Muktinath Bikas Bank; A company analysis

December 23, 2018 | Investopaper

The brief  company analysis of Muktinath Bikas Bank as performed by Investopaper team is as follows:

Introduction

Muktinath Bikas Bank Limited (MNBBL) was established on Poush 19, 2063 B.S. The bank has obtained permission from Nepal Rastra Bank to operate as a “B” class national level financial institution. The central office of the Bank is situated at Kamaladi 28, Kathmandu. It has a special wing for Micro-Credit finance which is a model for micro banking activities throughout the development banks in Nepal. At present, MNBBL is one of the largest National Level Development Bank. It has a branch network of 68 modern banking branches, 3 limited banking branches, 3 extension counters, and 78 microfinance desks. The bank has depositor’s base of more than 3 lakh customers.

Board of directors and the Management team:

The board of directors includes:

Khim Prakash Malla                    Chairman

Narayan Kumar Shrestha          Director

Narayan Prasad Paudel              Director

Gajendra Man Shrestha             Director

Chudamani Kandel                      Director

The management of Muktinath Bikas  Bank is led by Pradyuman Pokharel. The senior management team includes:

Pradyuman Pokharel                 Chief Executive Officer

Til Bahadur Gurung                    Chief Operating Officer

Govinda Bahadur Raut               Chief Microfinance Department

Financial Highlights: Last 5 Years

• Paid up capital:

The current paid up capital stands at Rs. 2.59Arab. The capital has increased in the past five years by huge 60.28% annually. The bank increased the capital to meet the minimum capital requirement of Rs. 2.50 Arab enforced by Nepal Rastra Bank.

• Deposits and loans:

There has been a huge increment in deposits and loans in the past five years. The bank has been able to grow the deposits by 42.31% and increase its loan portfolio at 41.58 % annually. The deposits and loans stood at Rs. 30.35 Arab and Rs. 25.26 Arab at the end of Ashad 2075.

• Net profit:

The bank has achieved outstanding growth in net profit. Net profit has risen by an impressive 30.49% annually. But due to the increase in capital by 60.28% annually in the past 5 years, the increased net profit does not show in earnings per share. The net profit as of Ashad end, 2075 stands at Rs. 57.50 crores.

• Return On Equity(ROE) & Return On Assets(ROA):

The ROE and ROA of the bank remain at 16.26 and 1.65 which is an average return expected from banking institutions. ROE & ROA were above 21% and 2.40% respectively in the previous 4 years. The decrease is due to huge capital increment.

• EPS, MPS, P/E ratio & BPS:

The EPS and MPS  reached the peak value of Rs. 43.10 and Rs. 1307 on fiscal year 2072/73. The current EPS stands at 22.20 while the market price is at 378. The P/E ratio is at 17.03 and the net-worth per share is 135.62.

• Base rate and Non-Performing Loans(NPL):

The current base rate of the bank is 12.51 which is at the highest level in past 5 years. The high base rate is due to the credit crunch in the entire banking industry and the huge expansion in banking networks.  The non-performing loans are at 0.0044% which is the lowest among all development banks. This bank has been able to maintain the lower NPL in all past 5 years which indicate that the quality of the lending has been very good.

• Dividend History:

The bank has been providing a healthy dividend to the shareholders ranging from 19% to 42%. After the capital requirement of Rs. 2.50 Arab was reached in a previous year, the bank declares 18.25% bonus shares to the shareholders this year. The paid-up capital will reach Rs. 3.06 Arab.

Financial Highlights: 1st Qtr 2075/76

The 1st quarter of this fiscal year for Muktinath Bikash Bank seems highly promising. The deposits and loans grew by more than 70% from the previous year which is encouraging despite the credit crisis that is seen in this period. Net profit grew by an astounding 48%. Due to this, EPS increased by 22 percent to Rs. 30.93. The ROE and ROA  stand at 21.43 and 1.99. The bank has continued to maintain its NPL at the low level which is at 0.03%, a 33% less than the previous year. The base rate has increased slightly by 3.39% to 11.89.

Future Prospects and challenges

Muktinath Bikas Bank is the leading development bank of Nepal. The management seems capable to grow the business aggressively. Despite the current turmoil in the industry and heavy competition among banks, Muktinath has shown impressive results in the first three months in this fiscal year. The growth of deposits, loans, and profit at such a high pace is praiseworthy. What is more commendable is that the quality of the loans has been good so far.The management team has done a good job to bring the bank at the top level.

The challenge for the bank lies in the fact that such high growth rates cannot be maintained for a long period of time. The current credit crisis, intense competition among banking institutions, high base rate, quality human resource enrollment seems to be the major challenges for the bank. To earn sufficient return on huge capital injected is also the daunting task for the bank

Decision

The decision to invest in the shares of the Muktinath Bikas Bank lies on the preference of the investor. If your focus is on growth, then Muktinath can be the investment vehicle you can ride on. But, the investor must be cautious of the risks that high growth entails. Excessive focus on growth by the management can deteriorate the quality of the task at hand. If the management can accompany growth along with the quality of business, then the future will be brighter than expected.

(Investments are subject to market risks and investors are advised to do personal homework before taking any investment decision. This material is just a guideline for the investors to do further investigations)