NIBL's Annual Report 2007/2008

Branching Out.

Annual Report 2007/2008


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Nepal INvestmeNt BaNk ltd.

durbar marg, p.O. Box: 3412, kathmandu, Nepal. tel: 4228229, 4242530 Fax: 4226349, 4228927

Branch: putalisadak: 4445303, New Road: 4230374, thamel: 4218431, pulchowk: 5010002, kalimati: 4672493, sipadol: 6615617, Banepa: 11-662401, Birgunj: 51-523327, Jeetpur: 53-520297 Biratnagar: 21-534523, pokhara: 61-538919, Butwal: 71-549991, Bhairahawa: 71526991, Narayangarh: 56-532921, Janakpur: 41-527331, Nepalgunj: 81-523932, Birtamod: 23-543810

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Front Page :Sunita Rana

Back Page :Surya Bahadur Chitrakar

Concept:Shivanth B Pandé

Design by: Himalgraphics | 09


Vision 1

Mission Statement 1

About Us 1

Strategic Objectives 1

Core Values & Ethical Principles 2

Chairman & CED Review 3

Financial Highlights 7

Shareholder Information 8

Last 6 Years at a Glance 9

Management Review & Discussion 11

Board of Directors 16

Senior Management Team 18

Management Team 19

Branch Network 23

Board of Directors’ Report 28

Basel II 36

Corporate Governance 36

Risk Management 37

Credit Risk Management 38

Market Risk Management 39

Foreign Exchange Risk Management 40

Liquidity Risk Management 40

Corporate Social Responsibility (CSR) 43

Financial Statements 51

Contents

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Our Vision is to be the most preferred provider of Financial Services in Nepal

Mission Statement:To be the leading Nepali bank, delivering world class service through the blending of state-of-the-art technology and visionary management in partnership with competent and committed staff, to achieve sound financial health with sustainable value addition to all our stakeholders. We are committed to do this mission while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance.

About UsNepal Investment Bank Ltd. (NIBL), previously Nepal Indosuez Bank Ltd., was established in 1986 as a joint venture between Nepalese and French partners. The French partner (holding 50%) of the capital) was Credit Agricole Indosuez, a subsidiary of one of the largest banking groups in the world. With the decision of Credit Agricole Indosuez to divest, a group of companies comprising of bankers, professionals, industrialists and business-men, in April 2002, acquired 50% of the holdings of Credit Agricole Indosuez in Nepal Indosuez Bank. The name of the bank was changed to Nepal Investment Bank Ltd. upon approval of the Bank’s Annual General Meeting, Nepal Rastra Bank and Company Registrar’s Office.

The shareholding structure comprises of:n A group of companies holding 50% of the Capitaln Rastriya Banijya Bank holding 15% of the Capitaln Rastriya Beema Sansthan holding 15% of the Capitaln The general public holding 20% of the Capital

We believe that NIBL, being managed by a team of experienced bankers and professionals with a proven track record, can match you particular needs. We are sure that your choice of a bank will be guided, among other things, by its reliability and professionalism.

Strategic Objectives:n To develop a customer oriented service cul ture with special emphasis on customer care and conveniencen To increase our market share by following a disciplined growth strategyn To leverage our technology platform and pen scalable systems to achieve cost-effective operations, efficient MIS, improved delivery capability and high service standardsn To develop innovative products and services that attracts our targeted customers and market segmentsn To continue to develop products and services that reduce our cost of fundsn To maintain a high quality assets portfolio to achieve strong and sustainable returns and to continuously build shareholders’ valuen To explore new avenues for growth and profitability

2 | NIBL Annual Report 2008

n Customer Focus: At NIBL, our prime focus is to perfect our customer service. Customers are our first priority and driving force. We wish to gain customer confidence and be their trusted partnern Quality: We believe a quality service experience is a paramount to our customers and we are strongly committed in fulfilling this ideal.n Honesty and Integrity: We ensure the highest level of integrity to our customer, creating an ongoing relationship of trust and confidence. We treat our customers with honesty, fairness and respect.n Belief in our people: We recognize that employees are our most valuable asset and our competitive strength. We respect the worth and dignity of individual employees who devote their careers for the progress of the Bank.n Teamwork: We are a firm believer in team work and feel that loyal and motivated

Core Values and Ethical Principles:

teams can produce extraordinary results. We are drived by a performance culture where recognition and rewards are based on individual merit and demonstrated track record.n Good Corporate Governance: Effective Corporate Governance procedures are essential to achieve and maintain public trust and confidence in any company, more so in a banking company. At NIBL, we are committed in following best practices resulting in good corporate governance.n Corporate Social Responsibility: As a responsible corporate citizen, we consider it important to act in a responsible manner towards the environment and society. Our commitment has always been to behave ethically and contribute towards the improvement of quality of life of our people, the community and greatly the society, of which we are an integral part.

Our core Values tell us, our customers and the communities we serve, who we really are; what we are about; and the principles by which we pledge to conduct business. In essence, we believe that success can only be achieved by living our core values and principles:

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We set ourselves a lot to do.And we've done a lot.

Your bank has recorded another solid performance during this financial year amidst all the challenging conditions. Your bank has continued its long term vision to consolidate itself as the leading bank in the country by pursuing a strategy of growth and consolidation while delivering quality services and shareholder returns.

In the fiscal year 2007/08, number of commercial banks rose substantially to 25 from 17 in the previous year. However, despite intense competition among the banks and challenging economic atmosphere and political uncertainty, Nepal Investment Bank Limited attained a substantial market share of

Dear Shareholders,

Prithivi B. Pandé

Chairman & Chief Executive Director Review

8.8%, 10.4% and 6.9% in terms of deposits, loans and total bank assets. This year we have proposed 33.33% bonus share and 7.5% cash dividend from the profit of fiscal year 2007-08 and 50% right share on Bank’s paid up capital after issuance of bonus shares.

In order to consolidate the Bank’s existing customer base as well as attract potential client, your Bank has been active in launching new products and revising existing products and schemes. In FY 2007-08, the Bank launched a new deposit product called “Afnai Bachat Khata” whereby customers can open account with a minimum balance of NPR 1


only. This product has been extremely successful in increasing the Bank’s clientele base. The Bank also revived its E-Zee Saving Deposit Scheme with a new revised interest rates starting from 2.75% to 4 % p.a. on daily basis. The Bank has also launched Mobile Top-up through e-banking and also Online Bill Payment facility is now active to make various utilities bill payment online. After a long in-depth study, the Bank has finally decided to introduce new banking software “Finacle”, which is a world class banking solution, produced by Infosys- a world renowned IT Company based in India. The work on the project has already started and the Bank targets to complete the entire project before the end of current fiscal year. This software will help boost the Bank with necessary IT platform and MIS to support extensive future growth of the Bank.

The Bank opened three new branches in the FY 2007-08; with these branches the total number of branches has reached 19. Moreover, we are planning to add another 8-10 branches in the FY 2008-09. We now have 616 staff operating among all 19 branches out of which 234 are female staffs and 74 staff members who have completed more than 10 years of service in the institution.

The Bank deployed additional 22 ATM’s during the year, totaling to 53 ATM’s in our network including our consortium member’s ATM. The Bank also leads in card issuance as it issued over 140,000 cards and altogether there are 175,000 card holders in NIBL network now. We are also in the process of adding MasterCard services in addition to our existing Visa brand. The Bank also made an arrangement with Kantipur Publication for issuing co-branded VISA debit cards to every new subscriber of Kantipur daily which could help in promoting our brand name as well as increasing our customer base.

With a strategy to strengthen the Bank’s position in worker’s remittance market, the Bank tied up with eight new remittance companies/exchange houses in Qatar, Saudi Arabia, UAE and Israel. The Bank

also appointed Disbursement Agents at 46 new locations, raising the total number of remittance disbursement locations to 155 in order to facilitate banking services to Nepalese workers. In order to further consolidate its position in the remittance market, the Bank plans to increase the number of remittance disbursement agents in Nepal to 200 by the end of 2008-09.

The operating profit of the Bank grew to Rs. 1013 million from Rs. 857 million recorded the previous year, an increase of Rs 156 million. Provisions for Tax were Rs 323.23 million, making our Bank one of the top tax payers in Nepal, with a result of an after tax profit growth of 39%. The Bank has registered a record increase in net profit of Rs. 196 million to Rs. 697 million, one of the highest net profit increase of any bank in Nepal.

This impressive performance is due to the continuation of our corporate strategy to diversify into fee based income sources and continue consolidating our share of interest income. Our Card Business, Treasury, Remittance and International Banking divisions have had strong organic growth and contributed significantly to our income.

Our deposit base has increased by Rs. 10 billion – a growth of 40.68% vis-à-vis last year – giving us a total deposit base of Rs. 34.5 billion,

The highest deposit growth in absolute terms for the private sector commercial banks in Nepal.

Loans made during this period increased by 54.93% to reach Rs. 27.53 billion as a result of our efforts to attract more customers and diversify our loan portfolio. Our assets are well managed with a cautious risk management outlook, coupled with local expertise to yield quality credit and investment decisions. As a result, our non-performing loans are at 1.12% of our total loan portfolio.

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The Bank also registered the highest growth in our core and supplementary capital base of any commercial banks in Nepal.

which puts us in a proper position to face challenges and risks in the future. We also have the largest aid up capital base at Rs. 2.4 billion. Our capital adequacy stands at 11.3% of our risk weighted assets. In order to support enhanced capital requirement due to record growth in our asset base, the Bank has also focused on retention of profits and ventures into the domestic bond market. Our Tier 1 core capital ratio at 7.71% is considerably more than the government requirement of 5.5%.

There has been a tremendous upheaval in global financial market during the last one year. Under the onslaught of losses from exposure to sub-prime Mortgage Backed Securities (MBS), venerated institution such as Lehman Brothers has gone bankrupt while others like Washington Mutual and Merrill Lynch were sold hastily to avoid further bankruptcies. The spillover of the financial crisis from Wall Street to Main Street has led to severe economic contraction in major developed and emerging economies, and according to the International Monetary Fund (IMF) the world

economy is projected to grow at 0.5 percent – the slowest growth rate since World War II.

On the domestic front, the monetary policy prescribed by the Central Bank has failed to effectively deal with inflationary pressure despite worldwide decrease in general price levels. The average consumer inflation rose to 7.7% in 2007/08 from 6.4% a year ago. The central bank need to monitor financial institutions’ exposure to real estate market to protect the banking sector from domino’s effect of possible contraction in real estate prices. Moreover, deposit rates need to move towards parity with Indian market rates to prevent further capital flight. Capital restrictions and the sustainability of our currency peg with Indian rupee need to be reviewed. Under the present context of global economic contract, the current level of high remittance growth is not sustainable and government needs to identify new labor destinations for migrant workers. Furthermore, remittance related Foreign Exchange flows need to be formalized into the financial sector.

The labor unrest, 16-hours of load shedding and various strikes in Terai have constrained Nepal’s economic prospects. The business sector has been reeling under the worst possible energy crisis and


create a niche among its competitors. The bank is also in its final stage of starting a Proprietary Card Network to facilitate prospective commercial banks, development banks and finance companies for issuing and acquiring domestic card related products. We plan to further increase our customer base and market share.

Nepal Investment Bank is looking ahead to the future with confidence. The Bank intends to expand its international operations to tap into remittance flows and improve its range of products. We will continue to strive towards our vision of being the preferred provider of financial service in Nepal, exploring new business opportunities and diversifying into new sectors.

I would like to express my gratitude and appreciation to our energetic and hardworking staff and efficient management team. They have provided the splendid performance in 2008 that has led to the growth and good reputation of Nepal Investment Bank. I would like the Nepal Rastra Bank; Ministry of Finance all other concerned Government Agencies for providing us a full support in our endeavors.

I also wish to express my gratitude to my colleagues on the Board for their valuable contributions.

Sincerely,

labor unrest. On top of that, various strikes in Terai have further aggravated the problems of business community. However, in spite of political flux, energy crisis and inflationary pressure, Nepal saw a noticeable rise in the economic growth rate during FY 2007-08. GDP expanded by 5.6%, highest during the last seven years.

The external sector displayed a mixed performance in the first eleven month of 2007-08. Total exports rose by 2.4% while total imports increased by 16.1%. Total imports expanded largely due to higher petroleum costs in international markets. Remittance inflows have also contributed substantially to our economy with over Rs 142.68 billion of inflows from migrant workers. Despite the widening trade deficit, Balance of Payments (BOP) registered a substantial surplus of Rs.29.67 billion in 2007/08. Due to the significant surplus in the BOP, the gross foreign exchange reserves stood at Rs. 212.62 billion at the end of the review year.

Lack of foreign direct investment remains a major hurdle to the country’s growth though some of it is compensated by the large flows of inward remittances received mainly from the Gulf countries. Given the state of the economy, the political environment and developments in the banking industry, the year ahead is challenging and difficult for the bank. It is expected that a stable political environment will pave the way for economic growth and prosperity and create a positive investment climate in the country. The Government should also give strong emphasis on agriculture and SME developments. Poverty alleviation needs to address the severe regional imbalances within Nepal in terms of socio-ethnic disparities.

The bank has a strategy for nationwide expansion of opening over 50 branches by 2010 to serve the people’s banking needs. The Bank is in the process of bringing out a slew of new products and services to cater the needs of our valued customers and to

Prithvi B. PandéChairman & Chief Executive Director

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n Highest paid up capital in Nepal at Rs. 2.4 billion.

n Market capitalization has increased by over 2000% during last 7 years.

n One of the Highest Total Assets growth of Rs. 11.28 billion.

n 33.3% stock and 7.5% cash dividend.

n 30% cost/income Ratio.

n 39% increase in Net Profit.

n Return on shareholder’s equity (ROE) of 26%.

n Non-Performing Loans Ratio at 1.12%.

n Technology investment: Addition of 22 new ATMs and implementation of new Human Resource

Information System (HRIS).

n One of the highest growth rates in terms of deposits, lending, profits and market capitalization for

the past 7 years running.

Financial Highlights

NPR in Million

Particulars FY 2007-08 FY 2006-07 Growth in % Growth in NPR

Total Assets 38,873 27,591 40.89% 11,282

Total Deposit 34,451 24,489 40.68% 9,962

Total Loans and Advances 27,529 17,769 54.93% 9,760

Total Investments 6,874 6,506 5.66% 368

Total Operating Profit (before provision for possible loss) 1,149 857 34.07% 292

Total Net Profit 697 501 39.12% 196

Non-Performing Asses (in %) 1.12 2.37 - -


Shareholder Information

"Our market capitalization has increased by over 2000% during last 7 years."

MANAGEMENT EFFICIENCY HIGlIGHTS

Particulars FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08Return on Assets (ROA) 1.15% 1.30% 1.25% 1.44% 1.64% 1.82% 1.79%Return on Shareholder's Equity (ROE)

10.91% 18.29% 20.93% 19.67% 24.77% 26.68% 25.93%

VAlUATION HIGHlIGHTSParticulars FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08Earning Per Share (EPS in NPR) 33.59 39.56 21.7 39.5 59.35 62.57 57.87Book Value per Share (in NPR) 308 216 247 201 240 234 223Market Price Per Share (in NPR) 760 795 940 800 1260 1729 2450P/E Ratio (Market Price/EPS) 22.63 20.1 18.18 20.25 21.23 27.63 42.33

P/B Ratio 2.47 3.68 3.81 3.98 5.25 7.39 10.99

PROFITABIlITY HIGHlIGHTSParticulars FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08Operating profit** to total interest income

41.66% 43.63% 44.16% 53.46% 55.26% 54.07% 52.38%

Net profit to total interest income

17.50% 25.42% 20.86% 26.18% 29.89% 31.61% 31.75%

** Operating profit calculated is before provison for possible loss

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last 6 years at a Glance

Rs. 4,175m > Rs. 34,451m

Total Deposit Growth 725%

4,175

7,923

11,525

14,525

18,927

Total Deposit

NPR In Million

2001-2 2002-3 2003-4 2004-5 2005-6 2006-7 2007-8

4,175 7,923 11,525 14,255 18,927 24,489 34,452

24,489

34,452

Rs. 2,714m > Rs. 26,769mTotal Lending Growth 895%

Total Lending (Gross) 4,175 7,923 11,525 14,255 18,927 24,489 27,529

2,714

5,922

7,339

10,453

13,178NPR In Million

2001-2 2002-3 2003-4 2004-5 2005-6 2006-7 2007-8

17,769

27,529


57

117

153

232

350

501

697

2001-2 2002-3 2003-4 2004-5 2005-6 2006-7 2007-8

57 117 153 232 350 501 697

NPR In Million

Net Profit

Rs. 57m > Rs. 697mNet Profit Growth 1123%

NPR In Million

4.80% > 1.12%Non Performing Assets 1.12%

2.47%2.69%

2.07%2.37%

1.12%

4.80%

1.98%

2001-2 2002-3 2003-4 2004-5 2005-6 2006-7 2007-8

4.80% 1.98% 2.47% 2.69% 2.07% 2.37% 1.12%NPA%

7 Year Average = 21.02%Return on Equity 25.93%

Return on Equity 10.91% 18.29% 20.93% 19.67% 24.77% 26.68% 25.93%

NPR In Million

2001-2 2002-3 2003-4 2004-5 2005-6 2006-7 2007-8

10.91%

18.29%20.93% 19.67%

24.77%26.68% 25.93%

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Management Review & Discussion.The year 2007/08 has proved to be a great year for the Bank as we have earned a net profit of Rs. 697 million, a jump of 39% vis-à-vis last year. This jump in net profit can largely be attributed to the hard work of our staff and patronage from our valued customers. We have also increased our assets base from Rs. 27.6 million to Rs. 38.9 million, a jump of around 41% over the last one year. Moreover, the decrease in Bank’s Non Performing Loans (NPLs) to 1.12% from 2.4% during the last year underlines the quality of our asset base.

In line with the Bank’s strategy to have its own building for the Bank’s branches, the Bank purchased properties measuring 0-6-2-2 ropanies in Pokhara, 1-5-0-3 kattha in Bhairahawa and 0-15-2-2 ropanies in Boudha, Kathmandu. The

cost of acquisition of these properties was NPR 29.00 million for Pokhara, NPR 12.48 million for Bhairahawa and NPR 31.25 million for Boudha. The Bank further purchased additional property measuring 0-3-1-2 ropanies in New Road adjoining our existing property measuring 0-4-3-3 ropanies, thereby making the total land area to 0-8-1-1 ropanies. The Bank purchased the additional property at a cost of NPR 13.50 million. Construction has already started in the said property with a targeted completion date within the current FY 2065-66.

Because of the growing number of commercial banks and financial institutions, the year ahead is a great challenge for us. The global economic contraction has started to seep into our local economy and is likely to impact remittance inflows

Snapshot of the Nepali Economy.2007/08 2006/07

GDP at Producers Price (Rs. Billion) ** 552 523GDP Growth Rate % 5.56 2.6Balance of Payment (BOP) 29.67 5.90Exchange rate Rs/USD (End-Year) 68.5 64.85Gross Foreign Exchange Reserves US$ Billion 3.10 2.55Rate of Inflation % 7.7 6.4Growth in Money Supply (M2) % 25.2 14


and tourism arrival in days ahead. Despite the improvement in GDP growth rate in the review period, investment opportunities are few and far in between due to continuing political flux and energy crisis. Amidst this background, the entry of new commercial banks and financial institutions is expected to undermine profit margin in months ahead. The only option left with us is to grow further within an acceptable risk framework. To support increasing business volume, additional capital has been raised from debt capital markets as well as retention of profit.In the review year, the Bank has increased the shareholders fund from Rs. 1.88 billion to Rs. 2.69 billion and at the same time maintained the shareholder’s return on equity at healthy rate of 26%.

Performance OverviewRetail BankCustomer mapping is being done on a regular basis that has helped the bank to study and identify location new branches and installation of 22 new ATMs. With an aim to retain existing account holders as well as attract potential new clients, the bank has revived its E-ZEE Saving Deposit Scheme with revision in interest rates. Furthermore, to increase its’ clientele base, the bank has launched a new deposit product called “Afnai Bachat Khata”, which has been very successful in growing the clientele base of the bank and mobilizing low cost saving as well as promoting over.

In the review year, we further expanded our customer base by adding 74,147 new customers taking our total customer base to 165,649.

In order to provide more value added products to our customers, the Bank signed a contract

with Triyog School for providing online school bill payment facility to the parents through NIBL e-Banking which is available 24*7. With this addition, customers can now avail the Online Bill Payment facility for making online payment of bills of WorldLink Technology, WebSurfer, Mercantile Communications ISPs, Shuvatara School, Muncha.com e-commerce sites and Triyog School.

Card CenterThe Bank has issued over 140,000 cards, and continues to be the leader in the card issuance in Nepal. As of the end of the review period, there are altogether more than 175,000 card holders in the NIBL network.

Besides providing online payment of all examination fees, we have been providing Student and Exchange Visitor’s Program (SEVIS) – a visa fees payment services for students going to the US. The Bank has made exclusive arrangement with Kantipur Publications for issuing co-branded VISA debit cards to every new subscriber of Kantipur daily newspaper. This is a first of its kind arrangement in Nepal which will help us to enhance our brand name as well as increase our customer base.

The Bank is in final stage of starting a Proprietary Card Network to facilitate prospective commercial banks, development banks and finance companies for issuing and acquiring domestic card related products. Furthermore, the Bank is in final stage of launching Master Card related products. This will provide wider coverage in availing ATM and POS related services to our customers.

RemittanceIn order to tap the burgeoning remittance market and strengthen its position in workers’ remittance inflows, the Bank joined hands with eight new

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remittance companies/exchange houses in Qatar, Saudi Arabia, UAE and Israel. Disbursement agents were appointed in 46 locations during the year raising the total number of Bank’s remittance disbursement locations to 155. During the year, remittance transactions were started from Habib Exchange-UAE, Al Ghurair Exchange-UAE, Al Ahalia Exchange-UAE and May Bank-Malaysia. To further broaden its remittance network, the Bank plans to increase the number of remittance disbursement agents in Nepal to 200 by the end of current fiscal year. The Bank also plans to depute our staff representatives in Saudi Arabia and Malaysia and increase the number of representatives in Qatar and UAE.

Corporate BankingThe total loans and advances at the end of 2007/08 stood at Rs. 27.53 billion with a growth of 54.93% during the review year. The branch network of the Bank posses a satisfactory share of the Bank’s lending and its growth. The Bank’s NPA of 1.12% is one of the lowest in the Nepali Banking industry and well within the international standards. In order to diversity its loan portfolio and tap emerging and profitable sectors, the Bank has been focusing on cement and hydropower companies, among others.

Trade FinanceDespite the global financial crisis, Bank’s trade finance department did a substantial business in 2007/08. The total number of import LCs issued in 2007/08 was 1519, amounting to a total LC volume of Rs. 13125 million – a growth of over 21 percent during the review period. Similarly, the total number of bank guarantees issued in 2007/08 was 1863 compared to 1830 bank guarantees in 2006/07. Furthermore, a total number of 28 counter guarantees amounting to USD 3.5 million were issued in 2007/08.

Likewise, the Bank earned over Rs. 217.96 million as interest income from trust receipt loan, export credit and inward bills in 2007/08. The total commission income from trade finance in the review period was Rs. 60.3 million.

TreasuryThis year the Bank’s profit from Treasury operations was Rs. 165.84 million compared to last year’s figure of Rs 135.36 million, an increase of 22.52%. The T-bill portfolio of the Bank at the end of 2007/08 was Rs. 3155 million compared to last year’s figure of Rs. 3256 million. The interest earned on this portfolio was Rs 99.99 Million compared to Rs 78.49 Million in the last fiscal year. Interest earned on FCY and LCY was Rs 187.02 Million compared to Rs 207.37 last year.

It is indeed noteworthy that we have not been directly affected by the global economic crisis, which was caused by the US sub-prime lending. All our investments abroad were safe and protected. The crisis has increased the volatility in the market, providing us on opportunity to gain advantage through cross currency dealings. The drastic cut in the Fed funds rate has resulted in the slight decrease in our FCY interest income.The treasury department located in Head Office, Durbar Marg is fully equipped with state of the art technology for day- to- day dealings. The department relies on the various internationally acknowledged softwares like Reuters and Newswire18 for real time information on the foreign currencies and news in the international market. Among other things, the Bank’s treasury department is involved in checking foreign currency position, fund management, forward contract execution and inter-bank placement.

Information TechnologyIn order to sustain the quantum growth in our customer base and branch network as well as pave


the way for future growth and profitability, the Bank has been heavily investing in Information Technology. In the review year, the Bank decided to procure new banking software “Finnacle” – a product of world renowned IT Company Infosys. The work on the project has already started and the Bank targets to complete the entire project before the end of current fiscal year Moreover, the Bank also launched its HRMS (Human Resource Management System) for automation of entire Human Resource operation including on Attendance system, Browser based Leave Management system, automated Payroll System and Online Training Information system, among others.

After successful implementation of Mobile Top-up through NIBL ATMs, the Bank launched Mobile Top-up through e-banking as well as providing customers with alternative options to avail the service at their convenience. NIBL is the first Bank in Nepal to provide these services. Moreover, during the review year the Bank deployed additional twenty two new ATMs at various on-sites and off-sites locations taking the total number of NIBL’s ATMs to thirty four. As a first of its kind, the Bank installed six ATMs in a row at its main branch at Durbar Marg for increased customers’ convenience.

Human ResourcesIn order to complement the Bank’s strategic focus of rapid growth and branch expansion, the Bank has been recruiting many talented people as well as providing training to existing staff member to augment their skill level. The Bank also has performance management system that rewards employees with incentives for achieving their assigned individual goals and objectives. The Bank provides opportunity in terms of training for career advancement and fast tracks high potential employees with accelerated promotions and greater responsibilities.

Currently, the Bank has total staff strength of 616 compared to 514 in the previous year. Of the total staff strength, 234 (38%) are female staffers and 74 staff members have completed more than 10 years of service in the institution. During the year, 363 participants attended 85 training courses/ workshops on various areas like Credit Risk Management, Information Technology, Customer Service, Treasury, Basel II Capital Accord, Marketing, Card Services and Project Finance. Moreover, 18 staff members attended workshops in India and abroad.

ConclusionDespite the stiff competition from the 25 commercial banks, the Bank recorded another solid performance during the financial year 2007/08. Nepal Investment Bank Limited consolidated its position as one of the premiere Banks in Nepal and continues to grab honors. The growth levels recorded by the Bank in market shares in deposits and advances are phenomenal and the Bank is striving to achieve its credo of being the most preferred provider of financial services in Nepal. The Bank now commands 8.8% and 10.4% of the market shares in deposits and loans and advances of the country respectively. The Bank is committed to maintaining its current position and is striving hard to progress further on this position.

Thank You,

Jyoti Prakash PandeyGeneral Manager & CFO.

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Mr. Pande has over 20 years experience in the field of banking in Nepal with both the public and private sector. After obtaining a degree in Chartered Accountancy from India in 1978, he worked at various departments of the ‘Central Bank of Nepal’ for till 1990, during which he was seconded to the IMF head-office in Washington for two years.

He was appointed in 1990 as the general manager of ‘Rastra Banijya Bank’ – the largest commercial bank in Nepal. After financial liberalization started in 1991, Mr. Pande was one of the key personnel behind establishing ‘Himalayan Bank’, the first private sector commercial bank in Nepal and a joint-venture with Habib Bank. He served as a Stakeholder and Executive Director for a period of 10 years propelling it to the top tier of Nepali banks.

In 2001 leading a diverse private equity group he took on management responsibilities from the Credit Agricole Group of Nepal Indosuez Bank to manage ‘Nepal Investment Bank’ which has resulted in Bank’s phenomenal growth in capital, assets, liabilities and profits.

Prithivi B Pande Chairman & CED

Deepak Man SherchanDirector

Mr. Deepak Man Sherchan, an architect by profession hails from Tukuche, Mustang District. He holds a B. Tech Architecture degree from I.I.T Kharagpur, West Bengal, India and has also received a diploma in real estate development from Harvard Design School, USA. Mr. Sherchan is Managing Director and Chief Architect of C.B.C. (P) Ltd. He is also actively involved in the field of education and local development. He is the Chairman of Malpi International School, Malpi International College, Tukuche Village Development Committee and associated with many professional and educational institutions at various capacities.

Board of Directors.

Mr. Prajanya Rajbhandari is an industrialist and holds an engineering degree from Punjab University. He has held directorships at National Structures, Everest Poultry and Enviroplast. Mr. Raj Bhandari has been involved in many social activities and has actively served at various capacities under the auspices of NEPAL JAYCEES, ROTARY and FNCCI.

Prajanya RajbhandariDirector

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Damodar Prasad PandeyDirector

Mr. Damodar Prasad Sharma Pandey has 23 years of experience in various departments within the Nepal Rastra Bank; serving as an Executive Director in the Department of Mint. Furthermore, he has significant experience working in Bank Supervision, Economic Research Department, Banking Operations, Development Finance and in the Credit Information Bureau. Mr. Pandey has a B.A. from University of Southampton, U.K. and an M.Sc. in mathematical statistics from Lucknow, India. He has also served as the Chairman of Paschimanchal Grameen Bikash Bank, Director at the Deposit Insurance and Credit Guarantee Corporation and a director of the National Productivity and Economic Development Center.

Dr. Shiva Hari Shrestha Director

Dr. Shiva Hari Shrestha is a General Manager of Rastriya Beema Sansthan. He previously worked for over 20 years in various capacities at Nepal Industrial Development Corporation (NIDC). He holds a Ph. D. degree in Economics and has been involved in various training programmes in Nepal Rastra Bank, Management Association of Nepal (MAN) and World Bank. Dr. Shiva Hari Shrestha has an M.P.A in Public Administration from Tribhuvan University & M.A in Economics from Tribhuvan University, Nepal

Surendra Bahadur Singh Director, Public Shareholders

Mr. Surendra Bahadur Singh has completed Diploma in Hotel Management from Institute of Tourism & Hotel Management, Klessheim, Salzburg, Australia and Specialized in Hotel Management from International School of Tourism, Rome, Italy and completed MBA degree from Tribhuvan University, Nepal. He started his career at Rastriya Banijya Bank. He has also worked at Malla Travels & Tours and Nabil Bank. Mr. Singh has 2 decades long work experience in the tourism industry and has served as the General Manager of Himalaya Hotel and the Grand Hotel.

Mr. Krishna Prasad Sharma Director

Mr Krishna Prasad Sharma, Deputy General Manager of Rastriya Banijya Bank has an extensive experience of working in the banking sector for over 24 years. Mr Sharma holds a Master Degree in Management and Social Science and also BSc in Agriculture Science .He holds a position of Chairman of NLG Insurance Company and RBB Retirement Fund, and the position of director at National Life Insurance Company.He has also served as the director of Credit Information Center ,Purbanchal Grameen Bikas Bank, Paschimanchal Grameen Bikas Bank, and Sudur Paschimanchal Grameen Bikas Bank.


Senior Management Team.

After completing his M.B.A in India, Mr. Pandey joined Nepal Indosuez Bank in 1988 and became Head of the International Banking Department. In 1992, he joined Himalayan Bank and worked as the Head of Marketing and Head of the Credit Department over a period of 9 years. He has experience of managing the big branches of Himalayan Bank. In 2001, Mr. Pandey joined Nepal Investment Bank as its General Manager where he now handles the general bank operations comprising of H.R, Administration, Client Relations, Retail, Trade Finance and Corporate Banking.

Jyoti P Pandey General Manager

With a post-graduate degree in economics Mr. Pant, joined Nepal Grindlays Bank in 1991 as a Marketing Officer swiftly rising to Manager in the Priority & Medium sized export business sector. In 2000, he joined Standard Chartered Bank as Relationship Manager for credit dispersal in the Deprived & Medium sized export business sector and then moved on to do banking with ANZ Banking Group in Auckland in 2001, where he gained experience as a Credit Analyst in Corporate & Institutional Banking. In 2005, Mr. Pant returned to Nepal and worked for Lumbini Bank for one year as the Assistant General Manager overseeing the restructure/reform there before joining NIBL in 2006 as Assistant General Manager where his responsibilities include Research, Monitoring of Credit Portfolio, NPA issues and Debt Recovery.

Mr Bijay Pant Assistant General Manager

Having completed a degree in Management, Mr. Amatya started his career with Nepal Bank Limited, the largest Commercial Bank in Nepal rising to the Assistant Brach Manager over a period of 11 years. He, then, joined Nepal Indosuez Bank in 1986 and has worked in the Cash Department, International Trade Finance Department. Presently he is the head of Retail Banking.

Rajan Amatya Assistant General Manager

Mr. Suwal has comprehensive and extensive experience in banking technology software and hardware. After completing his degree in Bachelor of Science, he started his professional career as a Programmer at Data Systems International (DSI), a pioneer softer company in Nepal. Mr. Suwal started his banking career by joining NABIL Bank in 1992 as a programmer rising to Head System Department for 3 years. He joined Nepal Indosuez Bank in 2000 as IT Manager. Now, he is working as an Assistant General Manager heading Information Technology Department at Nepal Investment Bank.

Mr. Bijendra Suwal Assistant General Manager

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Management Team

1

4

7

10

2

5

8

3

6

9

1 Anuj Timilsina Head-Corporate Banking2 Deepak K. Shrestha Head- Trade Finance3 Deepak Shrestha Head – Legal4 Rabin Sijapati Head – Operation5 Shreechandra Bhatta Head – Branch Co-ordination Cell6 Bikash Thapa Head-Cards & Remittance7 Suyog Shrestha Head – Accounts and Treasury8 Sanjeev Karki Head – Cash & Transfer9 Tul Jung Pandey Head- Reconciliation

10 Prabir SJB Rana Head- Human Resources


11 12 13

14

17 18 19

20

15 16

11 Sammit Bhattarai Head- Credit Administration12 Binod Upadhyaya Head- Internal Audit and Compliance13 Shivanth Bahadur Pandé Head – Research & Development14 Rajan Amatya Branch Manager-Putalisadak15 Barun Shrestha Branch Manager- Pulchowk16 Manju Basnett Branch Manager- New Road17 Ratna Kumar Limbu Branch Manager – Birgunj18 Dhiraj Thapa Branch Manager – Pokhara19 Uttam Bdr. K.C. Branch Manager- Seepadole20 Kumar Thapa Branch Manager – Butwal

21

Management Team

21

24

27 28 29

22

25 26

23

21 Sajan Shah Branch Manager – Janakpur22 Bishal Thapa Branch Manager – Biratnagar23 Gokarna P. Duwadi Branch Manager – Bhairawaha24 Bhaskar N. Joshi Branch Manager – Kalimati25 Mantri Lal Gupta Branch Manager – Nepalgunj26 Ramraj Upadhyay Branch Manager – Thamel27 Sanjit Pokhrel Branch Manager – Birtamod28 Bandana Thapa Branch Manager – Battisputali29 Shobha Shrestha Head Retail Bank


23

Branch Network Outside Kathmandu Valley

SEEPADOLE Uttam Bdr. K.C. [email protected] 6615617/6612832BIRGUNJ Ratna Kumar Limbu [email protected] 051-523327/525277 PULCHOWK Barun Shrestha [email protected] 5520346 / 5547858BANEPA Kumar Thapa [email protected] 011 -662401/664315JEETPUR Bipat Chaudhari [email protected] 053 - 520297NEW ROAD Manju Basnett [email protected] 4230374 / 4232845BIRATNAGAR Bishal Thapa [email protected] 021-534523/534524 BUTWAL Ajay K. Kafle [email protected] 071 -549991/549992BHAIRAWAHA Gokarna P. Duwadi [email protected] 071-526991/992POKHARA Dhiraj Thapa [email protected] 061-538919/539276PUTALISADAK Rajan Amatya [email protected] 4445302 / 4445303 NARAYANGARH Prakash Dhungana [email protected] 056-532923JANAKPUR Sajan Shah [email protected] 041-527331/527371NEPALGUNJ Mantri Lal Gupta [email protected] 081-525978/525682THAMEL Ramraj Upadhyay [email protected] 4218431/4218432KALIMATI Bhaskar N. Joshi [email protected] 4672494/4672495BIRTAMOD Sanjit Pokhrel [email protected] 023-543810/543811BATTISPUTALI Bandana Thapa [email protected] 4471690/4471790

BRANCHES NAME EMAIl PHONE


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1. NIBL Head Office (01) 4228229, 4242530Branch Manager Branch Phone Number E-mail Address

2. Manju Basnett PUTALISADAK BRANCH (01) 4445302, 4445303 [email protected]. Nikita Maskey NEWROAD BRANCH (01) 4242858, 4230374 [email protected]. Ramraj Upadhyay THAMEL BRANCH (01) 4218431, 4218434 [email protected]. Bhaskar N. Joshi KALIMATI BRANCH (01) 4672493, 4672494 [email protected]. Barun Shrestha PULCHOWK BRANCH (01) 5010188, 5010042 [email protected]. Uttam Bahadur K.C. SEEPADOLE BRANCH (01) 6615617, 6612832 [email protected]. Bandana Thapa BATTISPUTALI BRANCH (01) 4471690, 4471790 [email protected]. Purushottam Chalise GONGABU BRANCH (01) 4365318, 4365077 [email protected]. Shobha Shrestha BOUDHA BRANCH (01) 4480121, 4480122 [email protected]

Branch Network Inside Kathmandu Valley


Our

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ork

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Currency Name Swift AddressEUR American Express Bank, Frankfurt AEIBDEFXUSD American Express bank, New York AEIBUS33JPY American Express Bank, Tokyo AEIBJPJXUSD Bank of China, Beijing BKCHCNBJJPY Bank of Tokyo, Mitsubishi BOTKJPJTEUR Bayerische Hypo-Und Vereins, Hamburg HYVEDEMMINR Citi Bank, New Delhi CITIINBXIBDUSD Citi Bank, New York CITIUS33USD Commerzbank, Frankfurt COBADEFFEUR Commerzbank, Frankfurt A.M. COBADEFFEUR Credit Agricole, Paris AGRIFRPPDKK Danske Bank, Copenhagen DABADKKGBP Habib Allied International Bank Plc, London HABBGB2LINR HDFC, Mumbai HDFCINBBINR ICICI bank, Mumbai ICICINBBFEXEUR JP Morgan Chase, Frankfurt CHASDEFCHF JP Morgan Chase, London CHASGB2LUSD JP Morgan Chase, New York CHASUS33USD Mashreque Bank, New York MSHQUS33CAD Royal Bank Of Canada, Toronto ROYCCAT2EUR SNS Bank, Amsterdam SNSBNL2AINR Standard Chartered Bank, Kolkatta SCBLINBBGBP Standard Chartered Bank, London SCBLGB2LINR Standard Chartered Bank, Mumbai SCBLINBBUSD Standard Chartered bank, New York SCBLUS33SEK Svenbska Handels Banken-SDV, Sweden HANDSESSSGD United Overseas Bank Ltd., Singapore UOVBSGSGAUD Westpac Banking Corporation, Sydney WPACAU2FXINR Bank of AmericaINR Bank of BarodaINR Citi Bank Calcutta


* Birtamod Branch opened after the Board of Directors' Report

Board of Directors' ReportFor The Financial Year 2064/65

Presentation by the Chairman to the 22nd Annual General Meeting.

Dear Shareholders,

It is our pleasure to welcome you at this 22nd Annual General Meeting of Nepal Investment Bank Ltd (NIBL). On this occasion, I present to you the Bank’s activities, Balance Sheet and Profit & Loss account for financial year 2064/65.

1. Review of Bank’s Performance for FY 2064-65:The fiscal year 2064-65 was another successful year for the Bank. Despite the continuing political uncertainty and increased competition, our Bank achieved remarkable growth in all areas, be it in deposits, lending, profit, market share, products, services etc. An overview of the Bank’s performance during the review year is presented hereunder:

S. No. Particulars FY 2063-64 FY 2064-65 Growth in NPR Growth in %1. Total Assets 27,591 38,873 11,282 40.892. Total Deposit 24,489 34,452 9,963 40.683. Total Loans and Advances 17,769 27,529 9,760 54.934. Total Investments 6,506 6,874 368 5.665. Total Operating Profit (before provision

for possible loss)857 1,149 292 34.07

6. Total Net Profit 501 697 196 39.127. Non-performing Assets (in %) 2.37 1.12 - -8. Return on Paid-up Capital (in %) 72.04 69.49 - -9. Return on Shareholders’ Fund (in %) 30.45 30.53 - -10. Total Customer Base (in Nos.) 91,502 165,649 74,147 81.0311. Market Share in Deposit (in %) 8.3 8.8 - 0.5012. Market Share in Lending (in %) 9.1 10.4 - 1.30

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2. Impact, if any, of the National and International Situation upon the Business of the CompanyFY 2007-08 posed a serious challenge to the world economy with the United States, Europe and Japan set for a synchronized slowdown in 2008. The aftermath of the sub-prime crisis which started from USA sent shockwaves around the world, over the fears of recession in the American and European economies. The developing economies in Asia, though not so affected by the sub-prime crisis, are reeling under rising inflation. Soaring oil and commodity prices accelerated inflation to double digits and is likely to hit decade-long highs despite government price restraints. In Nepal, the y-o-y consumer inflation rose to 11% in mid-June 2008 up from 4.5% a year ago. Nonetheless, Asian economies including Nepal are expected to perform better in 2008 and 2009.

Despite these adversities, the country saw a noticeable acceleration in the economic growth rate during FY 2007/08. GDP expanded by 5.56%, the highest during the last seven years. However, the rise in global oil prices, which touched a peak at $147 per barrel, has constrained Nepal's economic prospects as the country is fully dependent on imported oil. Power shortages have also hit domestic industries hard, lowering their capacity utilization. However, it is encouraging that the Government has taken steps to attract private investments in hydropower.

The external sector displayed a mixed performance in the first eleven months of 2007/08. Total exports rose by 0.4% where as total imports increased by 16.5%. As a result, the total trade deficit witnessed an expansion of 23.7% in the review period. The contributing factors for the upsurge in total imports in the review period were a rise in the import of petroleum products, among others.

In the first eleven months of 2007/08, the overall BOP recorded a surplus of NPR 24.25 billion in comparison to a surplus of NPR 6.34 billion in the corresponding period of the previous year. Likewise, the current account registered a surplus of NPR 14.13 billion in the review period in contrast to a slight deficit of NPR 206.9 million in the corresponding period of the preceding year. In mid-June 2008, the gross foreign exchange reserves stood at NPR 206.47 billion, a growth of 25% from the level of NPR 165.13 billion in mid-July 2007.

Compared to a growth of 12.7% in the previous year, domestic credit increased by 17.6% in the review period on account of higher bank credit to the private sector. In the review period, credit flows towards residential and non-residential construction, wholesale and retail trade and real estate increased. Likewise, bank credit to iron and steel production and to food processing also went up in the review period.

Despite a difficult environment, NIBL has been able to achieve satisfactory results. During the year under review, the Bank’s deposit, lending and net profit witnessed a growth of 40.68%, 54.93% and 39.12% respectively. The Bank has been able to increase its market share both in deposits & lending and is soon becoming the biggest commercial bank in terms of capital. The Bank has been able to expand its customer base through introduction of new products and branch network. In FY 2008/2009, another 8-10 branches are likely to be added with additional ATMs coming into operation in major urban areas. However, given the state of the economy, the political environment and developments in the banking industry, the year ahead is challenging & difficult for the Bank. It is expected that a stable political environment will pave the way for economic growth & prosperity and create a positive investment climate in the country.

30 NIBL Annual Report 2008

3. Achievements/New Products & Services/ New Branches During Current Fiscal Year 2065-66 There were no significant events till the date of this report.

4. Industrial and Professional Relations of the CompanyThe Bank has established a cordial and professional relationship with all the stakeholders. We believe that this cordial relationship with all the stakeholders developed on the basis of professionalism and transparency will be fruitful, and prove to be a successful medium for future progress of the Bank.

5. Changes made in the Board of Directors, and reasons thereforeDuring the review year, Mr. Bhoj Raj Sharma, nominee Director from Rastriya Beema Sansthan, vacated the office of Director owing to completion of his term from Rastriya Beema Sansthan. In his place, Mr. Dhruba Bahadur Singh, Chief Administrator, was nominated as Director on the Board of the Bank by Rastriya Beema Sansthan. Mr. Singh too vacated from the office of Director during the year and in his place, Mr. Rajesh Rajkarnikar, Administrator, has been nominated as Director on the Board of the Bank by Rastriya Beema Sansthan.

Similalry, Mr. Dhruba Prasad Bhandari, nominee director from Rastriya Banijya Bank, vacated the office of Director due to completion of his contract with Rastriya Banijya Bank. In his place, Mr. Krishna Prasad Sharma, Deputy General Manager, has been nominated as Director on the Board of the Bank by Rastriya Banijya Bank.

On behalf of the shareholders, I would like to convey my sincere thanks to the outgoing Directors for their invaluable contribution and support to the Management of the Bank, and also welcome the Directors who have joined the Bank.

6. Main Factors Affecting the Business Business The main factors affecting the Bank’sbusiness are:n The existing political uncertainty is affecting

all sectors of the economy and the financial system is no exception.

n Heightened competition in the banking sector has led to shrinking margins.

n Rising inflation has lowered real GDP gains.

7. Board Of Directors’ reaction to the remarks made, if any, in the Audit ReportThere are no adverse remarks in the audit report except comments on routine matters arising in the normal course of business. The Board of Directors has taken note of such comments and recommendations, and has already initiated requisite steps to regularize the same.

8. The Amount Recommended for Distribution as DividendThe 306th meeting of the Board of Directors of the Bank has proposed 3:1 bonus share (one share for each three shares) and 7.5% cash dividend from the profit of fiscal year 2064/2065, and 2:1 rights share (one share for each two shares) on Bank’s paid up capital after issuance of bonus shares.

9. Number of Shares Forfeited, if any, and Particulars there ofDuring the year, no shares have been forfeited.

10. Progress made in the Business of the Company and its Subsidiary Company During the Previous Financial YearThe Bank does not have any subsidiary company. As regards to the progress of the Company during the previous financial year, please refer to Section 1 above.

11. Main Transactions Between the Company and its Subsidiary Company During the Financial Year and Important Changes, if any, thereinThe Bank does not have any subsidiary company.

12. Information Furnished to the Company by its Basic Shareholders During the Previous Financial YearNone.

13. Particulars of the Ownership of Shares Taken up by the Directors and Office-bearers of the Company During the Previous Financial YearNone.

14. Particulars of Information Furnished by any Director/ Close Relative about his Personal Interest in any Agreement Signed by the Company During the Previous Financial YearThere is no any such agreement and consequently, no disclosure in this respect has been made.

15. Particulars of Buy-Back of Shares, if anyThere was no buy-back of shares during the year under review.

16. Whether or not there is an Internal Control System, and if there is any such System, Details there ofThe Bank has an independent Internal Audit and Compliance Department headed by an experienced auditor. The Department performs its functions under the direct supervision and control of the Audit Committee and submits its reports directly to the latter. To supplement the in-house internal audit department, the Bank has also hired a firm of Chartered Accountants to conduct internal audit functions in the review year. In addition, the Bank has also constituted a ‘Compliance Committee’ comprising of various departmental heads to further strengthen compliance and internal control system of the Bank.

17. Particulars of the Total Management Expenses of the Previous Financial YearEmployee Expenses during the Previous FY: NPR 187.15 million

Administrative Expenses during the Previous FY: NPR 313.15 million

Total: NPR 500.30 million

18. Names of the Members of the Audit Committee, Remuneration etc. being Received by them and Functions Discharged/Suggestions Offered by the CommitteeThe Bank’s Audit Committee, under the chairmanship of a non-executive director, Mr. Damodar Prasad Sharma Pandey, comprises of Mr. Deepak Man Sherchan and Mr. Rajesh Raj Karnikar as Member Directors along with the Bank’s Head of Internal Audit, Mr. Binod Upadhyay, as its Member Secretary. The Committee reviews the Bank’s financial condition, its internal control and risk management systems, statutory and regulatory compliances, audit programs etc. After detailed discussion on the findings of the internal audit as well as external audit reports, the Committee initiates necessary corrective action. The Committee periodically apprises the Board of Directors of the issues and the corrective measures initiated. During the year, seven such meetings were held. The Chairman of the Committee is paid NPR 6,000 and member Directors are paid NPR 5,000 each, per meeting, by way of Audit Committee meeting fee.

19. Payments due, if any, to the Company from any Director, Executive Chief or Basic Shareholder of the Company, or their Close Relatives, or their Related EntitiesNo such payments are due to the Company.

20. Amount paid as Remuneration , Allowances and Facilities to the Directors, the Executive Chief and other Office-bearers As per Annexure “A” below.

21. Dividend yet to be Collected by ShareholdersDividends declared by the Bank but not claimed by the shareholders till the end of FY 2064-65 stood at NPR 3,174,590.

22. Any Other Mattersa. New Branches, Products and Services During FY 2064-65:


n The Bank opened three new branches during the year, one in Kalimati (Kathmandu), other in Birtamode (Jhapa) and the third one in Battisputali (Kathmandu). With these branches, the total number of NIBL branches has reached 19. The branches are connected on line with all other branches of the Bank. The Kalimati and Battisputali branches provide locker service as well in addition to all other existing products and services.

n In line with the Bank’s strategy to have its own building for the Bank’s branches, the Bank purchased properties measuring 0-6-2-2 ropanies in Pokhara, 1-5-0-3 kattha in Bhairahawa and 0-15-2-2 ropanies in Boudha, Kathmandu. The cost of acquisition of these properties was NPR 29.00 million for Pokhara, NPR 12.48 million for Bhairahawa and NPR 31.25 million for Boudha. The Bank further purchased additional property measuring 0-3-1-2 ropanies in New Road adjoining our existing property measuring 0-4-3-3 ropanies, thereby making the total land area to 0-8-1-1 ropanies. The Bank purchased the additional property at a cost of NPR 13.50 million. Construction has already started in the said property with a targeted completion date within the current FY 2065-66.

n After long deliberation and in-depth study, the Bank finally decided to go for a new banking software “Finacle”, which is a world-class state-of-the art core banking solution produced by Infosys - a world renowned IT company based in India. The work on the project has already started and the Bank targets to complete the entire project before end of the current fiscal year. The new software is envisaged to provide the Bank with necessary IT platform and MIS to support extensive future growth of the Bank.

n The Bank launched a new deposit product called “Afnai Bachat Khata” whereby customers can open account with a minimum balance of NPR 1 only. The product has

been extremely successful in growing the clientele base of the bank and mobilizing low cost saving deposits as well as promoting financial inclusion.

n The Bank revived its E-Zee Saving Deposit Scheme with revision in interest rates starting from 2.75% to 4% p.a. on daily basis based on volume of deposits. Special tie ups have been made with National Reference Laboratory, Baneshwor for providing 15% discount on Laboratory tests for our E-Zee customers.

n After the successful implementation of Mobile Top-up through NIBL ATMs, the Bank launched Mobile Top-up through e-banking as well as providing customers with alternative options to avail the service at their convenience. NIBL is the first Bank in Nepal to provide these services.

n In order to provide more value added products to our customers, the Bank signed a contract with Triyog School for providing online school bill payment facility to the parents through NIBL e-Banking which is available 24*7. With this addition, customers can now avail the Online Bill Payment facility for making online payment of bills of WorldLink Technology, WebSurfer, Mercantile Communications ISPs, Shuvatara School, Muncha.com e-commerce sites and Triyog School.

n The Bank deployed additional twenty two new ATMs during the year at various on-sites and off-sites locations taking the total number of NIBL’s ATMs to thirty four. As a first of its kind, the Bank installed six ATMs in a row at its main branch at Durbar Marg for increased customers’ convenience. Including our consortium members’ ATMs, there are altogether fifty three ATMs in the NIBL network now.

n The Bank has issued over 140,000 cards, and continues to be the leader in the card issuance in Nepal. There are altogether more than 175,000 cards holders in the NIBL network now.

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n To strengthen its position in workers’ remittance market, the Bank joined hands with eight new remittance companies/exchange houses in Qatar, Saudi Arabia, UAE and Israel. Disbursement Agents were appointed at 46 new locations during the year raising the total number of remittance disbursement locations to 155. During the year, remittance transactions were started from Habib Exchange-UAE, Al Ghurair Exchange-UAE, Al Ahalia Exchange-UAE and May Bank-Malaysia.

n The Bank has made exclusive arrangement with Kantipur Publications for issuing co-branded VISA debit cards to every new subscriber of Kantipur daily newspaper. This is a first of its kind arrangement in Nepal which will help us to enhance our brand name as well as increase our customer base.

b. Human Resources:NIBL strongly recognizes the importance of human resource in successfully achieving its business objectives. It firmly believes that ensuring employee satisfaction results in better customer service. It therefore strives to build a workplace where employees are stimulated to reach their potential by maintaining a work environment that cultivates high ethical standards, honesty, professionalism, mutual respect, creativity and team work.

Currently, the Bank has total staff strength of 616 compared to 514 in the previous year. Of the total staff strength, 234 (38%) are female staffers and 74 staff members have completed more than 10 years of service in the institution.

The Bank has ensured that suitable training and development opportunities are available to all staff members to enable them to develop personally as well as to discharge their responsibilities. With an aim to improve staff efficiency, the Bank has invited expert trainers from Nepal and India to impart learning on various banking fields. In-house training programs were conducted to

impart knowledge to new entrants to make their on the job experience more effective. During the year, 363 participants attended 85 training courses/ workshops on various areas like Credit Risk Management, Information Technology, Customer Service, Treasury, Basel II Capital Accord, Marketing, Card Services and Project Finance. 18 staff members attended workshops in India and abroad.

The Bank supports team building activities like sports, yoga, meditation and other recreational activities to enhance job satisfaction and personal growth of staff members which would ultimately be reflected in higher levels of productivity. With the aim to increase motivation levels and a sense of belonging to the organization, the Bank also extends support to staff members for pursuing further advanced courses in areas of mutual benefit.

c. Social and Community Works:At NIBL, we believe that our prosperity is directly linked with the well-being of the society in which we work. Being a responsible corporate entity, we are very aware of our social responsibilities. As part of our duty towards society, we have made numerous attempts to address social needs. To this effect, the Bank has contributed to various social causes during the fiscal year. To name a few, the Bank donated Rupees Fifty Thousand to Pashupati Bridhashram, an old-age shelter home for unfortunate elderly people. Likewise, the Bank donated Rupees One Lakh to Spinal Injury Rehabilitation Center (SIRC), a non-profit organization which provides rehabilitation services to patients with spinal injuries.NIBL donated Rupees Seventy Five Thousand to Nepal Children’s Organization (Bal Mandir) which is working for the betterment of destitute Nepalese children specially orphans. Similarly, NIBL sponsored Rupees One Hundred Thousand towards education of four underprivileged students at St. Xavier’s School, Jawalakhel.


Being a Nepali Bank, NIBL each year invests in programs that are geared towards promoting awareness amongst the Nepali people for the conservation and preservation of Nepali tradition, culture and heritage. In the reporting year, NIBL sponsored Rupees Two Hundred Fifty Thousand to Kaski District Archery Association for holding Second National Archery Competition 2064 in Pokhara. Likewise, the Bank contributed Rupees Twenty Thousand each to Shova Bhagawati Devsthal Preservation Committee for the repair and maintenance of Shova Bhagawati temple and to ‘Friends of Bagmati’ for cleanliness and preservation of Bagmati river.

The Bank has been equally supportive of the development and promotion of various sports in the country. For instance, the Bank has been supporting various sports institutions like Nepal Boxing Association, Nepal Golf Association, All Nepal Lawn Tennis Association, Nepal Judo Association through sponsorships. Similarly, the Bank has exclusive sponsorship agreement with Friends’ Club Kupondole for promotion of football game in the country.

d. Future Plansn New Product and Services: The Bank is in the process of rolling out a

host of new products and services to cater to the needs and aspirations of our valued customers and also to differentiate itself from its competitors.

n Extensive Branch Network: The Bank is aggressively working on the

strategy to expand our branch network in all parts of the country. In the coming year, we plan to open up branches at Gongabu, Boudha and Naya Baneshwor within Valley, in Hetauda and Dhangadi in Terai and in Surkhet, Jumla, Palpa and Lukla in the hills and mountains. By 2010, we plan to take total NIBL branch network to over 50 branches across the country to serve the people’s banking needs.

n Proprietary Card Network: The Bank is in final stage of starting a Proprietary Card Network to facilitate prospective commercial banks, development banks and finance companies for issuing and acquiring domestic card related products.

n Greater ATM Penetration: In line with the Bank’s strategy to extend coverage to our customers, the Bank plans to install a host of ATMs both inside and outside the Valley.

n MasterCard Products: The Bank is in final stage of launching MasterCard related products. This will provide wider coverage in availing ATM and POS related services to our customers.

n IT Enabled Services: The Bank aims to provide the latest value added services to its customers through the use of cutting-edge technology. To meet this end, the Bank is working on a number of projects like SMS/Mobile Banking, 24 Hours Electronic Banking System through ATM, POS and e-Banking (internet banking), Mobile Top-up through Point of Sale (POS) Terminals, Mobile Top-up through SMS Banking etc.

n Remittance: The Bank plans to increase the number of remittance disbursement agents in Nepal to 200 by the end of current fiscal year. Further, the Bank plans to depute our staff representatives in Saudi Arabia and Malaysia and increase the number of our representatives in Qatar and UAE.

23. AcknowledgmentsOn behalf of the Board, I wish to thank the external auditors for their timely completion of audit and professional suggestions. I also extend sincere thanks to our shareholders for their continued support and encouragement. We sincerely convey our thanks to the Government of Nepal, Ministry of Finance and Nepal Rastra Bank for their continued support and guidance. I would also wish to thank the management and staff of Nepal Investment Bank Ltd. for their dedication and hard work.

35

Lastly, we thank all our customers for giving the Bank an opportunity to serve them and without whose support, the development of the Bank and growth in business would not have been possible.

Thank you,

Prithivi B. PandéChairman cum Chief Executive Director

Prajanya Rajbhandari Director

Krishna Prasad Sharma Director

Date: Shrawan 29, 2065


BASEL IIWe believe in prudence and transparency in our day to day operations and as such have worked on implementing sound policies in Risk Management practices. Two key areas where NIBL has actively deviated from industry norms are in developing a high capital base, of Rs 1.2 billion which is far above the financial industry average and the highest among our competitors, and in actively reducing our exposure to the Real Estate and Housing Market.

The Basel Committee on Banking Supervision released the "International Convergence of Capital Measurements and Capital Standards: Revised Framework", popularly known as Basel II, on June 26, 2004. This framework was updated in November 2005 and a comprehensive version of the framework was issued in June 2006. Basel II builds significantly on Basel I by increasing the sensitivity of capital to key bank risks. In addition, Basel II recognizes that banks can face a multitude of risks, which includes traditional risks associated with financial services, the day-to-day risks of operating a business, as well as the risks associated with the ups and downs of local and international economies.

NIBL has taken stringent steps towards implementing the framework developed by the Nepal Rastra Bank NRB l from July 2008 which mandates a capital adequacy requirement based on international practices with an appropriate level of customization based on domestic state of market developments. NIBL has taken steps to maintain a level of capital that

i is adequate to protect our depositors and creditorsii is commensurate with the risk associated activities and profile of the commercial bankiii promotes public confidence in our bank.

BASEL II framework which consists of Three Pillars: Capital Requirement, Supervisory Review

Process and Market discipline which is more practical and risk oriented. Basel II proposes a significant refinement of regulatory and supervisory practice and emphasizes attention to risk management practices, pre-requisites for the effective implementation of this framework. It is dependent on various factors which the bank has taken serious measures to adopt such as:

i Implementation of Basel Core Principles for effective Banking Supervision

ii Adoption of the sound practices for the management of Operational Risk

iii Formulation and adoption of comprehensive risk management policy

Corporate GovernanceThe current economic crisis which stemmed partly from reckless risk taking from major financial institutions in the United States as well as corporate scandals such as Satyam Computer Services has once again underscored the need for good corporate governance. AT NIBL, we are firmly committed to the highest standards of governance. The Board of Directors ensures that the activities of the Bank are always conducted with the highest standards and in the best interests of its stakeholders. The Board of Directors continues to ensure that the Bank conducts itself as a model corporate citizen by specifying corporate values for the Bank and stipulating a code of Conduct and Ethics for the employees to ensure that the employees maintain their dignity and integrity and build customer confidence. There are several Board constituted committees, each with a defined scope of work and terms of reference. These committees are responsible for providing independent and expert advice on the subjects assigned. We have placed independent directors in key committees such as audit in order to highlight our transparency.

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1. Executive Credit Committee2. Audit Committee3. Human Resource Development Committee4. Construction Committee5. System Committee

The bank has adopted good corporate governance practices prescribed by the Nepal Rastra Bank as well as other relevant statues such as Companies Act 2006 and Bank and Financial Institution Act 2006. We believe that the trust, confidence and goodwill reposed on the Bank by the stakeholders and clients is, inter alia, an acknowledgment of good corporate governance practices adopted by the Bank.

Risk ManagementBeing a financial institution, risk management is an integral part of Nepal Investment Bank Limited (NIBL). With the continuing increase in the scale as well as complexity of the banking business and the rapid growth in the volume of financial-related transactions, risk management has become essential. Moreover the current financial crisis, which brewed due to financial institutions' high exposure to risky assets, and the collapse of venerable financial institutions such as Lehman Brothers, Wachovia and Bear Stearns, among others due to their inability to manage risky assets have further emphasized the need for prudent and effective risk management. The management team of NIBL manages the overall risk profile, aiming for a good balance between risk and return.

Risk management in the bank includes risk identification, measurement and assessment, and its objective is to minimize negative effects that risks can have on the financial result and capital of a bank. Risk management strategies include the transfer of risk, avoidance of risk, reduction of the negative effect of the risk and acceptance of the consequences of a particular risk. The design of a risk management system depends among other things, on its size, capital structure, complexity of functions, technical expertise, and quality of

Management Information System (MIS) and is structured to address both banking as well as non-banking risks to maximize shareholders’ value.

The risk management system ensures that the bank takes well-calculated business risks while safeguarding the bank’s capital, its financial resources and profitability. The bank’s primary business activity is commercial banking where substantial risk comprises of credit risk. To a lesser extent, commercial banking activities also expose the bank to market risk arising from re-pricing, maturity and currency mismatches of assets and liabilities. These mismatches give rise to interest rate risk, liquidity risk, and foreign exchange risk. The Board of Directors of NIBL recognizes that a critical factor in the bank’s continued growth, profitability and stability lies in its effective risk management capabilities and risk return trade-off. In this respect, the bank ensures its risk management capabilities and also continuously promotes a pro-active risk management in the bank.

Operational RiskOperational risk is the risk of loss resulting from inadequate internal processes, people, and systems, or from external events. Operational risk itself is not a new concept, and well run banks have been addressing it in their internal controls and corporate governance structures. However, applying an explicit regulatory capital charge against operational risk is a relatively new and evolving idea. Basel II requires banks to hold capital against the risk of unexpected loss that could arise from the failure of operational systems.

The most important types of operational risk involve breakdowns in internal controls and corporate governance. Such breakdowns can lead to financial losses through error, fraud, or failure to perform in a timely manner or cause the interests of the bank to be compromised in some other way, for example, by its dealers, lending officers or other staff exceeding their authority or conducting business in an unethical or risky manner.


Other aspects of operational risk include major failure of information technology systems or events such as major fires or other disasters. The failure to properly manage operational risk can result in a misstatement of an institution’s risk/return profile and expose the institution to significant losses. Gross income, used in the Basic Indicator Approach is only a proxy for the scale of operational risk exposure of a bank and can in some cases underestimate the need for capital.

Therefore NIBL has developed a framework for managing operational risk and evaluating the adequacy of capital covering the bank’s appetite and tolerance for operational risk, as specified through the policies for managing this risk, including the extent and manner in which operational risk is transferred outside the bank. It also includes policies outlining the bank’s approach to identifying, assessing, monitoring and controlling/mitigating the risk.

Credit Risk ManagementCredit risk is the major risk that banks are exposed to during the normal course of lending and credit underwriting. Within Basel II, there are two approaches for credit risk measurement: the standardized approach and the internal ratings based (IRB) approach. Due to various inherent constraints within the Nepalese banking system, the standardized approach in its simplified form, Simplified Standardized Approach (SSA), has been prescribed in the initial phase.

Credit risk is the probability that a Bank’s borrower or counter party will fail to meet its payment obligations in accordance with the terms of approval of the credit. This includes non-repayment of capital and/or interest within the agreed time frame, at the agreed rate of interest and in the agreed currency. The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. The effective management of credit risk is a critical

component of a comprehensive approach to risk management and essential to the long-term success of any banking organization.

For most banks, loans are the largest and most obvious source of credit risk; however, other sources of credit risk exist throughout the activities of a bank, including in the banking book and the trading book, and both on and off the balance sheet. Banks increasingly face credit risk in various financial instruments other than loans, including acceptances, interbank transactions, trade financing, foreign exchange transactions, and in the extension of commitments and guarantees and the settlement of transactions.

NIBL has developed methodologies to assess the credit risk involved in exposures to individual borrowers or counterparties as well as at the portfolio level. The credit review assessment of capital adequacy, at a minimum, covers risk rating systems, portfolio analysis/aggregation, large exposures and risk concentrations. Internal risk ratings are an important tool in monitoring credit risk and supporting the identification and measurement of risk from all credit exposures, and are integrated into our overall analysis of credit risk and capital adequacy. The ratings system provides detailed ratings for all assets, not only for problem assets.

Our various branches are the business units of our bank. Each branch forwards business proposals to the head of credit division, Head Office. The credit division critically analyzes the proposal from different perspectives in line with statutory, regulatory and internal guidelines. Thereafter, if the business proposal is found to be credit worthy, it is placed in the credit committee. The Credit Committee is comprised of seasoned bankers who evaluate credit proposals. The committee analyzes in depth financial as well as non financial information regarding the borrower such as business history, market situation, future prospects of the market,

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managerial capabilities, cash flow and then declines or recommends approval of the designated credit authorities. To ensure proper and adequate risk analysis and timely customer service, our credit policy and procedures guide (CPPG) provides various layers in the credit approval process. The CPPG has conferred specific discretion ranging from the General Managers to the Executive Credit Committee, the penultimate credit authority of the Bank.

n Adoption of international standards via our in-house Credit Policy and Procedures Guide.

n Formation of Credit Quality Control (CQC) unit for monitoring the quality of credit, both at the account level and portfolio level.

n Regular review of the credit portfolio by the senior Management with periodic reporting to the Board of Directors.

n Separate independent audit and inspection of borrowers by internal auditors in addition to audit and inspection by statutory auditors.

n Strict adherence to the prudential guidelines of the Central Bank on Loan Classification, Interest Recognition, Asset Classification, Single Obligor Limit, Sectoral Exposure etc.

n Establishing suitable exposure limits for borrowers and sectors and monitoring the limits on a regular basis.

n Risk mitigation steps with a special emphasis on collateral.

n Setting counterparty limits based on their financial strength.

n Training of lending and legal officers on documentation and professional valuations.

n Developing skills and expertise of lending officers to scientifically assess project viability and customer integrity.

n Educating the staff on provisions in the Banks and Financial Institution Act and other relevant statues and the regulatory guidelines of the Central Bank.

n Seeking external legal opinion and advice.

n Identifying Early Warning Signals (EWS) and taking prompt action thereon.

n Constant posts sanction monitoring with special independent team for verification of current assets

Market Risk ManagementMarket risk is defined as the risk of losses in on-balance sheet and off-balance sheet positions arising from adverse movements in market prices. The major constituents of market risks are:

a. The risks pertaining to interest rate related instruments;b. Foreign exchange risk (including gold positions) throughout the bank; andc. The risks pertaining to investment in equities and commodities.

Market risk is also the uncertainty in the future value of the bank’s on-balance sheet and off-balance sheet financial items resulting from interest rates, foreign currency, equity, and commodity risks. The Asset Liability Management Committee (ALCO) serves as the primary oversight and decision making body that provides strategic directions for the bank’s management of market risk. The key elements in the market risk management framework are principles and policies, risk limits and risk measures.


The prescribed approach for the computation of capital charge for market risk is very simple and thus may not be directly aligned with the magnitude of risk. Likewise, the approach only incorporates risks arising out of adverse movements in exchange rates while ignoring other forms of risks like interest rate risk and equity risks. NIBL has taken measures to address these various forms of risk and at the same time perform stress tests to evaluate the adequacy of capital using internal models for the measurement of market risk.

Important Risk Management measures of the bank to address Market Risk includes:

n A pro-active Asset Liability Management Committee (ALCO) that meets on a weekly basis.

n Review of ALCO decisions by top Management and Board of Directors.

n Conduction of gap analysis, timely re-pricing of products and hedging of exposures.

n Risk management via forward contracts, swaps and currency options.

n Daily monitoring of Credit to Deposit (CD) ration.

n Maintaining the Liquid Assets Ratio with a contingency buffer.

n Constant monitoring of dealer, broker, counterparty, transaction, product and currency exposure limits.

n Regular monitoring of competitor behavior and building competitor intelligence.

n Maintaining strong relationship with correspondent banks.

n Enhancing fee based income to reduce dependence on fund based income.

n Non-engagement in large scale transactions on a speculative basis.

n Separation of front and back offices at the Treasury department.

Foreign Exchange Risk ManagementForeign Exchange rate risk arises from exchange rate movements which affect the profit of the bank from its foreign exchange open positions. Because of bank’s exposure to foreign currency, foreign exchange risk management is a fundamental component in market risk management of the bank. It involves prudent management of foreign currency positions in order to control, within set parameters, the impact of changes in exchange rates on the financial position of the Bank. The frequency and direction of rate changes, the extent of the foreign currency exposure and the ability of counterparties to honor their obligations to the Bank are significant factors in foreign exchange risk management. This risk is managed by setting pre-determined limits on open foreign positions, the monitoring of the open positions against these limits and the setting and monitoring of our stop-loss mechanism. In order to manage the foreign exchange risk and protect the bank’s financial position, the bank follows following procedures:

n Establish and implement sound and prudent foreign exchange risk management policies.

n Develop and implement appropriate and effective foreign exchange risk management and control procedures.

liquidity Risk ManagementLiquidity is crucial to the ongoing viability of any financial institution. The capital positions can have a telling effect on institution’s ability to obtain liquidity, especially in a crisis. NIBL has adequate systems for measuring, monitoring and controlling liquidity risk. We evaluate the adequacy of capital given their own liquidity profile and the liquidity of

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the markets in which they operate. WE also make use of stress testing to determine their liquidity needs and the adequacy of capital.

The objective of liquidity management is to ensure that bank has sufficient funds to meet its contractual and regulatory financial obligations at all times. Liquidity risk is the probability of loss arising from a situation where (1) there will not be enough cash and/or cash equivalents to meet the needs of depositors and borrowers, (2) sale of illiquid assets will yield less than their fair value, or (3) illiquid assets will not be sold at the desired time due to lack of buyers. Liquidity risk relates to the ability of the Bank to maintain sufficient liquid assets at reasonable cost to meet its financial obligations as and when they fall due. Liquidity risk' arises from situations in which a party interested in trading an asset cannot do it because nobody in the market wants to trade that asset. Liquidity risk becomes particularly important to parties who are about to hold or currently hold an asset, since it affects their ability to trade.

The bank’s liquidity policy is to ensure that all contractual commitments can be met by readily available sources of funding. In addition, liquid assets are maintained in relation to cash flows to provide further sources of funding in the event of a crisis. The bank also has excellent access to financial markets to ensure the availability of funds.

Monitoring and ReportingThe bank has established an adequate system for monitoring and reporting risk exposures and assessing how the bank’s changing risk profile affects the need for capital. The bank’s senior management or board of directors receives on a regular basis reports on the bank’s risk profile and capital needs. These reports allow senior management to:

n Evaluate the level and trend of material risks and their effect on capital levels;

n Evaluate the sensitivity and reasonableness of key assumptions used in the capital assessment measurement system;

n Determine that the bank holds sufficient capital against the various risks and is in compliance with established capital adequacy goals; and

n Assess its future capital requirements based on the bank’s reported risk profile and make necessary adjustments to the bank’s strategic plan accordingly.

NIBL conducts periodic reviews of its risk management process to ensure its integrity, accuracy, and reasonableness. Key areas that are reviewed include:

n Appropriateness of the bank’s capital assessment process given the nature, scope and complexity of its activities;

n Identification of large exposures and risk concentrations;

n Accuracy and completeness of data inputs into the bank’s assessment process;

n Reasonableness and validity of scenarios used in the assessment process; and

n Stress testing and analysis of assumptions and inputs.

SUPERVISORY REVIEW:Nepal Rastra Bank regularly reviews the process by which a bank assesses its capital adequacy, risk positions, resulting capital levels, and quality of capital held by a NIBL. Supervisors also evaluate the degree to which NIBL has in place a sound internal process to assess capital adequacy. The emphasis


of the review is on the quality of the bank’s risk management and controls. The periodic review can involve any or a combination of:

n On-site examinations or inspections;

n Off-site review;

n Discussions with bank management;

n Review of work done by external auditors (provided it is adequately focused on

n the necessary capital issues); and

n Periodic reporting.

WTO 2010. Come 2010, the Nepali financial sector will be open to liberalization and the entrance of foreign banks allowing them to set up branches in Nepal. Given the financial and competitive strength of these foreign financial institutions, it is imperative for domestic banks to enhance their efficiency and competitiveness to meet future. Henceforth, in days ahead, Nepalese bankers need to improve on all aspects, be it human resource, information technology, capital resource, branch network, product development, service standard and delivery, risk management practices and market share, among others

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Corporate Social Responsibility (CSR)NIBL is committed to building and maintaining a strong relationship between the Bank and the larger community. In order to do so the bank invests in various projects that promote our heritage and the arts, in education & health initiatives, various NGO programs, sports as well as in supporting the less privileged sections of our society. Each year, NIBL sponsors a diverse range of programs that encourage a strong corporate culture of giving in the name of charity and responsibility to our community and nation.

UNHCRThe bank donated Rs. 900,000 to UNHCR as a part of its ongoing support for providing educational supplies for Bhutanese refugee students. The United Nations High Commissioner for Refugee Agency (UNHCR) is mandated by the United Nations to lead and co-ordinate international action to protect refugees and to resolve refugee problems worldwide. The organization has been working on securing the rights and well-being of Bhutanese refugees in Nepal for almost two decades now.

Pashupati BriddashramNIBL organized a charity event to aid Pashupati Briddashram, which is the oldest old-age home in Nepal. It is funded and managed by the Ministry for Women, Children and Social Welfare and aims

to support elderly people by nursing and caring for them.

Nepal Children’s Organization (NCO)The bank donated Rs. 75,000 for Nepal Children’s Organization (NCO), an organization that has been committed to improving the lives of children throughout Nepal since 1964. NCO aims to provide a solid foundation for orphaned and abandoned children and helps rehabilitate dependent children of prisoners. NCO seeks to promote child rights, adoption of children (nationally and internationally), provide education for children from low income families, and strengthen the capacity of its nationwide network.

Pahad AssociationThe bank also provided Rs 25,000 in assistance to Pahad Association, an organization that gives deserving children from deprived families an opportunity, through scholarships, to obtain a high school education.

Friends of BagmatiNIBL provided a sum of Rs. 20,000 to Friends of Bagmati, an organization that was established in


order to reverse the degradation of the Bagmati River. Friends of Bagmati aims to restore the Bagmati River and other rivers in the valley by raising local awareness through a variety of clean-up campaigns and workshops.

National Trust for Nature ConservationThe bank gave Rs. 45,000 to the National Trust for Nature Conservation. National Trust for Nature Conservation was founded to promote, conserve and manage nature in its diversity balancing human needs with the environment on a sustainable basis for posterity. The mission of this organization is to preserve the natural heritage and to achieve high quality human life. The Trust also works with many international organizations.

Rural Women’s Development & Unity Centre (RUWDUC)NIBL donated Rs. 15,000 to Rural Women’s Development & Unity Centre. RUWDUC is an organization established to help improve the quality life of women and children through education, health and income generation. The organization also advocates for reproductive health rights for women.

Nepal China Chamber of Commerce and Industry The bank provided Rs. 2,000 to Nepal China Chamber of Commerce and Industry. The Nepal

China Chamber aims to assist in the development of the national economy through the promotion and protection of commerce and industries, both in the private and public sectors. The organization works to foster a good relationship between the two countries and to develop links with other commercial and industrial institutions around the world for the betterment of the national economy.

Shree Sai Sewa OrganizationNIBL donated Rs. 5,000 to Shree Sai Sewa Organization. This organization undertakes spiritual, educational and service activities under the inspiration and guidance of Bhagawan Sri Sathya Sai Baba. It organizes medical check-up and blood donation camps, adopts under-developed villages for accelerated rural development and supports old age homes. It also supports ‘Bal Vikas’ (for children) and Education in Human Value Programs, in addition to formal academic education, to encourage character development of students between the ages of 6 and 15 years.

Army’s Wives Association 24th Anniversary NIBL gave Rs. 25,000 to the Nepalese Army Wives Association (NAWA). NAWA is a non-profit organization that aims to carry out a range of social service activities to support the families of serving & retired Nepalese Army soldiers. The association provides welfare schemes such as scholarships for army children, medical coverage for soldiers and families, housing schemes, legal

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assistance, insurance schemes and army postal facilities. It also supports and runs a school for children of soldiers in Kathmandu.

Hospital and Rehabilitation Centre for Disabled ChildrenNIBL made a contribution of Rs. 15,000 to the Hospital and Rehabilitation Centre for Disabled Children (HRDC). HRDC is run by a non-government organization established to provide better services and support to disabled children. HRDC provides comprehensive high quality medical care and rehabilitation to children with physical disabilities, especially amongst the poorest sections of the population.

Pratiman – Neema Memorial Cancer Awareness NIBL donated Rs. 25,000 to Pratiman Neema Memorial Foundation (PNMF). PNMF is affiliated with Love Hope Strength Foundation (LHSF) and raises funds for cancer hospitals. It organizes various events to create awareness concerning cancer and its effects.

Nepalese Young Entrepreneurs ForumNIBL funded Rs. 50,000 to Nepalese Young Entrepreneurs Forum (NYEF) to help run its club activities and sponsor specific initiatives. NYEF is a non-profit organization that brings together young entrepreneurs from within the country and provides them with a forum for the

exchange of ideas and for learning about different business opportunities. The Forum also regularly holds knowledge building educational programs and information classes.

St. Xavier’s School Orphan Children NIBL gave Rs. 100,000 to help educate a group of orphan children studying in St. Xavier’s School. St. Xavier’s School is a Jesuit school regarded as one of the oldest and most prestigious schools in Nepal. It is well known for providing high quality education.

Kathmandu College of ManagementNIBL gave the amount of Rs. 20,000 to Kathmandu College of Management (KCM) to carry out its extracurricular student activities. KCM is a college of higher education affiliated with Kathmandu University. It is considered the best management college in the country. Each year, KCM provides merit-based scholarships to outstanding students, waiving their tuition fees for a year. KCM also provides scholarships to other bright students who cannot afford quality education and NIBL supports these scholarship initiatives.

Rato Bangala School and Budhanilkantha School NIBL provided Rs. 5,000 and Rs. 3,000 to Rato Bangala School and Budhanilkantha respectively


in support of their school magazines. Rato Bangala School is committed to groom Nepali students to be analytical and independent thinkers aware of both the country’s present situation and its potential. The school believes in building a positive environment which cultivates critically thinking individuals who want to learn and grow into co-operative, loving, confident, concerned global citizens and the magazine fosters this growth. Budhanilkantha School is another very prestigious school in Nepal. The school magazine is an all student affair and encourages creativity in content and builds organizational and editing skills amongst the students.

Triyog High SchoolNIBL donated Rs. 30,000 to Triyog High School for its involvement in ‘Stand Up, Take Action – Against Poverty and for the Millennium Development Goals’ to alleviate poverty in Nepal. The bank hopes the program helped encourage and foster a spirit of youth action and awareness of social issues among students.

Judo AssociationNIBL gave Rs. 20,000 to the Judo Association of Nepal. The Judo Association organizes seminars for skill improvement and provides basic and advanced Judo lessons.

Friends Club– ShrawanNIBL sponsored Rs. 600,000.01 to Friends Club, a Nepalese football club playing in the ‘A’ division league in Nepal. It is hoped that the support will encourage the sport among other Nepalese and also help build a strong competitive league.

Charity Golf – Spinal InjuryNIBL gave Rs. 100,000 to SIRC Charity Golf Tournament whose objective was to raise funds for people suffering from spinal injuries. The Spinal Injury Rehabilitation Centre (SIRC) helps patients adjust to the short and long term effects of acute back injuries. The center is run by the Spinal Injury Sangha Nepal in collaboration with the Nepal Disabled Association and has patrons such as the late Sir Edmund Hillary.

NIBl National Tennis Championship, 2064 – 65NIBL helped the National Tennis Championship in its fund raising initiative, in which we received an overwhelming response and managed to raise contributions of over Rs. 400,000.

Nepal Boxing AssociationNIBL gave Rs. 50,000 to the Nepal Boxing Association to help in promote boxing events.

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Nepal Boxing Association, formed in 1976, has been engaged in the promotion of boxing by organizing various boxing events around the country and participating in various Regional and International Championships in the world. We are proud to help promote the sport by providing funding for skill development and training for the youth and professional athletes in Nepal.

Nepal Golf AssociationNIBL sponsored Rs. 100,000 to Nepal Golf Association in tournament sponsorship. The association’s objective is to hold professional/international tournaments to promote the sport in Nepal.

Himalayan VW Beetle Rally For the 7th Association of Nepal’s Beetle Users Group (ANBUG) Himalayan VW Beetle Rally, NIBL sponsored the amount of Rs. 10,000. ANBUG is an association which organizes many fund raising events, rallies, and rides. The ANBUG aims to promote social harmony by organizing seminars and workshops for promoting awareness of human values and social upliftment, organizing various social activities in rural areas that include development of infrastructure, establishing schools and libraries, regular health camps, workshops and training activities.

DVD “Anil Shahi”NIBL gave Rs. 25,000 to Musician Anil Shahi for his DVD launch. Anil Shahi is a famous music director and fusion guitarist with 3 song albums and 4 instrumental albums to his name. He has also composed popular classic melodies that stand out in the Nepali music scene and we are proud to help artists extend their musical reach.

Miss little Newa – First Runner UpNIBL sponsored Rs. 2,000 to the 1st Runner up of Miss Little Newa Contest. Miss Little Newa contest was started with the aim of introducing girls between the ages of 9 and 13 years from the Newar community at national level, providing them with a platform to showcase the rich culture.

Khadi Fashion Show NIBL gave Rs. 500,000 to the Khadi Fashion Show. The fashion show, held at the Hyatt Hotel, showcased clothes designed exclusively out of khadi a native plant which can be grown in Nepal. Mahatma Gandhi began promoting the spinning of khadi in India for rural self-employment and self-reliance in 1920. The promotion of khadi therefore promotes the


local garment industry and uplifts Nepali farmers. The fashion show displayed versatile designs to portray the work of the weavers and to promote khadi as a garment material.

Alliance FrancaiseNIBL also sponsored various activities and events to promote French culture in Nepal through Alliance Francaise with donation of Rs. 550,000. Alliance Francaise has extensively organized various movies and musical shows all over Nepal. The Bank recognizes the importance of introducing foreign music, art and culture to the community and having originally been a French bank, we remain committed to maintaining the tradition of maintaining ties with the French speaking expatriate community in Nepal.

lions Club of NarayangarhNIBL donated Rs. 10,000 to Lions Club of Narayangarh. The Club has served the society for more than 25 years. Most projects funded by the Lions Club directly benefit the local community.

Nepal Carpet Export Association 4th AGM NIBL sponsored Rs. 152,284.26 for the 4th AGM of NCEA. Nepal Carpet Export Association

(NCEA) was established for the promotion of Nepalese carpets globally, which is an important component of our exports and overall GDP. It is a pioneer manufacturer and exporter of Nepalese carpets and culture worldwide.

Nepal Britain SocietyNIBL gave Rs. 25,000 to Nepal Britain Society to help promote theatrical events. The society was founded to promote good relations between the people of the UK and Nepal. Its main objective is to foster friendship between UK citizens, with a particular interest in Nepal, and Nepalese citizens to strengthen mutual ties.

European UnionNIBL contributed Rs. 130,000 to the European Union for co-sponsorship of a program. The EU encourages development activities in Nepal and also, has been actively engaged in supporting peace and stability in the country.

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FY2001-02 FY2002-03 FY2003-04 FY2004-05 FY2005-06 FY2006-07 FY2007-08Total Assets 4,974 9,014 13,255 16,064 21,330 27,591 38,873Shareholders' Equity 524 639 729 1,180 1,415 1,878 2,686Total Deposit 4,175 7,923 11,525 14,255 18,927 24,489 34,451Total Lending (Gross) 2,714 5,922 7,339 10,453 13,178 17,769 26,996Customer Base 6,570 11,708 22,648 41,015 59,033 91,502 165,649NPA% 4.80 1.98 2.47 2.69 2.07 2.37 1.11Risk Weighted Asset 3,520 7,896 9,837 13,633 17,492 23,436 34,484Capital Adequacy % 15.90% 8.81% 11.18% 11.58% 11.97% 12.17% 11.28Operating Profit 143 203 327 474 648 857 1013Net Profit 57 117 153 232 351 501 697Return on Assets 1.15% 1.30% 1.15% 1.44% 1.64% 1.82% 1.79%Return on Shareholders' Equity 10.91% 18.29% 20.93% 19.67% 24.77% 26.68% 25.93%Earning Per Share (in NPR) 33.59 39.56 51.70 39.50 59.35 62.57 57.87Book Value per Share 308 216 247 201 240 234 223

NPR in MillionFinancial Summary

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Financial Statements

Auditors’ Report to the Shareholders’ 52

Balance Sheet 53

Proft & Loss Account 54

Proft & Loss Appropriation Account 55

Statement of Changes in Equity 56

Cash Flow Statement 57

Schedules Related to Balance Sheet 1-16 58

Contingent Liabilities (Schedule17) 69

Schedules Related to Proft & Loss Account 18-28 74

Statement of Loan & Advances to Directors….. (Schedule29)

76

Capital Adequacy (Schedule30) 77

Table of Risk Weighted Assets (Schedule30(A) 78

Five Years Principle Indicators (Schedule31) 79

Principal Accounting Policies (Schedule32) 80

Notes to Accounts (Schedule33) 83

Sector wise Detail of Loan & Advances 86

Gross Value Added Statement 87

Five Years Financial Summary 88

Contents


G.P.O. Box: 34Kosi Compound, DillibazarKathmandu, NepalTel: 977-1-4419364Tel: 977-1-4423550Fax: 977-1-4413038Email: [email protected]: jb.com.np

Auditor’s reportTo the shareholders of Nepal Investment Bank limited

| Chartered Accountants |

Prabhu R. BhandaryManaging Partner

For Joshi & BhandaryChartered Accountants

Date : August 6, 2008Place : Kathmandu

1. We have audited the accompanying Balance Sheet of Nepal Investment Bank Limited as of Ashad 31, 2065 (corresponding to 15 July 2008), the related Profit and Loss Account and the Cash Flow Statement for the year then ended. These financial statements are the responsibility of the management of the Bank. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with Napal Standards on Auditing. These Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As per directive issued by Nepal Rastra Bank, interest income of the Bank is recognized on cash realization basis, which is not consistent with the provision of Nepal Accounting Standards.

3. As per the requirement of the Company Act 2063 and Bank and Financial Institution Act 2063, we also report that:

I. We have obtained all the information and explanations, which, to the best of our knowledge and belief were necessary for the purpose of our audit;

II. In our opinion , proper books of accounts as required by law have been kept by the Bank so far as appears from our examination of such books;

III. In our opinion, the returns received from branches of the Bank were adequate for the purpose of the audit;

IV. In our opinion, the Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with in this report have been prepared in the format prescribed by Nepal Rastra Bank and are in agreement with the books of accounts maintained by the bank;

V. In our opinion, so far as appeared from our examination of the books, adequate provision for possible loan losses, adequate capital fund and risk bearing fund have been made in accordance with the directives of Nepal Rastra Bank;

VI. In our opinion, so far as appeared from our examination of the books, the business of the Bank has been conducted satisfactorily;

VII. To the best of our information and according to explanations provided to us and from our examination of the books accounts of the Bank necessary for the purpose of our audit, we have not come across cases where the Board of Directors or any employees of the Bank have acted contrary to the provisions of law, or committed any misappropriation or caused loss or damage to the Bank, violated any directives of Nepal Rastra Bank or acted in a manner to jeopardize the interest and security of the Bank, its depositors and investors.

4. Except as stated in para 2 above, in our opinion the financial statements give a true and fair view of the financial position of the Bank as of Ashad 31 2065, and of the results of its operation and its cash flows for the year then ended in accordance with Nepal Accounting Standard and comply with the provisions of the Company Act 2063, the Bank and Financial Institution Act 2063, and the directives issued by Nepal Rastra Bank.

53

Balance Sheet As on end of Asadh 2065 (July 15, 2008)

Capital & Liabilities Schedule Current Year Rs. Previous Year Rs.1. Share Capital 1 1,203,915,400 801,352,600 2. Reserve & Fund 2 1,482,870,648 1,076,770,938 3. Debentures and Bonds 3 1,050,000,000 800,000,000 4. Borrowings 4 - - 5. Deposits Liabilities 5 34,451,726,191 24,488,855,696 6. Bills Payable 6 78,838,643 32,401,462 7. Proposed and Dividend Payable 93,468,245 43,650,251 8. Income Tax Liabilities 24,082,669 295,150 9. Other Liabilities 7 488,404,288 347,518,664

Total Liabilities 38,873,306,084 27,590,844,761

Assets Schedule Current Year Rs. Previous Year Rs. 1. Cash Balance 8 1,464,482,719 763,984,320 2. Balance with NRB 9 1,820,006,035 1,381,351,556 3. Balance with Banks/ Financial Institution 10 470,452,814 296,178,324 4. Money at Call and Short Notice 11 - 362,970,000 5. Investments 12 6,874,023,625 6,505,679,987 6. Loan, Advances & Bills Purchased 13 26,996,652,258 17,286,427,389 7. Fixed Assets 14 970,091,759 759,456,336 8. Non-Banking Assets 15 750,000 1,125,000 9. Other Assets 16 276,846,874 233,671,849

Total Assets 38,873,306,084 27,590,844,761

Contingent Liabilities Schedule 17 Directors Declaration Schedule 29 Statement of Capital Fund Schedule 30 Statement of Risk Weighted Assets Schedule 30 (A) Principal Indicators Schedule 31 Principal Accounting Policies Schedule 32 Notes to Accounts Schedule 33 Schedules 1 to 17 form integral parts of the Balance Sheet.


Profit & Loss Account for the period July 17, 2007 to July 15, 2008

Particulars Schedule Current Year Rs. Previous Year Rs. 1. Interest Income 18 2,194,275,722 1,584,987,354 2. Interest Expenses 19 (992,158,398) (685,530,264)Net Interest Income 1,202,117,324 899,457,090 3. Commission and Discount 20 215,292,193 163,899,110 4. Other Operating Income 21 66,376,659 47,318,720 5. Exchange Profit 22 165,838,748 135,355,345 Total Operating Income 1,649,624,924 1,246,030,265 6. Staff Expenses 23 (187,149,985) (145,370,601)7. Other Operating Expenses 24 (313,153,795) (243,430,632)8. Exchange Loss 22 - -

Operating Profit Before Provision for Possible Loss 1,149,321,144 857,229,032 9. Provision for Possible Losses 25 (135,989,237) (129,718,921)Operating Profit 1,013,331,907 727,510,111 10. Non-operating Income/ Loss 26 7,047,735 1,426,134 11. Loan Loss Provision Written Back 27 101,576,771 66,776,784 Profit from Regular Operations 1,121,956,413 795,713,029 12. Profit/ Loss from extra-ordinary activities 28 - - Net Profit after considering all activities 1,121,956,413 795,713,029 13. Provision for Staff Bonus (101,996,038) (72,337,548)14. Income Tax Provision - Current Year (323,228,859) (221,976,628) - Upto Previous YearNet Profit/ Loss 696,731,516 501,398,852

Schedules 18 to 28 form integral part of this Profit & Loss Account.

55

Profit & Loss Appropriation Account for the period July 17, 2007 to July 15, 2008

Particulars Current Year Rs. Previous Year Rs. Income1. Accumulated Profit up to last year 121,354,299 45,950,059 2. This year's profit 696,731,516 501,398,853 3. Exchange Fluctuation Reserve - - 4. Transfer from Capital Adjustment Fund - -

Total 818,085,815 547,348,912 Expenses1. Accumulated loss up to last year - - 2. This year's Loss - - 3. General Reserve Fund (139,800,000) (100,280,500)4. Contingent Reserve - -

5. Institutional Development Fund - - 6. Dividend Equilization Fund - - 7. Employees Related Funds - - 8. Proposed Dividend (90,293,655) (40,067,630)9. Proposed Issue of Bonus Shares (401,305,133) (200,338,150)10. Special Reserve Fund - - 11. Exchange Fluctuation Reserve (1,945,000) (3,760,000)12. Capital Adjustment Fund - - 13.Debenture Redemption Fund (117,263,333) (81,548,333)

Total (750,607,121) (425,994,613)14. Accumulated Profit/ Loss 67,478,694 121,354,299


Statement of Changes in Equity F.Y. 2007/08

Particulars Share Capital

Accumu-lated Profit/

(Loss)

General Reserve

Capital Reserve

Share Premium

Exchange Fluctuation

Fund

Other Reserves

Debenture Redemption

Fund

Total

Opening Balance (as at 17 July 2007)

801,352,600 121,354,299 516,056,397 - - 25,894,640 31,500 213,095,952 1,677,785,388

Changes in accounting policy

- - - - - - - - -

Restated Balance - - - - - - - -

Surplus on Revaluation of properties

- - - - - - - -

Deficit on Revaluation of Investment

- - - - - - - -

Currency translation differences

- - - - - - - -

" Net Gains & Losses not recognised in the income statement "

- - - - - - - -

Net profit for the period

- 696,731,516 - - - - - - 696,731,516

Transfer to General Reserve

- (139,800,000) 139,800,000 - - - - - -

Declaration of Dividend (proposed)

- (90,293,655) - - - - - - (90,293,655)

Issue of Share Capital

402,562,800 - - - - - - - 402,562,800

Deficit on revaluation of currencies

- - - - - - - - -

Surplus on Revaluation of Investment

- - - - - - - - -

Transfer to Exchange Fluctuation Fund

- (1,945,000) - - - 1,945,000 - - -

Capital Adjustment Fund

- - - - - - - - -

Debenture Redemption Fund

- (117,263,333)

- - - - - 117,263,333 -

Closing Balance ( as at 15 July 2008)

1,203,915,400 468,783,827 655,856,397 - - 27,839,640 31,500 330,359,285 2,686,786,049

57

Cash Flow StatementFrom 17 July, 2007 to 15 July, 2008

Particulars Current Year Rs. Previous Year Rs. (A) Cash Flow from Operating Activities 1. Cash Receipts 2,641,783,322 1,931,560,529 1.1 Interest Income 2,194,275,722 1,584,987,354 1.2 Commission and Discount Income 215,292,193 163,899,110 1.3 Exchange Gain 165,838,748 135,355,345 1.4 Recovery of Loan Written Off - - 1.5 Other Income 66,376,659 47,318,720 2. Cash Payments (1,707,405,447) (1,244,430,929) 2.1 Interest Expenses (992,158,398) (685,530,264) 2.2 Staff Expenses (187,149,985) (145,370,601) 2.3 Office Overhead Expenses (230,597,064) (182,530,064) 2.4 Income Tax Paid (297,500,000) (231,000,000) 2.5 Other Expenses - - Cash Flow Before Changes in Working Capital 934,377,875 687,129,600 Increase/(Decrease) of Current Assets (9,775,296,207) (5,787,657,351)1. (Increase)/Decrease in Money at Call and Short Notice 362,970,000 (292,970,000)2. (Increase)/Decrease in Short-term Investment (349,051,138) (885,296,338)3. (Increase)/Decrease in Loan and Bills Purchase (9,760,204,833) (4,590,948,079)4. (Increase)/Decrease in Other Assets (29,010,236) (18,442,934)Increase/(Decrease) of Current Liabilities 10,005,780,260 5,444,641,591 1.Increase/(Decrease) in Deposits 9,962,870,496 5,561,549,722 2.Increase/(Decrease) in Certificate of deposits - - 3.Increase/(Decrease) in Short-Term Borrowings - - 4.Increase/(Decrease) in Other Liabilities 42,909,764 (116,908,131)(b) Cash Flow from Investing Activities (303,659,210) (490,473,636)1.(Increase)/Decrease in Long-term Investment (24,692,500) (17,515,000)2.(Increase)/Decrease in Fixed Assets (including Software)/ NBA (279,799,210) (473,171,959)3.Interest from Long-term Investment4.Dividend Income 832,500 213,323 (c) Cash Flow from Financial Activities 452,224,650 251,352,600 1.Increase/(Decrease) in Long-term Borrowings ( Bond, Debentures etc.) 250,000,000 250,000,000 2. Increase/(Decrease) in Share Capital 202,224,650 1,352,600 3.Increase/(Decrease) in Other Liabilities - - 4.Increase/(Decrease) in Refinance/facilities received from NRB - - (d) Income/Loss from change in exchange rate in cash and bank balances - - (e) Current Year's Cash Flow from All Activities 1,313,427,368 104,992,804 (f) Opening Balance of Cash and Bank Balances 2,441,514,200 2,336,521,396 (g) Closing Balance of Cash and Bank Balances 3,754,941,568 2,441,514,200


SHARE OWNERSHIP( As at July 15, 2008)

Particulars % Current Year Rs. % Previous Year Rs. A. Promoters 80% 963,132,300 80% 641,083,800 1.1 Nepal Government1.2 Foreign Institutions1.3 "A" Class Liscensed Institutions 15% 180,587,300 15% 120,203,100 1.4 Insurance Company 15% 180,587,300 15% 120,203,100 1.5 Organized Institutions 50% 601,957,700 50% 400,677,600 1.6 Individuals - - - - 1.7 Others - - - - B. General Public 20% 240,783,100 20% 160,268,800

Total 100% 1,203,915,400 100% 801,352,600

SHARE CAPITAL & OWNERSHIP(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. 1. Share Capital1.1 Authorized CapitalA) 20,000,000 Ordinary Shares of Rs. 100 each 2,000,000,000 1,000,000,000 1.2 Issued CapitalA) 12,039,154 Ordinary Shares of Rs. 100 each

(of which 5,532,358 Right Share & 6,506,796 bonus shares) 1,203,915,400 801,352,600

1.3 Paid Up CapitalA) 12,039,154 Ordinary Shares of Rs. 100 each

(of which 5,532,358 Right Share & 6,506,796 bonus shares) 1,203,915,400 801,352,600

Schedule 1

Details of Shareholders holding 0.5 percent or above shares are mentioned below:

Organized Institution (Group A) % Amount (Rs. in '000)

Pancha Kanya Investment Co 0.78 9,406

R. Shangai Investment P. Ltd. 0.78 9,406

Singhe Carpets P. Ltd. 0.78 9,406

Shrestha Brothers Investment P. Ltd. 0.78 9,406

Mercantile Investments P. Ltd. 0.63 7,525

Shakya Investments 0.63 7,525

S. Shakya Investment 0.55 6,584

S.R. Investment P. Ltd. 0.55 6,584

"A" Class Liscensed Institution (Group B) - Rastriya Banijya Bank 15 180,587

Insurance Company (Group C)- Rastriya Beema Sansthan 15 180,587

Organized Institution (Group A) % Amount (Rs. in '000)

Maha Laxmi Investment P. Ltd. 8.83 106,283

Chhaya Investment P.Ltd 8.2 98,759

K.U.P. Investment P. Ltd. 7.81 94,055

Sophia Investment P. Ltd 7.42 89,353

Annapurna Investment P. Ltd 1.56 18,811

Kamala Investment P. Ltd. 1.56 18,811

Noble Investment P.Ltd 1.56 18,811

Prestine Investment P. Ltd. 1.56 18,811

Surya Infosys P. Ltd. 1.56 18,811

Star Holding P. Ltd. 1.17 14,108

P. Shanghai Investment P. Ltd 0.78 9,406

Apollo Investment 0.78 9,406

Lotus Investments 0.78 9,406

59

RESERVE FUNDS(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. 1. General Reserve Fund 655,856,397 516,056,397 2. Proposed Bonus Shares 401,305,133 200,338,150 3. Capital Reserve Fund4. Capital Redemption Reserve - - 5. Capital Adjustment Fund - - 6. Other Reserve Fund 330,390,785 213,127,452 a. Contingent Reserve - - b. Institution Development Fund - - c. Dividend Equalization Fund - - d. Special Reserve Fund 31,500 31,500 f. Assets Revaluation Reserve - - g.Debenture Redemption Fund 330,359,285 213,095,952 7. Accumulated Profit/ Loss 67,478,694 121,354,299 8. Exchange Fluctuation Reserve 27,839,640 25,894,640

Total 1,482,870,648 1,076,770,938

Schedule 2

DEBENTURES AND BONDS(As at July 15, 2008) Schedule 3

Particulars Current Year Rs. Previous Year Rs. 7.5 % Debentures of Rs. 1000 each issued on 24.11.2003 (2060.08.08) and maturing on 24.11.2010 (2067.08.07)Outstanding Balance of Redemption Reserve Rs. 214,285,714

300,000,000 300,000,000

6 % Debentures of Rs. 1000 each issued on 26.06.2006 (12.03.2063) and maturing on 25.06.2013 (2070.03.11)Outstanding Balance of Redemption Reserve Rs.744,061,190

250,000,000 250,000,000

6.25 % Debentures of Rs. 1000 each issued on 26.06.2007 (12.03.2064) and maturing on 25.06.2014 (2071.03.11)Outstanding Balance of Redemption Reserve Rs. 38,6911,191

250,000,000 250,000,000

8 % Debentures of Rs. 1000 each issued on 09.07.2008 (25.03.2065) and maturing on 08.07.2015 (2072.03.24)Outstanding Balance of Redemption Reserve Rs. 2,976,190

250,000,000 -

Total 1,050,000,000 800,000,000

Schedule 4 BORROWINGS(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. A. Local - - 1. Nepal Government - -

2. Nepal Rastra Bank - -

3. Repo Obligation

4. Inter Bank and Financial Institutions - -

5. Other Financial Institutions

6. Others - -

Total - - B. Foreign - - 1. Banks - -

2. Others

Total - - Total (A+B) - -


DEPOSITS(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. 1. Non-Interest bearing accounts A. Current Deposits 3,138,669,428 2,175,029,657 1. Local Currency 2,549,721,664 1,724,449,038

1.1 Nepal Government 221,437,320 157,165,619

1.2 "A" Class Licensed Institutions 102,141,210 23,836,885

1.3 Other Licensed Institutions 363,682,270 140,087,796

1.4 Other Organized Institutions 1,638,809,096 1,268,858,862

1.5 Individuals 196,594,867 127,119,801

1.6 Others 27,056,901 7,380,075

2. Foreign Currency 588,947,764 450,580,619

2.1 Nepal Government 49,613 -

2.2 "A" Class Licensed Institutions 2,864,706 1,248,587

2.3 Other Licensed Institutions 144,150,246 51,316,873

2.4 Other Organized Institutions 400,614,486 347,892,671

2.5 Individuals 35,741,351 32,360,980

2.6 Others 5,527,362 17,761,508

B. Margin Deposits 607,062,707 371,662,100 1. Employess Guarantee - -

2. Guarantee Margin 197,868,529 168,195,604

3. Letters of Credit Margin 409,194,178 203,466,496

C. Others - - 1. Local Currency - -

1.1 Financial Institutions - -

1.2 Other Organized Institutions - -

1.3 Individuals - -

2. Foreign Currency - -

2.1 Financial Institutions - -

2.2 Other Organized Institutions - -

2.3 Individuals - -

Total Non-Interest Bearing Accounts 3,745,732,135 2,546,691,757

Schedule 5

contd...

61

Schedule 5

Particulars Current Year Rs. Previous Year Rs.

2. Interest bearing accounts A. Savings Deposits 13,688,766,549 10,742,331,625 1. Local Currency 13,060,106,606 10,262,693,693 1.1 Organized Institutions 1,489,154,480 1,152,411,612 1.2 Individuals 11,538,536,206 9,080,943,732 1.3 Others 32,415,920 29,338,349 2. Foreign Currency 628,659,943 479,637,932 2.1 Organized Institutions 354,823,088 275,062,350 2.2 Individuals 273,385,867 204,538,996 2.3 Others 450,988 36,586 B. Fixed Deposits 7,944,232,558 7,516,686,866 1. Local Currency 5,789,307,926 5,265,498,227 1.1 Organized Institutions 4,552,458,360 4,347,069,895 1.2 Individuals 1,235,699,566 917,278,332 1.3 Others 1,150,000 1,150,000 2. Foreign Currency 2,154,924,632 2,251,188,639 2.1 Organized Institutions 2,099,969,600 2,122,904,039 2.2 Individuals 54,955,032 70,632,950 2.3 Others - 57,651,650 C. Call Deposit 9,072,994,949 3,683,145,448 1. Local Currency 8,714,204,410 3,243,059,498 1.1 "A" Class Licensed Institutions 50,964,624 12,281,175 1.2 Other Licensed Institutions 3,880,022,114 1,127,967,601 1.3 Other Organized Institutions 4,190,638,066 1,951,615,922 1.4 Individual 588,286,666 151,177,216 1.5 Others 4,292,940 17,584 2. Foreign Currency 358,790,539 440,085,950 2.1 "A" Class Licensed Institutions 3,633 650,047 2.2 Other Licensed Institutions 7,023,075 1,244,171 2.3 Other Organized Institutions 315,069,033 404,562,873 2.4 Individual 33,249,798 10,282,859 2.5 Others 3,445,000 23,346,000 D. Certificate of Deposit - - 2.1 Organized Institutions - - 2.2 Individuals - - 2.3 Others - -

Total Interest Bearing Accounts 30,705,994,056 21,942,163,939 Total Deposit 34,451,726,191 24,488,855,696

contd...


BILLS PAYABLE(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. 1. Local Currency 39,871,051 14,311,072 2. Foreign Currency 38,967,592 18,090,390

Total 78,838,643 32,401,462

Schedule 6

OTHER LIABILITIES(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. 1. Pension/ Gratuity Fund 12,805,893 13,600,382 2. Employees Provident Fund - - 3. Employees Welfare Fund - - 4. Provision for Staff Bonus 101,996,038 72,337,548 5. Interest Payable on Deposits 47,572,648 42,178,151 6. Interest Payable on Borrowings 27,739,118 20,594,924 7. Unearned Discount & Commission 82,660,617 49,911,800 8. Sundry Creditors 46,051,203 47,096,638 9. Branch Adjustment Account - 10,844,933 10. Statutory Auditor's Fee 250,000 150,000 10. Others 169,328,771 90,804,288

- - 10.1 Matured Time Deposit 25,970,232 21,575,679 10.2 Deferred Tax Liabilities 1,941,340 - 10.3 Others 141,417,199 69,228,609

Total 488,404,288 347,518,664

Schedule 7

CASH BALANCE(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. 1. Local Currency (including coin) 1,434,574,550 736,889,927 2. Foreign Currency 29,908,169 27,094,393

Total 1,464,482,719 763,984,320

Schedule 8

63

MONEY AT CALL AND SHORT NOTICE (As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. 1. Local Currency - 362,970,000 2. Foreign Currency - -

Total - 362,970,000

Schedule 11

BALANCE WITH NEPAL RASTRA BANK (As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. Local Currency Indian Rs. Conv. F.C. Total Grand Total

1. Nepal Rastra Bank 1,736,468,039 - 83,537,996 83,537,996 1,820,006,035 1,381,351,556 a. Current Account 1,736,468,039 - 83,537,996 83,537,996 1,820,006,035 1,381,351,556 b. Other Account - -

Schedule 9

Foreign Currency in Rs.

Schedule 10BALANCE WITH BANKS/FINANCIAL INSTITUTIONS (As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. Local Currency Indian Rs. Conv. F.C. Total Grand Total

1. Local Licensed Institutions

69,007,087 - 1,811,724 1,811,724 70,818,811 20,822,731

a. Current Account 69,007,087 - 1,811,724 1,811,724 70,818,811 20,822,731 b. Other Account - - 2. Foreign Banks - 72,845,780 326,788,223 399,634,003 399,634,003 275,355,593 a. Current Account - 72,845,780 326,788,223 399,634,003 399,634,003 275,355,593 b. Other Account - - Total 69,007,087 72,845,780 328,599,947 401,445,727 470,452,814 296,178,324

Note : Total Balance as per the confirmations received from respective Banks (including Nepal Rastra Bank )Rs.2,522,987,783

Foreign Currency in Rs.


Note : Following Company has not declared and distributed dividend for the last three years: - Sudur Paschimanchal Grameen Bikas Bank - Purbanchal Grameen Bikas Bank

INVESTMENTS (As at July 15, 2008)

Particulars Previous Year Rs. Trading Others

1. Nepal Government Treasury Bills - 3,155,000,000 3,155,000,000 3,256,400,000 2. Nepal Government Savings Bond - - - 3. Nepal Government Other Securities - - - - 4. Nepal Rastra Bank Bonds - - - - 5. Foreign Securities - - - 6. Local Licensed Institutions - - - 7. Foreign Banks - 3,664,478,125 3,664,478,125 3,194,387,763

8. Corporate Shares - 59,945,500 59,945,500 35,253,000 9. Corporate Bonds and Debentures - - - - 10. Other Investment - - - 19,639,224

Total Investment - 6,879,423,625 6,879,423,625 6,505,679,987 Provision - 5,400,000 5,400,000 -

Net Investment - 6,874,023,625 6,874,023,625 6,505,679,987

Schedule 12

Purpose Current Year Rs.

INVESTMENT IN SHARES DEBENTURES AND BONDS(As at July 15, 2008)

Particulars Purchase Price

Market Price

Provision Rs.

1. Investment in Shares 1.1 Sudur Paschimanchal Grameen Bikas Bank 30,000 Ordinary Shares of Rs.100 paid up

3,000,000 NA NA 3,000,000

1.2 Paschimanchal Grameen Bikas Bank 15,000 Ordinary Shares of Rs.100 paid up

1,500,000 NA NA 1,500,000

1.3 Purbanchal Grameen Bikas Bank 30,000 Ordinary Shares of Rs.100 paid up

3,000,000 NA NA 3,000,000

1.4 Rural Micro Finance Development Centre Ltd. 3,38,100 Ordinary Shares of Rs.100 paid up

33,810,000 NA NA 25,000,000

1.5 Swabalamban Bikas Bank 24,000 Ordinary Shares of Rs.100 paid up

2,400,000 1,601 NA 2,400,000

1.6 Credit Information Centre Ltd. 12,355 Ordinary Shares of Rs.100 paid up

1,235,500 NA NA 353,000

1.7 Taragaon Regency Hotel Ltd. Ordinary 150,000 15,000,000 64 5,400,000 Shares of Rs.100 paid up 2. Investments in Debentures and Bonds - - - - Total Investment 59,945,500 5,400,000 35,253,000 3. Provision for Loss - - - - 3.1 Up to Previous year 3.2 Adjustments this year

- - - -

Total Provision 5,400,000 - - - Net Investment 54,545,500 - 35,253,000

Schedule 12 (A)

Current Year Rs. Previous Year Rs.

5,400,000

65

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,263

,335

2

64,2

34,0

04

200

,821

2

70,6

98,1

60

- -

2,7

63,3

06

987

,962

3

,751

,268

2

74,4

49,4

28

173

,495

,470

3.

2 Re

stru

ctur

ed

- 5

,357

,559

5

,357

,559

-

5,3

57,5

59

4,7

01,8

42

3.

3 Su

bsta

ndar

d -

- 1

3,26

5,78

1 -

13,

265,

781

- -

2,1

68,5

30

- 2

,168

,530

1

5,43

4,31

1 2

4,57

2,65

0

3.

4 D

oubt

ful

- 6

86,0

93

9,7

15,8

44

- 1

0,40

1,93

7 -

- -

- -

10,

401,

937

43,

084,

601

3.

5 Lo

ss

- 2

,395

,963

2

24,6

13,2

80

- 2

27,0

09,2

43

- -

- -

- 2

27,0

09,2

43

236

,817

,951

(B) T

otal

Loa

n Pr

ovisi

on

- 9

,345

,391

5

17,1

86,4

68

200

,821

5

26,7

32,6

80

- -

4,9

31,8

36

987

,962

5

,919

,798

5

32,6

52,4

78

482

,672

,514

4. P

rovi

sioni

ng u

p to

Pre

viou

s Yea

r

4.

1 Pa

ss

285

,582

8

,088

,808

1

62,5

50,9

24

41,

955

170

,967

,269

-

- 2

,020

,061

5

08,1

40

2,5

28,2

01

173

,495

,470

1

28,7

59,9

41

4.

2 Re

stru

ctur

ed

241

,898

4

,459

,944

4

,701

,842

-

4,7

01,8

42

36,

381,

498

4.

3 Su

bsta

ndar

d -

4,8

76,5

67

11,

139,

062

16,

015,

629

8,5

57,0

21

8,5

57,0

21

24,

572,

650

11,

059,

715

4.

4 D

oubt

ful

- 8

,557

,076

3

4,52

7,52

5 -

43,

084,

601

- -

- -

- 4

3,08

4,60

1 2

48,5

50

4.

5 Lo

ss

736

,877

1

5,31

5,01

8 2

20,3

74,2

48

391

,808

2

36,8

17,9

51

- -

- -

- 2

36,8

17,9

51

225

,494

,083

(C).

Tota

l Pre

viou

s Yea

r Pro

visio

n 1

,022

,459

3

7,07

9,36

7 4

33,0

51,7

03

433

,763

4

71,5

87,2

92

- -

10,

577,

082

508

,140

1

1,08

5,22

2 4

82,6

72,5

14

401

,943

,787

(D).

Writ

ten

Back

Pro

visio

n 8

0,23

4,27

1 4

8,08

9,01

1

(E)

Thi

s Yea

r's A

dditi

on P

rovi

sion

130

,214

,237

1

28,8

17,7

38

Cha

nges

in th

is Ye

ar

(1,0

22,4

59)

(27,

733,

976)

84,

134,

765

(232

,942

) 5

5,14

5,38

8 -

- (5

,645

,246

) 4

79,8

22

(5,1

65,4

24)

49,

979,

966

80,

728,

727

Net

Loa

n (A

-B)

- 6

20,6

76,8

42

25,

978,

213,

041

19,

881,

237

26,

618,

771,

120

- -

280

,072

,944

9

7,80

8,19

4 3

77,8

81,1

38

26,

996,

652,

258

17,

286,

427,

389

Cur

rent

Ye

ar R

s.

Prev

ious

Ye

ar R

s.D

omes

ticD

omes

tic


SECURITIES AGAINST LOAN, ADVANCES AND BILLS PURCHASED(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs.

(A) Secured 27,529,304,736 17,769,099,903 1. Collateral of Movable/Immovable Assets 24,533,059,089 16,150,150,112 2. Local Licensed Institutions Guarantee - - 3. Government Guarantee - - 4. Internationally rated Foreign Banks Guarantee - 5. Export Documents - 6. Fixed Deposit Receipts 275,965,744 230,144,227 (a) Own FDR 251,071,350 192,945,548 (a) FDR of other Licensed Institutions 24,894,394 37,198,679 7. Government Bonds 10,805,202 4,927,657 8. Counter Guarantee - 800,000 9. Personal Guarantee 16,415,689 10,345,248 10. Other Securities 2,693,059,012 1,372,732,659 (B) Unsecured - -

Total 27,529,304,736 17,769,099,903

Schedule 13 A

67

FIX

ED

ASS

ET

S(A

s at J

uly

15, 2

008)

PAR

TIC

ULA

RS

B

uild

ing

Veh

icle

s M

achi

nery

O

ffice

E

quip

men

t O

ther

s C

urre

nt Y

ear

Tota

l Pr

evio

us Y

ear

Tota

l1.

At C

ost

-

A. P

revi

ous Y

ear's

Bal

ance

164

,924

,232

9

6,60

0,26

1 -

94,

284,

669

254

,917

,741

6

10,7

26,9

03

416

,671

,347

B. A

dditi

on d

urin

g th

e Ye

ar (+

) 9

,010

,401

5

5,43

8,57

1 3

6,57

1,01

7 1

03,7

86,0

46

204

,806

,035

2

08,4

09,0

15

C. R

evalu

ation

/ W

ritten

bac

k du

ring t

he Y

ear (

+) -

-

D. T

his Y

ear S

old

(-) -

(14,

315,

560)

- -

(503

,910

) (1

4,81

9,47

0) (1

4,35

3,45

9)

E. T

his Y

ear W

ritte

n of

f (-)

- -

-

TOTA

L G

ROSS

VA

LUE

( A+B

+C-D

-E )

173

,934

,633

1

37,7

23,2

72

- 1

30,8

55,6

86

358

,199

,877

8

00,7

13,4

68

610

,726

,903

2. D

EPR

EC

IATI

ON

A. P

revi

ous Y

ear's

Bal

ance

8,0

70,5

87

26,

026,

695

- 2

9,56

5,88

2 1

19,1

31,4

69

182

,794

,633

1

41,7

86,7

13

B. D

epre

citio

n du

ring

the

Year

(+)

3,3

26,9

40

15,

692,

332

9,6

55,3

52

41,

627,

031

70,

301,

655

52,

645,

017

C. T

otal

Dep

reci

atio

n on

Sol

d /

- (8

,488

,214

) -

(497

,035

) (8

,985

,249

) (1

1,63

7,09

7)

Writ

ten

Off

Ass

ets (

-) -

-

D. D

epre

ciatio

n on

Rev

aluat

ion/

Writ

ten

back

TOTA

L D

EPR

EC

IATI

ON

( A

+B-

C)

11,

397,

527

33,

230,

813

- 3

9,22

1,23

4 1

60,2

61,4

65

244

,111

,039

1

82,7

94,6

33

3. RE

MA

ININ

G B

OO

K V

ALU

E ( 1

-2 )

162

,537

,106

1

04,4

92,4

59

- 9

1,63

4,45

2 1

97,9

38,4

12

556

,602

,429

4

27,9

32,2

70

4. L

and

413

,489

,330

3

31,5

24,0

66

5. Ca

pital

Con

struc

tion

6. L

EA

SEH

OLD

ASS

ETS

TO

TAL

BO

OK

VA

LUE

( 3+

4+5+

6) 16

2,53

7,10

6 1

04,4

92,4

59

- 9

1,63

4,45

2 19

7,93

8,41

2 9

70,0

91,7

5975

9,45

6,33

6

Sche

dule

14

Ass

ets


OTHER ASSETS(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. 1. Stock of Stationery 990,932 555,129 2. Income Receivable on investments 25,099,443 33,530,906 3. Accrued Interest on Loan 106,677,388 90,440,382 Less: Interest Suspense amount (106,677,388) (90,440,382) 4. Receivable Commission - - 5. Sundry Debtors 15,846,569 36,173,712 Less : Provision (2,074,352) (20,474,352) 6. Staff Loan and Advances 62,879,046 56,222,954 7. Prepayments 66,676,775 24,803,882 8. Cash in Transit - - 9. Other Transit items (including cheques) - - 10. Drafts Paid without Notice - - 11. Expenses Not Written off 20,782,689 25,017,899 12. Branch Adjustment account 7,182,739 - 13. Others 79,463,033 77,841,719 13.1 Receivable from Nepal Rastra Bank 4,632,615 9,009,345 13.2 Premium deposit against Staff Housing Loan 60,120,242 51,087,709 13.3 Others 14,710,176 17,744,665 13.4 Deferred Tax Assets - -

Total 276,846,874 233,671,849

Schedule 16

Non-Banking AssetsSchedule 15

Name and Address of Borrower or Party

Date of acquisition

of Non Banking Assets

Total Amount of Non-Banking Assets

Net Non Banking Assets

Rs.

In percentage

In amount

Total Amount

Loss Provision

Net

1. Vinay International, Danchhi, Kathmandu

1/24/2001 - - - 500,000 500,000 -

2. New Mittal Trade Center, Bahunri, W.N.6, Bara

4/16/2001 - - - 892,500 892,500 -

3. New Mittal Trade Center, Chata Pipra VDC, Bara

5/14/2001 - - - 1,550,000 1,550,000 -

4.Binayak Feed Industries, Bhaktapur

1/18/2007 1,500,000 50% 750,000 750,000 1,500,000 375,000 1,125,000

Grand Total 1,500,000 50% 750,000 750,000 4,442,500 3,317,500 1,125,000

Loss Provision Previous Year Rs.

69

CONTINGENT LIABILITIES(As at July 15, 2008)

Particulars Current Year Rs. Previous Year Rs. 1. Claims on Institution but not accepted by the Institution - - 2. Letters of credit (full amount) 4,223,147,037 3,955,491,285 (a) Less than 6 months maturity 3,282,807,332 1,918,104,464 (b) More than 6 months maturity 940,339,705 2,037,386,821 3. Rediscounted Bills - - 4. Unmatured Guarantees/ Bonds 2,855,680,061 2,024,260,443 (a) Bid Bonds 347,985,700 217,635,302 (b) Performance Bonds 1,048,983,322 795,295,390 (c) Other Guarantee/ Bonds 1,458,711,039 1,011,329,750 5. Unpaid Shares in Investment - - 6. Forward Exchange Contract Liabilities 2,170,350 15,716,120 7. Bills under Collection 857,189,953 529,164,052 8. Acceptance and Endorsements 945,790,546 173,035,127 9. Underwriting Commitments - - 10. Irrevocable Loan Commitments - - 11. Guarantee issued against counter guarantee of Internationally Rated Banks"

478,864,346 219,011,941

12. Advance Payment Guarantee 767,491,609 413,200,226 13. Financial Guarantee - - 14. Contingent Liabilities on Income Tax 9,209,500 9,209,500 15. Others (Loan under Repurchase Agreement) - 1,026,771,399

Total 10,139,543,402 8,365,860,093

Schedule 17

OTHER ASSETS (Additional Statement)(As at July 15, 2008)

Particulars Previous Year Rs. Up to 1 Year 1 to 3 Years Above 3 Years Total

1. Accrued Interest on Loan 24,080,008 2,653,296 79,944,084 106,677,388 90,440,382 2. Drafts Paid without Notice - 3. Branch Adjustment A/c

Schedule 16 (A)

Current Year Rs.


INTEREST INCOMEfor the period July 17, 2007 to July 15, 2008

Particulars Current Year Rs. Previous Year Rs. A. On Loan, Advances and Overdrafts 1,907,261,454 1,302,121,998 1. Loan and Advances 1,249,470,914 979,284,933 2. Overdraft 657,790,540 322,837,065 B. On Investment 99,991,095 78,493,544 1. Nepal Government Securities 99,991,095 78,493,544 a. Treasury Bills 99,991,095 78,493,544 b. Development Bonds - - c. National Savings Certificates - - 2.Foreign Securities - - 3.Nepal Rastra Bank Bonds - - 4.Debenture and Bonds - - a.Banks & Financial Institutions - - b.Other Organization - - 5. Interst on Inter Bank LendingC. On Agency Balances 8,892,605 10,126,583 1. Local Banks & Financial Institutions - - 2. Foreign Banks 8,892,605 10,126,583 D. On Money At Call and Short Notice 161,035,500 183,067,186 1. Local Banks & Financial Institutions 4,118,853 16,992,870 2. Foreign Banks* 156,916,647 166,074,316 E. On Others 17,095,068 11,178,043 1. Certificate of Deposits - - 2. Inter-Bank/ Financial Institutions Loan 11,895,446 6,074,858 3. Others 5,199,622 5,103,185

Total 2,194,275,722 1,584,987,354

*Interest received on investment (placements) made in foreign banks is shown under this heading

Schedule 18

71

INTEREST EXPENSES for the period July 17, 2007 to July 15,2008

Particulars Current Year Rs. Previous Year Rs. A. On Deposit Liabilities 916,372,736 645,034,565 1. Fixed Deposits 402,825,021 275,506,932 1.1 Local Currency 309,920,132 181,005,152 1.2 Foreign Currency 92,904,889 94,501,780 2. Savings Deposits 285,919,261 218,633,807 1.1 Local Currency 278,368,890 212,025,923 1.2 Foreign Currency 7,550,371 6,607,884 3. Call Deposit 227,628,454 150,893,826 1.1 Local Currency 214,505,554 135,199,660 1.2 Foreign Currency 13,122,900 15,694,166 4. Certificate of Deposits - - B. On Borrowings 75,785,662 40,495,699 1. Debenture and Bonds 53,703,668 38,543,997 2. Loan from Nepal Rastra Bank - - 3. Inter Bank/ Financial Institutions Borrowing 22,081,994 1,951,702 4. Other Corporate Body - - 5. Other LoansC. On Others - -

Total 992,158,398 685,530,264

Schedule 19

Commission And Discount for the period July 17, 2007 to July 15, 2008

Particulars Current Year Rs. Previous Year Rs. A. Bills Purchase and Discount 961,695 841,625 1. Local - - 2. Foreign 961,695 841,625 B. Commission 169,705,452 125,227,824 1. Letters of Credit 35,917,161 32,259,455 2. Guarantees 39,135,473 31,883,138 3. Collection Fee 455,481 284,476 4. Remittance Fee 21,652,542 18,176,299 5. Credit Cards/ Debit Cards 72,324,874 42,498,095 6. Share Underwriting/ Issues - - 7. Government Transactions - - 8. Agency Commission 198,079 81,187 9. Exchange Fee 21,841 45,173 C. Others 44,625,046 37,829,661

Total 215,292,193 163,899,110

Schedule 20


Other Operating Income for the period July 17, 2007 to July 15, 2008

Particulars Current Year Rs. Previous Year Rs. 1. Rental on Safe Deposit Lockers 8,397,861 6,566,610 2. Issue and Renewals of Credit Cards 551,469 650,929 3. Issue and Renewals of ATM Cards/ Debit Cards 21,479,521 10,154,970 4. Telex/ T.T. 13,682,499 12,567,551 5. Service Charges - - 6. Renewal Fees - - 8. Others 22,265,309 17,378,660

Total 66,376,659 47,318,720

Schedule 21

Exchange Gain/Lossfor the period July 17, 2007 to July 15, 2008

Particulars Current Year Rs. Previous Year Rs. (A) Revaluation Gain/ (Loss) 7,761,166 15,036,682 (B) Trading Gain (except Exchange Fee) 158,077,582 120,318,663

Total Income/ (Loss) 165,838,748 135,355,345

Schedule 22

EXPENSES RELATING TO EMPLOYEES for the period July 17, 2007 to July 15, 2008

Particulars Current Year Rs. Previous Year Rs. 1. Salary 83,530,575 70,975,347 2. Allowances 59,121,476 43,300,747 3. Contribution to Provident Fund 7,387,244 6,243,958 4. Training Expenses 4,330,860 4,272,398 5. Uniform 398,611 286,777 6. Medical 114,385 125,243 7. Insurance 8,854,968 7,689,210 8. Pension and Gratuity Provision 8,783,605 5,907,807 9. Others 14,628,261 6,569,114 a. Training Course Remuneration 116,100 293,573 b. Leave Compensation 3,945,092 416,546 c. Staff Lunch 4,531,741 2,903,207 d. Other incentives 6,035,328 2,955,788

Total 187,149,985 145,370,601

Schedule 23

73

OTHER OPERATING EXPENSES For the period July 17, 2007 to July 15, 2008

Particulars Current Year Rs. Previous Year Rs. 1. House Rent 42,294,900 34,078,978 2. Electricity and Water 13,489,475 10,367,072 3. Repair and Maintenance 2,689,817 2,855,570 (a) Building 1,395,731 1,425,151 (b) Vehicles 1,093,037 1,210,980 (c) Others 201,049 219,438 4. Insurance 8,235,651 7,229,641 5. Postage, Telex, Telephone, Fax 16,857,413 14,298,534 6. Office Equipment, Furniture and Repair 8,311,688 8,679,805 7. Travelling Allowances and Expenses 11,345,185 9,641,631 8. Stationery and Printing 24,898,837 15,809,397 9. Periodicals and Books 316,006 349,870 10. Advertisements & Business Promotion 18,352,321 15,326,130 11. Legal Expenses 337,285 1,086,791 12. Donations 349,611 451,992 13. Expenses Relating to Board of Directors 1,185,570 1,706,040 (a) Meeting Fees 1,082,000 1,586,000 (b) Other Expenses 103,570 120,040 14. Annual General Meeting Expenses 853,967 791,102 15. Expenses Relating to Audit 250,000 150,000 (a) Audit Fees 250,000 150,000 (b) Other Expenses - - 16. Commission on Remittances - - 17. Depreciation on Fixed Assets 70,301,655 52,645,017 18. Amortization of Expenses( Software) 12,255,076 8,255,551 19. Share/Debenture expenses 2,916,584 1,410,755 20. Technical Services Fee - - 21. Entertainment 3,821,739 3,037,932 22. Written Off Expenses - - 23. Security Expenses 11,064,540 7,877,889 24. Credit Guarantee Premium - 1,250,278 25. Commission and Discount - - 26. Others 63,026,475 46,130,655 (a) Fees for Services Others 7,749,861 7,658,656 (b) Lease Rent - - (c) Fuel for Vehicle 9,865,541 6,079,272 (d) Losses shortages written off 5,500 9,000 (e) Bank Charges & Fee 4,401,831 3,220,704 (f) Special Fee (Security Tax) - - (g) Debit/Credit Card Expenses 33,870,589 23,000,581 (h) Vehicle Renewal and other taxes 1,550,736 2,294,237 (i) Membership Fee 565,312 383,257 (j) Office Cleaning & Maintenance 1,968,024 1,362,550 (k) Misc. Expenses 3,049,081 2,122,398

Total 313,153,795 243,430,632

Schedule 24


Provision for Possible Loss for the period July 17, 2007 to July 15, 2008

Particulars Current Year Rs. Previous Year Rs. 1. Increase in Loan Loss Provision 130,214,237 128,817,738 2. Increase in Provision for Loss on Investment 5,400,000 - 3. Provision for Non Banking Assets 375,000 375,000 4. Provision for Other Assets - 526,183

Total 135,989,237 129,718,921

Schedule 25

Particulars Current Year Rs. Previous Year Rs. 1. Profit (Loss) on Sale of Investment - - 2. Profit (Loss) on Sale of Assets 6,215,235 1,212,811 3. Dividend (net) 832,500 213,323 a. Commercial Banks b. Grameen Banks 832,500 213,323 c. Financial Institutions d. Other Organized Institutions (1) Subsidiary Companies (2) Others4. Subsidies Received from Nepal Rastra Bank a. Reimbursement of losses of specified branches b. Interest Subsidy c. Exchange Counter5. Others

Total Non-Operating Income /(Loss) 7,047,735 1,426,134

Non-Operating Income/Lossfor the period July 17, 2007 to July 15, 2008

Schedule 26

Loss Provision Written Backfor the period July 17, 2007 to July 15, 2008

Particulars Current Year Rs. Previous Year Rs. 1. Loan Loss Provision Written Back 80,234,271 48,089,011 2. Provision against Non Banking Assets Written Back 2,942,500 - 3. Investment Provision Written Back - 4. Provision Against Other Assets Written Back 18,400,000 18,687,773

Total 101,576,771 66,776,784

Schedule 27

75

Particulars Current Year Rs. Previous Year Rs. 1. Recovery of write off Loan - - 2. Voluntary Retirement Scheme Expenses - - 3. Loan Write-Offs (28 (A)) - - 4. Other Expenses/ Income - -

Total - -

Profit/ Loss from Extra Ordinary Activities for the period July 17, 2007 to July 15, 2008 Schedule 28

Statement of Loan Written-Off (F.Y. 2007/2008)

S.N. Types of Loan Written off Amount

Type of Security

Basis of valuation of

collateral

Loan Approved by Name/

Designation

Initiations made for recovery

Remarks

1 Working Capital Loan - - - - - - 2 Project Loan - - - - - - 3 Fixed Capital Loan - - - - - - 4 Personal Loan - - - - - - 5 Other Loan - - - - - -

Total - - - - - -

Schedule 28(A)


Statement of Loans and Advances Extended to Directors/ Chief Executive/ Promoter/ Employees and Shareholders Holding More Than 1 Percent Shares.(As at July 15, 2008)

The Statement of amount, include under total amount of Bills Purchased and Discounted, Loans, Advances and Overdraft, provided to the Directors, Chief Executive, Promoters, Employees, Shareholders holding more than 1 percent shares and to the individual members of their undivided family OR against the guarantee of such persons OR to the organizations or companies in which such individuals are managing agent, are as follows:

Schedule 29Name of Promoter/

Director/ Chief ExecutivePrincipal Interest Principal Interest Addition Principal Interest

(A) Directors - - - - - - -

(B) Chief Executive - - - - - - -

(C) Promoters - - - - - - -

(D) Employees - - - - - - -

(E) Shareholders holding more than 1%

- - - - - - -

Total - - - - - - -

Last Years Balance This Year RecoveryThis year Balance as of Ashad end

77

CAPITAL ADEQUACY

Particulars Current Year Rs. Previous Year Rs. A) Core Capital 2,658,914.91 1,852,197.40 1) Paid up Capital 1,203,915.40 801,352.60 2) Share Premium - - 3) Non-Redeemable Preference Share - - 4) General Reserve Fund 655,856.40 516,056.40 5) Cumulative Profit/ Loss (up to previous FY) 121,354.30 45,950.06 6) Current Year Profit/Loss as per Balance Sheet (53,875.61) 75,404.24 7) Capital Redemption Reserve - - 8) Capital Adjustment Fund/ Proposed Bonus Share 401,305.13 200,338.15 9) Debenture Redemption Fund 330,359.29 213,095.95 Less: Excess Investment(above allowable limit of 10 % as per NRB Directive 8 in the shares of Swabalamban Bikash Bank)

- -

B) Supplementary Capital 1,232,320.57 999,421.61 1) Loan Loss Provision 274,449.43 173,495.47 2) Assets Revaluation Reserve - - 3) Hybrid Capital Instrument - - 4) Unsecured Subordinated Term Debt 1,050,000.00 800,000.00 (Redeemable Debenture) Less: Discount to Maturity (120,000.00) 5) Exchange Equalization Reserve 27,839.64 25,894.64 6) Additional Loan Loss Provision - - 7) Investment Adjustment Reserve 8) Provision for Loss on Investment/ Others 31.50 31.50 C) Total Capital Fund (A+B) 3,891,235.47 2,851,619.00 D) Minimum Capital Fund required to be maintained on the basis of Risk Weighted Assets Capital Fund (@11.0% Percent) 3,793,299.56 2,577,919.78 Core Capital (@5.5% Percent) 1,896,649.78 1,288,959.89 Capital Fund (Excess/ (Short)) 97,935.91 273,699.22 Core Capital (Excess/(Short)) 762,265.13 563,237.51

Schedule 30(Rs. in '000)


Table of Risk Weighted Assets Statement

Weightage On- Balance Sheet Assets Amount Risk Weighted

Assets Amount Risk Weighted

Assets Cash Balance 0% 1,464,482.72 - 763,984.32 -

Gold (tradable) 0% - - - - Balance with Nepal Rastra Bank 0% 1,820,006.04 - 1,381,351.56 - Investment in Govt. Securities 0% 3,155,000.00 - 3,256,400.00 - Investment in NRB Bonds 0% - - - - Fully secured loan against own Fixed Deposit Receipt 0% 251,071.35 - 192,945.55 - Fully Secured loan against Govt. Securities 0% 10,805.20 - 4,927.66 - Balance with Domestic banks and Fin. Institutions 20% 70,818.81 14,163.76 20,822.73 4,164.55 Fully Secured FDR loan against Fixed Deposit Receipt of other Banks

20% 24,894.39 4,978.88 37,198.68 7,439.74

Balance with foreign banks 20% 399,634.00 79,926.80 275,355.59 55,071.12 Money at Call 20% - - 362,970.00 72,594.00 Loan against the guarantee of internationally rated banks

20% - - - -

Other Investments with internationally rated banks 20% 3,664,478.13 732,895.63 3,194,387.76 638,877.55 Investment in Shares, Debentures and Bonds 100% 59,945.50 59,945.50 35,253.00 35,253.00 Other Investments 100% - - 19,639.22 19,639.22 Loan, Advances and Bills Purchased/ Discounted 100% 27,242,533.79 27,242,533.79 17,534,028.02 17,534,028.02 Fixed Assets 100% 970,091.76 970,091.76 759,456.34 759,456.34 All other Assets* 100% 277,596.87 277,596.87 234,796.85 234,796.85 Total (A) 39,411,358.56 29,382,132.99 28,073,517.29 19,361,320.38 Off Balance Sheet itemsBills Collection 0% 857,189.95 - 529,164.05 - Forward Foreign Exchange Contract 10% 2,170.35 217.04 15,716.12 1,571.61 Letters of Credit with Maturity of less than 6 months (full value)

20% 3,282,807.33 656,561.47 1,918,104.46 383,620.89

Guarantees provided against counter guarantee of internationally rated foreign banks

20% 478,864.35 95,772.87 219,011.94 43,802.39

Letters of credit with maturity of more than 6 months (full value)

50% 940,339.70 470,169.85 2,037,386.82 1,018,693.41

Bid Bond 50% 347,985.70 173,992.85 217,635.30 108,817.65 Performance Bond 50% 1,048,983.32 524,491.66 795,295.39 397,647.70 Advance Payment Guarantee 100% 767,491.61 767,491.61 413,200.23 413,200.23 Financial Guarantee 100% - - - - Other Guarantee 100% 1,458,711.04 1,458,711.04 1,011,329.75 1,011,329.75 Irrevocable Loan Commitment 100% - - - - Contingent liability in respect of Income Tax 100% 9,209.50 9,209.50 9,209.50 9,209.50 Loan under Repurchase agreement 50% - - 1,026,771.40 513,385.70 All other contingent liabilities 100% 945,790.55 945,790.55 173,035.13 173,035.13

Total (B) 10,139,543.40 5,102,408.43 8,365,860.09 4,074,313.95 Total Risk Weighted Assets 49,550,901.96 34,484,541.42 36,439,377.38 23,435,634.33

Schedule 30 (A)Rs. in '000

Current Year Previous Year

79

5 Years Principal Indicators

Particulars Indicators F/Y 2003/2004

F/Y 2004/2005

F/Y 2005/2006

F/Y 2006/2007

F/Y 2007/2008

(F/Y 060/61) (F/Y 061/62)

(F/Y 062/63)

(F/Y 063/64)

(F/Y 064/65)

1. Percent of Net Profit/ Gross Income Percent 16.71 20.26 23.99 25.07 25.332. Earning Per Share Rs. 51.70 39.50 59.35 62.57 57.873. Market Value Per Share Rs. 940 800 1,260 1,729 2,450 4. Price Earning Ratio Ratio 18.18 20.25 21.23 27.63 42.335. Dividend (including bonus) on share capital Percent 15 12.5 55.46 30 40.836. Cash Dividend on Share Capital Percent 15 12.5 20 5 7.57. Interest Income/ Loan & Advances Percent 9.03 7.36 7.32 7.33 6.93 8. Staff Expenses/ Total operating Expenses Percent 37.52 34.65 38.77 37.39 37.419. Interest Expenses on Total Deposit and Borrowings

Percent 2.74 2.43 2.52 2.71 2.79

10.Exchange Gain/ Total Income Percent 9.63 8.95 6.77 6.77 6.0311.Staff Bonus/ Total Staff Expenses Percent 28.66 38.22 41.84 49.76 54.5012.Net Profit/Loan and Advances Percent 2.08 2.22 2.66 2.82 2.5313.Net Profit/Total Assets Ratio 1.13 1.42 1.61 1.79 1.7714.Total Credit/Deposit Percent 63.68 73.33 69.63 72.56 79.9115.Total Operating Expenses**/ Total Assets Percent 1.78 1.71 1.43 1.38 1.2716.Adequacy of Capital Fund on Risk Weigted Assets

Percent

a. Core Capital Percent 7.22 8.52 7.97 7.90 7.71 b. Supplementary Capital Percent 4.02 3.06 4.01 4.26 3.57 c. Total Capital Fund Percent 11.18 11.58 11.97 12.17 11.28 17.Liquidity (CRR) Percent 9.19 9.78 13.61 10.47 10.9118.Non-performing credit/ Total credit Ratio 2.47 2.69 2.07 2.37 1.12 19.Weighted Average Interest Rate Spread Percent 5.98 4.30 3.90 3.99 4.00 20.Book Net-worth Rs. in '000 729,048 1,180,173 1,415,440 1,878,124 2,686,786 21.Total Shares No. 2952930 5877385 5905860 8013526 1203915422.Total Staffs No. 325 353 390 514 62223.Others

Schedule 31

** Total Operating Expenses = Staff Expenses+ Office Operating Expenses


Schedule 32

PRINCIPAL ACCOUNTING POLICIES

1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

a. The financial statements have been prepared in conformity with generally accepted accounting principles, Nepal Accounting Standards, Company Act 2063, Bank & Financial Institution Act, 2063 and Nepal Rastra Bank Directives.

b. The financial statements are prepared on historical cost convention except where otherwise stated.

c. The bank follows accrual system of accounting for the preparation of financial statements except where otherwise stated.

d. All the formats of the financial statements are in accordance with the directives of Nepal Rastra Bank.

2. INTEREST AND COMMISSION INCOME

a. Interest on loans and advances are recognized on cash basis as per Nepal Rastra Bank’s (NRB) directives. (Refer NOTES TO ACCOUNT # 6)

b. Commission and fees are recognized as income on cash basis except commission exceeding NPR 100,000 earned on guarantees covering more than a year is accounted for on accrual basis over the period of the guarantee.

3. FOREIGN CURRENCY TRANSACTIONS

a. Foreign currency assets and liabilities held at Balance Sheet date have been translated at buying rate of exchange on that date.

b. Profit or loss arising from difference in buying and selling rates on foreign currency transactions are recorded as “Trading Gain or Loss”.

c. Profit or loss arising from the fluctuation of foreign currencies is recorded as “Revaluation Gain or Loss” as and when such fluctuation takes place. Out of total Revaluation Gain if any, 25% is transferred to Exchange Fluctuation Fund at the end of the year as per NRB directives.

4. LOAN LOSS PROVISION & BAD DEBTS WRITTEN OFF

a. Provision for loan losses has been made in accordance with Nepal Rastra Bank’s directives.

b. Provision for loan losses have been deducted from the loan and advances as per the directives of Nepal Rastra Bank & accordingly loan & advances net of provision has been presented in the Balance Sheet.

c. While writing off of Bad Debts it will be charged to Profit & Loss account and Provision made for the same will be written back as per NRB directives.

81

Procedure for writing off of bad debts will be according to the provision made under Loans Write Off bylaws of the bank, which has been duly approved by Nepal Rastra Bank.

The bank has taken a policy of settlement of the bad loan by waiver of reasonable amount of interest. Case to case basis settlement is made based on the justification of each case.

5. DEPRECIATION

Fixed Assets are depreciated over estimated life of assets on straight-line basis from the following month of the purchase date. Maintenance and repairs expenses are charged to profit and loss account as incurred.

6. EXPENSES NOT WRITTEN OFF

Cost of computer software are classified under “Expenses Not Written off ” as disclosed in Schedule 16 relates to cost of computer software which are being amortized over a period of five years from the date of acquisition.

7. NON CAPITALIZED ITEMS

Capital items of value below Rs.10,000 are expensed off in the year of purchase itself.

8. NON BANKING ASSETS a. Non Banking Assets acquired till F.Y. 2061/62 are valued at amount equivalent to the outstanding

amount of principal and interest due at the time of acquisition. Where the total outstanding amount of principal and interest in the year of acquisition of asset exceeds the market value of such assets, the assets are valued at the market price of assets and the difference amount is charged to profit and loss account in the year of acquisition according to then NRB directives.

b. From F.Y. 2062/63 Non Banking Assets will be valued at amount equivalent to the outstanding amount of principal due at the time of acquisition and interest receivable of such loan will be set off against interest suspense. Where the total outstanding amount of principal in the year of acquisition of asset exceeds the market value of such assets, the assets are valued at the market price of assets and the difference amount is charged to profit and loss account in the year of acquisition.

c. Where the amount realized upon disposal of the acquired assets vary at a future date, the difference will be adjusted to the Profit & Loss Account in the year of disposal.

9. INVESTMENT

a. Investments on securities listed in the Stock Exchange are valued at the lower of cost or market price.

b. Investments on securities, which are not listed in the Stock Exchange, are valued at cost and provisions are made as per NRB directives.


10. RETIREMENT BENEFITS

Provision for liability of gratuity is made on accrual basis, by calculating actual liability of gratuity for entire staff, at the end of the financial year.

11. INCOME TAX

Provision for Income Tax is made on the total income at the rate applicable for that year in accordance with the Income Tax Act. Any excess or shortfall in tax provision is adjusted to the profit and loss account in the year, when tax assessment is completed. Further, deferred tax liability has been calculated in accordance with the provisions of Nepal Accounting Standard.

12. CONTINGENT LIABILITY

Any liability of contingent nature, if material, is disclosed in separate schedule, forming the part of Balance Sheet.

83

SCHEDULE 33

NOTES TO ACCOUNTS

1. STAFF PROVIDENT FUND & GRATUITY PROVISIONStaff Provident Fund has been transferred to NIBL Retirement Fund as provided by Income Tax Act 2058.

During the year an additional provision of NPR 8,783,605 is made in respect to gratuity payable as per the Service Regulation of the bank.

Gratuity provision provided in balance sheet refers to the gratuity liability as at 15.07.2004, gratuity payable onwards has been transferred to NIBL Retirement Fund account as provided by Income Tax Act 2058.

2. INCOME-TAX LIABILITYNo provision for the additional income tax liability of NPR 9,209,500 for the financial years 1997/98 to 2000/01 has been made, as it is disclaimed/ disputed and appeals have been filed at the Revenue Tribunal/ Appellate Court by the bank against the re-assessment of the bank’s income by income tax authority.

Income tax provision amounting to NPR 321,287,519 made for the F.Y. 2007/2008 is subject to tax audit.

Deferred tax calculation for the temporary difference upto F.Y. 2063/64 amounting to NPR 1,941,340 has been shown under other liabilities debited to income tax. The figure has been arrived at by applying the prevailing income tax rate to the Net Temporary Difference figure of Rs 6,162,985.

3. EXCHANGE FLUCTUATION FUNDDuring the year, NPR 1,945,000 is transferred to Foreign Exchange Fluctuation Fund, equivalent to 25% of Exchange Fluctuation Gain (NPR 7,761,166) as per the directives of Nepal Rastra Bank.

4. CHANGES IN DEPOSIT LIABILITIESThe total deposit of the bank has increased by NPR 9,962.87 million to NPR 34,451.73 million, from the previous year’s balance of NPR 24,488.86 million as following:

NPR in Million

Particulars FY FY Increase/ (Decrease) Percentage2006/2007 2007/2008(2063/64) (2064/65)

Current Deposits 2,175.03 3,138.67 44.30Margin Deposits 371.66 607.06 63.34Saving Deposits 10,742.33 13,688.77 27.43Fixed Deposits 7,516.69 7,944.23 5.69Call Deposits 3,683.15 9,072.99 146.34Total Deposits 24,488.86 34,451.73 40.68


5. LOANS DISBURSED, RECOVERY AND WRITTEN OFFDuring the year, total loan amounting to NPR 144,010 million has been disbursed and NPR 134,250 million has been recovered.

6. INTEREST SUSPENSEInterest income from loans and advances are shown in cash basis, total interest receivable from loan and advances as at 15.07.2008 amounting to NPR 106,677,388 million has been transferred to Interest Suspense Account as per Nepal Rastra Bank’s directives.

7. TABLE OF LIQUIDITY DETAILS(NPR in ‘000)

Assets 1-90 Days 91-180 Days 181-270 Days 271-365 Days

Above one Year

Total Amount

Cash Balance 1,430,700 0 0 0 33,783 1,464,483Balance with Banks 2,290,459 0 0 0 0 2,290,459Investment made with Foreign Banks 1,412,666 1,775,777 10,960 120,575 344,500 3,664,478Investment in HMG Bonds 510,000 450,000 520,000 1,675,000 0 3,155,000Investment in NRB Bonds 0 0 0 0 0 0InterBank Lending 0 0 0 0 0 0Loans & Advances 12,601,105 3,280,878 3,337,285 2,454,220 5,855,817 27,529,305Total Assets 18,244,929 5,506,655 3,868,245 4,249,795 6,234,100 38,103,724LIABILITIES Borrowings 0 0 0 0 0Current Deposits 3,076,977 0 0 0 61,692 3,138,669Saving Deposits 12,850,048 0 0 0 838,719 13,688,767Fixed and Call Deposits 12,492,386 1,267,655 561,688 1,181,931 1,513,567 17,017,228Debentures 0 0 0 0 1,050,000 1,050,000

28,419,411 1,267,655 561,688 1,181,931 3,463,978 34,894,66310,174,482 4,239,000 3,306,557 3,067,864 2,770,122 3,209,061

Cummulative Net Financial Assets 10,174,482 5,935,481 2,628,924 438,940 3,209,061 0

8. NON BANKING ASSETSNon Banking Assets amounting to NPR 2,942,500 has been sold during the year. Provision on Non Banking assets has been made as required by NRB Directives.

9. EXPENSES NOT WRITTEN OFFCost of computer software classified under “Expenses Not Written off ” disclosed in Schedule 16 relates to cost of computer software which are being amortized over a period of five years from the date of acquisition. During the year, NPR 12,255,076 has been amortized by charging to Profit and Loss account.

Out of the unamortized amount of Rs. 6,170,671 and Rs. 188,000 in the banking software Pumori and YCS respectively, Rs. 3,179,336 (i.e. 50% of the book value) has been written off this year and the balance

Total Liabilities

Net Financial Assets

85

will be written off the next year, as the bank will be implementing a new software from the coming year and the existing software will be discontinued.

10. PROVISION FOR LOAN LOSS & LOSS PROVISION WRITTEN BACK

During the year NPR 130,214,237 has been charged on Profit and Loss account for loan loss provision as required by Nepal Rastra Bank directives.

Provision amounting NPR 80,234,271 has been written back during the year.

11. PROVISION FOR OTHER ASSETSClaim settlement under guarantee amounting to NPR 18,400,000 by our agency bank, which was disputed and under legal process has been recovered and recognized as income.

12. DEBENTURE ISSUETotal Debenture outstanding NPR 1050 million includes debenture of NPR 300 million issued on 24.11.2003, NPR 250 million issued on 26.06.2006, NPR 250 million issued on 26.06.2007 and NPR 250 million issued on 09.07.2008.

Out of total NPR 330 million in Debenture Redemption Fund NPR 117.27 million (NPR 42.85 million for NPR 300 million Debenture (2067), NPR 35.72 million for NPR 250 million Debenture (2070), NPR 35.72 million for NPR 250 million Debenture (2071) and NPR 2.98 million for 250 million Debenture (2072) on 7 years pro rata basis) has been transferred from Profit and Loss appropriation account to Debenture Redemption Fund this year.

13. COMPARATIVE FIGURES FOR 2006/2007Previous year’s figures have been regrouped or rearranged wherever required to make them comparable with the current year’s figures.

14. ROUNDING OFFFigures have been rounded off to the nearest rupee.


Current Year Rs. Previous Year Rs. Industry/ Sector Agriculture 142.7 156.87 Mining 0 5.44 Manufacuring 8353.7 5,858.35 Consruction 1335.4 771.80 Metal Products, Machinery and Electronics Equipment and Assemblage 325.4 144.44 Production and Assemble of Transportation Equipment 51.2 11.42 Transport, Communication and Public Utilities 1191.9 861.02 Wholesales and Retailers 4077.7 3,264.43 Finance, Insurance And Real Estate 2799.9 961.73 Sevice Industries 269.2 2,125.48 Others 2691.8 3,608.12

Total 27529.3 17,769.10

Sectorwise Detail of Loan and AdvancesF/Y 2064-65

Rs. in Million

AgricultureMiningManufacuringConsructionMetal Products, Machinery and Electronics Equipment and AssemblageProduction and Assemble of Transportation EquipmentTransport, Communication and Public Utilities Wholesales and RetailersFinance, Insurance And Real EstateSevice IndustriesOthers

87

Gross Value Added StatementF/Y 2064-65

PARTICULARSRs. Rs. % Rs. Rs. %

SOURCE OF VALUE ADDITION:Income from Operating and Non-operating activities 2,750.41 1,999.76 Less:Operating, Administrative and Non-Operating expenses 1,295.21 965.54 Gross value added before depreciation 1,455.19 100.00 1,034.22 100.00 APPLICATION OF VALUE ADDITION:TO Employees 289.15 19.87 217.71 21.05 TO Government 323.23 22.21 221.98 21.46 TO Repair & Maintenance 70.30 4.83 52.65 5.09 TO Capital Provider: Interest on Borrowings 75.79 40.50 Dividend to Shareholders 491.60 567.38 38.99 240.41 280.90 27.16 TO Expansion, Reserves, & Retaintion 326.49 306.94 Less: Last year's accumulated profit (121.35) 205.13 14.10 (45.95) 260.99 25.24

TOTAL 1,455.19 100.00 1,034.22 100.00

Current Year Previous Year

Rupees in Million


(Balance Sheet)2060/61 2061/62 2062/63 2063/64 2064/65 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008

Cash & Bank Balance 1,226,923 1,340,481 2,335,521 2,441,514 3,754,942 Money at Call & Investment 4,172,483 4,074,189 5,672,869 6,868,650 6,874,024 Loans & Advances 7,338,566 10,453,164 13,178,152 17,769,100 27,529,305 Net Fixed Assets 249,788 320,592 343,450 759,456 970,092 Other Assets 476,177 202,226 201,090 234,797 277,597

Total Assets 13,463,937 16,390,652 21,732,081 28,073,517 39,405,959 Liabilities Borrowings 361,500 350,000 550,000 800,000 1,050,000 Customers' Deposit 11,524,680 14,254,574 18,927,306 24,488,856 34,451,726 Other Liabilities 640,269 278,796 437,392 423,866 684,794 Provision For Loan Loss 208,441 327,108 401,944 482,673 532,652

Total Liabilities 12,734,889 15,210,479 20,316,642 26,195,394 36,719,173 Net Assets 729,048 1,180,173 1,415,440 1,878,124 2,686,786 Shareholders' FundPaid-Up Capital 295,293 587,739 590,586 801,353 1,203,915 Profit Capitalization - - - - - Reserve Fund 419,092 567,511 778,904 955,417 1,415,392 Profit & Loss Account 14,663 24,924 45,950 121,354 67,479 Total Shareholders' Fund 729,048 1,180,173 1,415,440 1,878,124 2,686,786

Five Years Financial Summary

Assets

NPR 000's

89

Five Years Financial Summary

(Profit & Loss Account)2060/61 2061/62 2062/63 2063/64 2064/65

2003/2004 2004/2005 2005/2006 2006/2007 2007/2008Loans, Advances & Overdrafts 663,016 769,195 964,689 1,302,122 1,907,261 Others 68,387 117,605 208,053 282,865 287,014 Interest Expenses (326,202) (354,549) (490,947) (685,530) (992,158)

Net Interest Income 405,201 532,251 681,795 899,457 1,202,117 Exchange Gain 87,980 102,518 125,747 135,355 165,839 Commission Income 55,747 93,551 115,942 163,899 215,292 Other Operating Income 36,816 56,567 46,607 114,096 167,953 Other Non-Operating Income 1,768 6,192 391 1,426 7,048

Total Income 587,512 791,079 970,482 1,314,233 1,758,249 Staff Expenses 89,749 97,004 120,664 145,371 187,150 Operating Expenses 149,479 182,915 190,605 243,431 313,154 Non-Operating Expenses - - - - Staff Bonus 25,719 37,075 50,491 72,338 101,996

Total Expenses 264,947 316,994 361,760 461,139 602,300 Profit Before Tax 322,565 474,085 608,722 853,094 1,155,950

Loan Loss Provision 91,092 140,409 103,808 129,719 135,989 Income Tax 78,802 101,529 154,378 221,977 323,229

Net Profit/(Loss) After Tax 152,671 232,147 350,536 501,399 696,732

Interest Income

NPR 000's

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