54.26% during the review period, reaching Rs. 204.72 Million on average.

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Analysis -12: Base Rate

What does Base Rate mean to Finance Company? Base Rate is the floor rate upon which premium is charged by Finance Companies to derive lending rate. Base rate consists of Cost of Fund, Cost of CRR, Cost of SLR and Operating Costs of the Finance Company. Higher base rate means Finance Companies are obtaining funds at higher rate and lower base rate means Finance Companies are obtaining funds at lower rates. Higher Base rate also means expensive lending rates and lower base rate means cheaper lending rates.

Base Rate Performance Analysis:

During the review period Industry average base rate remained at 8.86%. As compared to earlier year, Base rate of all the Finance Companies have decreased due to falling cost of deposits. Manjushree Finance Company has the lowest Base Rate of 7.23% whereas Best Finance Company’s base rate of 10.57% is the highest amongst peer.

Analysis -13: Earning Per Share (EPS)

What does Earning Per Share mean to Finance Company? Earnings Per Share (EPS) is the amount of profit earned by the Finance Company equivalent to each of its share. Higher the EPS, better it is and vice versa. It is computed by dividing Net Profit by total number of shares of the Finance Company.

Earnings Per Share Performance Analysis:

ICFC Finance Company has the highest EPS of Rs.29.15 per share followed by Manjushree Finance Company with Rs. 23.26  per share. 2 Finance Company have their negative EPS and  9 Finance Companies have decrease the EPS as compare to previous year. Industry Average EPS is 4.38. Janaki Finance has lowest EPS i.e. negative -30.02.

Analysis -14: Non-Performing Loan (NPL)

What does Non-Performing Loan mean to Finance Company? Non-Performing Loans (NPL) are those loans which are classified under Doubtful, Substandard and Bad as per the NRB provisions. Higher Non-Performing Loans ratio means higher probability of loan defaults, so Finance Companies try to maintain NPL as low as possible.

Non-Performing Loans (NPL) Performance Analysis: 

Industry Average non-performing loan (NPL) of overall industry remained at 11.63% as on Ashadh 2082. Higher NPL triggers increased risk of credit defaults and lower changes of credit recovery, so Finance Company’s try to restrict their NPL as low as possible. During the review period, ICFC  Finance Company managed to keep its NPL at 1.83% which is lowest amongst peers, followed by Shress Investment Company with 2.57% NPL. Highest NPL was reported by Janaki Finance with NPL of 48.61% followed by Pokhara Finance with NPL 29.06% as on Ashadh 2082. Considering Y-o-Y growth, NPL of Janaki Finance Company’s growth of 11% was highest amongst the peer.

Analysis -15: Cost of Fund

What does Cost of Fund mean to Finance Company? Cost of Fund means the cost incurred by the Finance Company to obtain funds in a form of deposit or borrowings. It includes cost of local currency deposit and borrowings obtained by the Finance Company.

Cost of Fund Performance Analysis:

During the review period lowest cost of fund was of Progressive Finance Company at 5.13% followed by Gurkhas Finance with 5.40%. This means these Finance Company are soliciting funds at lower costs than peers. However, cost of fund of Janaki Finance Company remained highest amongst peer at 7.61% as on Ashadh 2082. Industry average cost of fund remained at 6.80% as on Ashadh 2081.

Analysis -16: Capital Adequacy Ratio (CAR)

What does Capital Adequacy Ratio mean to Finance Company? Capital Adequacy Ratio (CAR) measures the sufficiency of Finance Company’s capital in terms of its credit, operation and market or liquidity risk weighted exposures. It indicates the sufficiency of Finance Company’s capital commensurate to risk pertaining to business growth, gross income and open position. NRB has mandated Finance Company to maintain CAR of at least 10% in line with Capital Adequacy Framework, 2007.

Capital Adequacy Ratio (CAR) Performance Analysis:

Industrial average CAR remained at 12.85% as on Ashadh 2082. Nepal Finance Company managed to remain at top with CAR of 25.80% whose Y-o-Y CAR increased by 3.61% as compared to earlier year followed by Shree Investment with  CAR of 18.07% a down of 1.46% from earlier year. Lowest CAR was reported by Pokhara Finance -3.78% followed by Janaki Finance Company of -1.91%.

Analysis -17: Credit to Deposit (CD) Ratio

What does CD Ratio mean to Finance Company? Credit to Deposit (CD) ratio is the measure which shows proportion of credit and deposit mix of the Finance Company. Higher CD ratio means higher portion of lending as compared to Finance Company’s deposit volume and lower CD ration means lower portion of lending as compared to Finance Company’s deposit volume. Finance Company try to maintain optimum CD ratio by balancing between credit and deposit mix..

Credit to Deposit (CD) ratio Performance Analysis:

During the review period industrial average CD ratio remained at 75.07%. Multipurpose Finance Company has lowest CD Ration of 59.51. Janaki Manju Shree Finance Company had the highest CD ratio of 85.74% followed by Pokhara Finance Company of 85.30%.

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