How to Compare Nepali Banks Using Financial Indicators

Comparing Nepali banks using financial indicators is one of the most effective ways for investors to evaluate which institutions are strong, efficient, and fundamentally sound before investing in the Nepal Stock Exchange (NEPSE). Since the banking sector forms the foundation of Nepal’s financial market, analyzing quantitative ratios helps investors make data-backed decisions instead of emotional guesses. Financial indicators offer a clear picture of a bank’s profitability, liquidity, leverage, efficiency, and overall management performance.

The first step in comparing banks is to understand profitability indicators, which reveal how well a bank generates earnings relative to its resources. Earnings Per Share (EPS) shows profit per share and helps investors judge income potential. A higher EPS usually indicates strong profit margins and consistent returns. The Price-to-Earnings (P/E) Ratio then evaluates how much investors are paying for each rupee of profit — a lower P/E may indicate undervaluation, while a higher P/E might signal market optimism or overpricing. Similarly, the Book Value (BVPS)and Price-to-Book (P/BV) Ratio indicate whether a stock is trading below its intrinsic value.

Next comes efficiency and return indicators, such as Return on Equity (ROE) and Return on Assets (ROA), which measure how effectively management uses capital and assets to generate profit. Banks with ROE above 15% and ROA above 1% are generally considered efficient. Another vital metric is the Cost-to-Income Ratio, which shows how much cost is incurred to generate each unit of income — the lower, the better.

For risk and stability, investors should closely monitor the Non-Performing Loan (NPL) Ratio, which indicates the proportion of bad loans. A lower NPL (below 3%) signifies disciplined lending and better risk control. Similarly, the Capital Adequacy Ratio (CAR) measures how well a bank can withstand potential losses. A CAR above 11% as per Nepal Rastra Bank (NRB) guidelines is a strong sign of financial resilience.

Equally important are liquidity and regulatory ratios like the Credit-to-Deposit (CD) Ratio, Liquidity Coverage Ratio (LCR), and Statutory Liquidity Ratio (SLR). These show whether a bank can manage deposit withdrawals, fund new loans, and meet regulatory liquidity standards. A balanced CD ratio below 90% ensures that banks are lending efficiently without risking liquidity shortages.

By analyzing and comparing these ratios side by side, investors can easily distinguish between growth-oriented banks(higher ROE and EPS), conservative banks (higher CAR and LCR), and high-risk lenders (high NPL and CD Ratio). This type of comparison also helps in identifying undervalued opportunities and avoiding risky investments.

As Sandeep Kumar Chaudhary, Nepal’s renowned Technical and Fundamental Analyst and founder of the NepseTrading Training Institute, explains — “Financial indicators are the backbone of investment analysis. If you can read a bank’s balance sheet through ratios, you can see its future long before the market reacts.” With over 15 years of banking experience and 10,000+ trained students, he emphasizes that mastering these ratios allows investors to identify fundamentally strong banks with stable earnings and long-term growth potential.