Nepal Commercial Bank Capital Funds Update: As of Chait End, 2080 (Mid-April 2024

The Capital Fund of a bank, as defined by regulatory authorities like the Nepal Rastra Bank (NRB), is a measure of the bank's financial strength and stability. It represents the bank's net worth and is essential for absorbing losses and protecting depositors' interests. The Capital Fund is composed of two main components: Tier 1 Capital (Core Capital) and Tier 2 Capital (Supplementary Capital).

The funnel chart above illustrates the total capital fund (in million NPR) of various banks in descending order. Here are some key interpretations:

1. Top Banks by Capital Fund:

   • Nabil Bank Ltd. leads with the highest capital fund of 58,795 million NPR.

   • Nepal Investment Mega Bank Ltd. and Global IME Bank Ltd. follow closely with 57,698 million NPR and 56,538 million NPR respectively.

2. Mid-Tier Banks:

   • Banks like Kumari Bank Ltd., Laxmi Sunrise Bank Ltd., and Prabhu Bank Ltd. have capital funds ranging from approximately 40,564 to 38,582 million NPR.

   • These banks hold a significant amount of capital, but not as high as the leading banks.

3. Lower-Tier Banks:

   • Machhapuchhre Bank Ltd. has the lowest capital fund at 21,072 million NPR.

   • Other banks with relatively lower capital funds include Nepal SBI Bank Ltd., Standard Chartered Bank Nepal Ltd., and Sanima Bank Ltd., with funds between 21,130 to 24,196 million NPR.

4. Distribution Insights:

   • There is a significant gap between the top-tier banks and the lower-tier banks. For example, the capital fund of Nabil Bank Ltd. is almost three times that of Machhapuchhre Bank Ltd.

   • The top three banks together hold a substantial portion of the total capital among the listed banks, indicating a concentration of financial power within these institutions.

5. Market Positioning:

   • Banks with higher capital funds are likely to have more significant market influence and a higher capacity to lend, invest, and absorb losses compared to those with lower capital funds.

   • This distribution can also reflect the banks' sizes, customer bases, and operational scales.

Understanding this data can help in identifying the most robust banks in terms of capital funds, which may be critical for making informed investment, partnership, or competitive strategy decisions in the banking sector.

Components of the Capital Fund

1. Tier 1 Capital (Core Capital)

   • Paid-up Equity Capital: The amount of capital received from shareholders in exchange for shares of stock.

   • Statutory General Reserves: Reserves set aside as per regulatory requirements.

   • Retained Earnings: Profits that are retained within the bank rather than distributed as dividends.

   • Other Free Reserves: Additional reserves that are freely available to the bank.

2. Tier 2 Capital (Supplementary Capital)

   • Undisclosed Reserves: Reserves that are not disclosed in the financial statements but can be used to absorb losses.

   • General Loan Loss Provision: Provisions made to cover potential loan losses.

   • Hybrid Instruments: Financial instruments that possess characteristics of both debt and equity.

   • Subordinated Term Debt: Long-term debt that ranks below other debts in case of liquidation.