Nabil Bank (NABIL) — Company Deep Dive

The One-Paragraph Summary

Nabil Bank is the largest commercial bank on NEPSE by market capitalisation as of May 2026 (Rs. 141.5B at Rs. 523 close). In FY 2021/22 it acquired Nepal Bangladesh Bank Ltd. (NBB) — joint operations began 11 July 2022 (27th Ashadh 2079), in the final days of FY 2021/22 — at a 100:43 share-swap ratio, adding Rs. 81.52B in customer deposits and Rs. 77.60B in loans to the book in a single year. Across the three full post-merger years, the financial trajectory has been consistently negative on profitability: net profit fell from Rs. 6.40B (FY 2022/23 peak) to Rs. 5.92B (FY 2024/25); ROE declined from 11.71% to 9.77%, below the bank's own CAPM cost-of-equity estimate of 14.38% (disclosed in AR FY 2081/82); gross NPA rose from 3.39% to 4.48%; and CAR fell from 12.54% to 11.81% — 81 basis points above the NRB regulatory floor of 11%. The single offsetting positive: in FY 2024/25, individual savings deposits grew Rs. ~61B year-on-year while term deposit share of the book fell sharply, building a structurally lower cost of funds that is already visible in NII stabilisation.

The Nepal Bangladesh Bank Acquisition

Source: Nabil Bank Annual Report FY 2078/79 — Note 4 (acquisition disclosures), financial highlights, and footnotes to ROA/ROE charts.

A prior smaller acquisition (United Finance Ltd) closed in FY 2020/21, disclosed in AR FY 2077/78.

Because joint operations only began in the last four days of FY 2021/22, the FY 2021/22 reported balance sheet contains a full NBB book consolidated, but the FY 2021/22 income statement contains only Rs. 0.96B of NBB profit. FY 2020/21 is therefore the last clean pre-merger year; FY 2022/23 is the first full post-merger year. This matters when reading the credit-quality deterioration trajectory below.

Five-Year Financial Scorecard

¹ FY 2021/22 ROE/ROA includes Rs. 0.96B of NBB net profit per AR FY 2078/79 footnote on ROA/ROE charts. Organic Nabil profit excluding NBB ≈ Rs. 4.26B → ROE ~8.4% (derived). ² FY 2020/21 EPS Rs. 38 is on the pre-merger 138.44M share base; FY 2021/22 Rs. 22.86 is on the post-merger 228.33M share base — the per-share comparison across the merger is not apples-to-apples.

Source: Nabil Annual Reports FY 2077/78, FY 2078/79, FY 2079/80, FY 2080/81, FY 2081/82 — audited financials and financial highlights sections.

Business Quality Score: 6.0 / 10

What earns points (+):

• Individual savings deposits grew from Rs. 72.2B (Ashadh 2078) to Rs. 81.97B (Ashadh 2079, post-merger including NBB), then accelerated to Rs. ~196B in FY 2024/25 (savings deposits +Rs. ~61B, +45% YoY per AR FY 2081/82).
• No share dilution since FY 2022/23 — outstanding shares flat at 270.57M for three consecutive years (NABIL ARs FY 2079/80–FY 2081/82).
• Total provision coverage maintained ≥100% throughout the post-merger stress cycle (114% / 102% / 112% across FY 2022/23 / FY 2023/24 / FY 2024/25 — respective ARs).
• Other operating expenses grew modestly relative to asset growth from FY 2022/23 to FY 2024/25 (asset base +32% over two years).
• Dividend raised to 12.5% (FY 2024/25) from 10% (FY 2023/24) despite earnings decline.

What costs points (–):

• ROE of 9.77% is materially below the bank's own disclosed cost of equity of 14.38% (CAPM, AR FY 2081/82). On an economic-value basis, the bank is currently earning below its cost of capital.
• NPA rose from 0.84% (last clean pre-merger year, FY 2020/21) to 4.48% (FY 2024/25). Whether the deterioration is concentrated in the legacy NBB book or reflects a broader underwriting issue is not disclosed at sector or vintage granularity in the public annual reports.
• CAR has declined every year for five years (12.77 → 13.09 → 12.54 → 12.24 → 11.81%). At an average ~24 bps/year erosion (over 5 years; ~36 bps/year over the last 3), a continuation breaches the NRB 11% floor within ~2–3 years absent intervention.
• Net profit declined three consecutive years post-peak.

The Bull Case

The funding-mix shift is the durable signal under the noisy earnings line.

Two facts directly disclosed in AR FY 2081/82:

1. Individual savings deposits grew ~45% YoY in FY 2024/25 (a Rs. ~61B inflow on a Rs. ~135B base — derived from year-on-year savings balance change).
2. Fixed deposits as a share of the deposit book fell from 53.19% to 44.96% in a single year (AR FY 2081/82 deposit composition disclosure).

In Nepal's rate environment, savings deposits cost roughly 4–5% while term deposits cost 7–9% (NRB Annual Report FY 2080/81, weighted-average deposit rate data). A bank that shifts ~8 percentage points of its book from term to savings in one year builds a structural cost-of-funds advantage that compounds as the legacy term deposits roll off.

The proof is already in the income statement: NRB rate cuts forced interest income down 12.8% (Rs. 46.4B → Rs. 40.5B), but NII held essentially flat (Rs. 16.32B → Rs. 16.33B) because volume growth plus the funding-mix shift fully offset loan-yield compression (source: NABIL ARs FY 2080/81 and FY 2081/82 income statements).

The forward implication: if (and only if) NRB stops cutting policy rates, NABIL's loan yields stabilise while deposit costs continue repricing lower as expensive legacy term deposits mature. NIM expansion becomes plausible.

Illustrative — not a forecast: if NIM recovers from 2.74% to 3.0% on an average asset base of ~Rs. 660B, NII would rise by ~Rs. 1.7B; at a 35% effective tax-and-bonus rate, ~Rs. 1.1B incremental net profit; on 270.57M shares, ~Rs. 4 per share of incremental EPS. This requires the rate cycle assumption to hold and asset quality not to deteriorate.

NPA growth has materially slowed: 4.45% → 4.48% from FY 2023/24 to FY 2024/25 (only +3 bps), with gross NPA growing 12% against loan growth of 10% — barely outpacing the book.

The Bear Case

1. ROE below cost of equity is destroying economic value

At 9.77% ROE vs. 14.38% disclosed CoE, NABIL earns ~4.6 percentage points below its required return. That is a structural P/B headwind, not a temporary cyclical trough — and the market typically compresses the multiple of a sub-CoE bank toward (ROE / CoE), all else equal.

2. CAR has only 81 bps of buffer, with a 5-year declining trajectory

CAR by year: 12.77 → 13.09 → 12.54 → 12.24 → 11.81%. Five consecutive declines from the FY 2021/22 peak.

Stress test (simple, balance-sheet only — derived):

• If NPA rises from 4.48% to 6.0% (+1.52 pp on Rs. 425B book) → ~Rs. 6.5B incremental gross NPA
• At 65% additional provisioning coverage → ~Rs. 4.2B pre-tax provision charge → ~Rs. 2.7B post-tax equity hit
• That alone takes CAR from 11.81% toward ~11.3% (using FY 2081/82 RWA), still inside the 11% floor but uncomfortably close
• A move toward 7% NPA likely breaches the floor and triggers NRB restrictions on dividend, branch growth, and asset growth

3. NFRS 9 ECL "carve-out" remains active and is scheduled to phase out

Under NRB's NFRS 9 ECL Related Guidelines, 2024 (and the First Amendment in 2025), Nepali commercial banks recognise impairment as the higher of (a) full NFRS 9 expected-credit-loss output and (b) NRB's prudential provisioning, with regulatory backstop prevailing for a minimum of 5 years (source: NRB NFRS 9 ECL Guidelines). For most banks the regulatory provision currently exceeds the modeled ECL, but as the carve-out phases out and stage-2/stage-3 classifications widen, ECL-driven provisioning may rise.

The AR FY 2081/82 cites an ICRA Nepal credit-rating observation that ~25% of NABIL's loan book showed 0+ days past due — a watchlist signal materially larger than the headline 4.48% NPA.

Moat Assessment

Verdict: Narrow — deposit franchise durable, credit franchise damaged.

Durable:

• Largest commercial bank on NEPSE by market capitalisation (Rs. 141.5B as of May 2026); Class A licence. Deposit-gathering visible in the FY 2024/25 savings-deposit inflow during a year when reported earnings were declining.
• Funding-cost advantage as the term deposit share of the book has dropped sharply.

Damaged:

• Credit underwriting trajectory (0.84% → 4.48% NPA over four years) is a meaningful step-change. The annual reports do not segment NPA between legacy NABIL book and acquired NBB book, which is the central piece of due-diligence data needed to judge whether the deterioration is a one-time integration overhang or a continuing problem.
• Capital flexibility: 81 bps above the regulatory floor leaves limited room to grow assets faster than peers, make acquisitions, or absorb shocks.

Management Assessment

Verdict: Neutral — capital allocation reasonable, disclosure granularity insufficient.

What management has done well:

• Maintained ≥100% total provision coverage through the post-merger NPA cycle.
• Held share count flat at 270.57M for three consecutive years — protecting EPS and book value compounding.
• Raised cash dividend to 12.5% (FY 2024/25) while still retaining capital.
• Cost growth meaningfully below asset growth.

What management has not done well:

• No public segmentation of NPA by legacy-NABIL vs. acquired-NBB book. This is the single piece of disclosure most needed to risk-rate the post-merger book.
• No articulated plan to rebuild CAR toward a comfortable 12.5%+ buffer.
• No public guidance on how the bank intends to navigate the eventual NFRS 9 ECL carve-out phase-out.

Macro Setup

• Rate cycle: weighted-average commercial-bank deposit rate fell sharply from 7.86% (FY 2079/80) to 5.77% (FY 2080/81) to ~4.19% (FY 2081/82) — sources: NABIL ARs and NRB Annual Report FY 2080/81. The cutting cycle appears to be slowing; if it stabilises, the funding-cost advantage NABIL is building becomes a real earnings driver.
• Loan demand: NABIL grew the loan book 10% in FY 2024/25 (AR FY 2081/82). That is healthier than the system print of 6.1% private-sector credit growth (NRB Annual Report FY 2080/81).
• NPA cycle: if industry NPA is plateauing (NABIL's 3 bps YoY change is one data point), the provisioning headwind could ease in FY 2025/26.

Valuation Framework

Current multiples (at Rs. 523, 8 May 2026)

One framework, explicit assumptions

We use a single sustainable-ROE / cost-of-equity P/B model:

Fair P/B = normalised ROE / cost of equity, where cost of equity = 14.38% (NABIL's own CAPM disclosure, AR FY 2081/82). Fair value per share = Fair P/B × current BV/share (Rs. 231).

This implies the current Rs. 523 price embeds substantial expectation of a path back toward CoE-or-better ROE. The mathematical break-even — current price = Fair P/B × BV — implies an implied normalised ROE of (Rs. 523 / Rs. 231) × 14.38% ≈ 32.6%, which is far above any ROE NABIL has earned in the disclosed five-year window (high was 15.19% in FY 2020/21).

Caveats and what is not captured:

• This model does not credit a brand / franchise premium (some Nepali analysts add 30–50% to large-bank fair value for this; we have not.)
• It does not separately credit the funding-mix-shift bull case beyond raising the bull ROE.
• It assumes BV/share holds — an NFRS 9 ECL hit would reduce equity and so reduce fair value at any given Fair P/B.
• It assumes CoE of 14.38% remains valid — a Nepal sovereign yield change would shift this.

Sensitivity to BV adjustments

If a one-time NFRS 9 ECL adjustment reduces book value by 10% (illustrative — actual magnitude not quantified anywhere we can source), fair value at the probability-weighted Fair P/B falls from Rs. 194 to ~Rs. 175.

Key Metrics to Monitor

Single most important variable: NIM trajectory in H1 FY 2025/26 quarterlies. If NIM holds at 2.74% or expands toward 3.0% with rates stabilising, the funding-mix thesis is working. If NIM compresses further, the thesis needs to be revisited.

Sources

Primary financial data — Nabil Bank annual reports (publicly available at nabilbank.com):

• Annual Report FY 2020/21 (FY 2077/78) — financial highlights, 5-year summary; deposit, loans, equity, net profit data; CAR, ROE, ROA, NPA, EPS, DPS series.
• Annual Report FY 2021/22 (FY 2078/79) — Nepal Bangladesh Bank acquisition disclosures; share-swap ratio; joint operations date; share-capital and deposit-acquisition figures; deposit composition table (Note 4.20).
• Annual Report FY 2022/23 (FY 2079/80) — full audited financials; net profit Rs. 6.40B peak.
• Annual Report FY 2023/24 (FY 2080/81) — post-merger first full cycle; CAR 12.24%; NPA 4.45%.
• Annual Report FY 2024/25 (FY 2081/82) — net profit Rs. 5.92B; ROE 9.77%; NPA 4.48%; CAR 11.81%; cost of equity 14.38% (CAPM, management estimate); savings deposit composition; ICRA Nepal 0+ DPD citation.

Regulatory and third-party:

• Nepal Rastra Bank. NFRS 9 Expected Credit Loss Related Guidelines, 2024 (and First Amendment, 2025) — nrb.org.np.
• Nepal Rastra Bank. Annual Report FY 2080/81 — system rates, private-credit growth.
• ShareSansar. NABIL closing price as of 8 May 2026 — sharesansar.com/company/nabil.
• ICRA Nepal credit-rating disclosure on NABIL — quoted within Nabil AR FY 2081/82.

Coverage of the Nabil–NBB acquisition (corroborates counterparty, swap ratio, joint-operations date):

• B360 Nepal — Nepal Bangladesh Bank merges with Nabil Bank
• ShareSansar — Major Highlights of the NABIL-NBB Merger (April 11, 2022)
• Fiscal Nepal — Nabil, Nepal Bangladesh Bank seals merger deal (January 14, 2022)
• The Himalayan Times — Nabil completes acquisition of NBB
• Nepali Times — Nabil acquires NBB
• Khabarhub — Nabil Bank and Nepal Bangladesh to undergo merger

Research date: May 10, 2026.