Annual Report 2018-19.Pdf

Financial Highlights

Deposits (NPR. In Billion) Loans and Advances (NPR. In Billion) 92.28 83.44 79.18 69.24 58.23 46.42 51.84 40.90 34.05 28.59

2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

As at Mid July As at Mid July

Investments (NPR. In Billion) Total Assets (NPR. In Billion)

16.96 109.06 91.82 13.17 70.00 10.73 9.16 55.96 7.74 40.30

2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

As at Mid July As at Mid July

Shareholders Fund (NPR. In Billion) Net Interest Income (NPR. In Million) 11.99 10.79 4,208.70 9.06 3,015.52 5.35 2,242.12 3.43 1,722.30 1,139.39

2015 2016 2017 2018 2019 2014/15 2015/16 2016/17 2017/18 2018/19

As at Mid July Fiscal Year

Operating Profit (NPR. In Million) Net Profit (NPR. In Million) 2,285.10 3,224.90 2,415.20 1,697.50 1,998.10 1,304.10 1,478.50 996.05 925.70 624.14

2014/15 2015/16 2016/17 2017/18 2018/19 2014/15 2015/16 2016/17 2017/18 2018/19

Fiscal Year Fiscal Year Financial Highlights

Non Performing Loans (%) CAR (%)

15.57 11.08 12.36 12.41 13.19

0.073 0.019 0.010 0.030 0.080

2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

As at Mid July As at Mid July

ROE (%) DPS (%) No. of Branches No. of ATM

74 78 23.20 21.05 22.69 18.67 74 53 69 16.00 47 21.05 40 18.19 15.79 14.39 14.00 46 38 40

2014/15 2015/16 2016/17 2017/18 2018/19 2015 2016 2017 2018 2019 Fiscal Year As at Mid July

Composition of Income Composition of Expenses Interest Interest Forex Personnel 13% Others Income Tax Others 3% 10%

90% 7% 67% 10% Contents

S.N. Particulars Page No.

1 Profile 1

2 Chairman's Speech 2

3 Director's Report 3

4 Additional Disclosures as per section 109 of the Companies Act, 2063 9

5 Disclosure Related to Sub Rule (2) of Rule 26 as per annexure 15 of Securities Registration and Issuance Regulation, 2073 11

6 Independent Auditor's Report 12

7 Consolidated Statement of Financial Position 14

8 Consolidated Statement of Profit or Loss 15

9 Consolidated Statement of Other Comprehensive Income 16

10 Consolidated Statement of Cash Flows 17

11 Consolidated Statement of Changes in Equity 18

12 Notes to the Financial Statements and Significant Accounting Policies 20

13 Disclosures and Additional Information 72

14 Comparision-Unaudited and Audited Financial Statements of FY 2018/19 86

15 Capital Adequacy 87

16 Sanima Capital's Financial Statements 95 Profile

Sanima is a leading commercial bank in Nepal, promoted by Sanima recognizes that in the capacity of a commercial prominent Non-Resident Nepali’s (NRNs) that commenced bank, it is an inevitable part of the society’s economic organ operations in 2004 as a National Level Development Bank. and it draws on societal resources for day to day functioning. Since February 2012, Sanima has upgraded to an "A" Class The bank is a trustee of public money in addition to being Commercial Bank with its registered office at 'Alakapuri', a corporate body. Therefore, apart from its core objectives, Naxal, Kathmandu, Nepal. the bank has certain obligations to contribute to society as a whole. Sanima believes in creating societal impact through Sanima is committed to provide one window financial replicable, sustainable and scalable CSR programmes. solutions to various customer segments and to achieve a healthy level of growth in profitability, consistent with the Capital Structure NPR bank's risk appetite. The Bank has displayed dedication Authorized Capital 9,000,000,000 towards maintaining the highest level of ethical standards, Issued Capital 8,001,255,440 professional integrity, corporate governance and regulatory Paid Up Capital 8,001,255,440 compliance. Consequently, Sanima is perceived as a strong and reliable player in the banking industry. Sanima has always been committed to meet customer expectations in all areas of its business through continuous improvement.

Sanima Bank offers a wide range of banking products and financial services to corporate and retail customers through 79 full-fledged branches and 1 extension counter spread across the geography of Nepal. The bank is actively exploring alternative channels and also expects to add more branches in the coming days. Annual Report 2018/19

Chairman's Speech

Respected Shareholders,

It gives me immense pleasure to welcome our shareholders the areas of health & education and is also aiming to extend and guests to the 15th Annual General Meeting of Sanima Bank continuity to the same. The bank shall continuously focus on Limited. I am equally delighted to report that Sanima Bank has Technology, Human Resource Management, Risk Management, delivered a strong performance in the Fiscal Year 2018/19 as Enhanced Customer Satisfaction etc. to grow in a strong and well. sustainable manner. Bank has already implemented enhanced Core Banking Software. Despite huge competition in the banking industry, Sanima Bank has been able to maintain successful identity in financial sector. Achievement and activities of the bank till date have been The Bank has grown income in a strong, safe and sustainable disclosed in detail in the ‘Annual Report of Board of Directors’. manner while efficiently managing both cost and capital. For this We remain focused on improving our service to our clients, achievement, I would like to thank all shareholders, customers, generating strong returns for our investors and contributing well-wishers, employees, other stakeholders and all associated even more to the communities in which we operate. organizations for their valuable contribution. I express my sincere gratitude to all our shareholders and The Bank (inclusive of Sanima Capital) has been able to guests for your continued support and cooperation. I would increase net profit by 34.68% in fiscal year 2018/19 on y-o-y like to extend my heartfelt gratitude to all the stakeholders, basis generating the net profit of NPR Two Billion Two Hundred Government Entities, Nepal Rastra Bank, Securities Board, Seventy Three Million Five Hundred Sixty Seven Thousand. It has Office of Company Registrar, Nepal Stock Exchange Limited, been proposed to distribute 10% stock dividend and 11.05% External Auditors, Media and all well-wishers for their valuable cash dividend from the retained earnings. suggestions, feedbacks and continued support. I look forward to continuous guidance from the Board of Directors, dedication and As banking plays a crucial role at the heart of the economy and in hard work from our staff members, and valuable advice, trust & the lives of individuals, we remain committed in Nepal’s economic support from all our shareholders and stakeholders. growth by supporting our clients and customers in various ways. On the corporate social responsibility front, Sanima Bank has Once again, I welcome you all to this 15th Annual General been contributing to deprived communities through activities in Meeting and wish you prosperity and progress.

Thank you! Binaya Kumar Shrestha Chairman September 22, 2019

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Director’s Report

Respected Shareholders, Credit and Deposit

Sanima is performing well under proper guidance aligned In the review year, credit from Banks and Financial with appropriate strategy and we have continued to provide Institutions increased by 19.4 percent compared to a reasonable returns to our shareholders. Sanima’s position growth of 22.5 percent in the previous year. Similarly has been upgrading in terms of financial indicators and we deposits collection increased by 18 percent compared to a are making efforts to be in the frontline. Sanima Bank has growth of 19.2 percent in the previous year. Growth of credit been able to generate profit since its inception and despite by 19.4 percent and deposits by 18 percent clearly reflects of various adversities in the banking sector, it has been able tight liquidity situation in market. to strengthen business and profitability. Share of Institutional deposit in total deposit of Banks and A. Synopsis of Financial Performance Financial Institutions stood at around 45 percent likely in the NPR In Million previous year. Share of demand, saving, and fixed deposits

Details Mid July Mid July Change (%) in total deposits stood at 9.7 percent, 32.8 percent and 46.3 2019 2018 percent respectively in mid-July 2019. Such shares were Net Loans and Advances 83,439 69,243 20.50 9.3 percent, 34.5 percent, and 44.8 percent respectively Investments 16,959 13,173 28.74 a year ago. Deposit 92,284 79,183 16.54

Profit/ Loss FY 2018/19 FY Change (%) In the mid July 2019, 64.4 percent against the collateral of 2017/18 land and building and 13.5 percent against the collateral Net Interest Income 4,209 3,016 39.57 of current assets (such as agricultural and nonagricultural Operating Profit 3,225 2,415 33.53 products of the total outstanding credit of the Banks and Net Profit 2,258 1,698 33.02 Financial Institutions. Such ratios were 61.7 percent and FY 14.4 percent respectively a year ago. Other Details FY 2018/19 2017/18 Change (%) Stock and Cash Dividend 1,684 1,120 50.37 During the review year, loans to agriculture sector increased CAR (%) 13.19 12.41 0.78 by 42.5 percent, industrial production sector increased Non-Performing Loan by 20.3 percent, construction sector increased by 22.2 (%) 0.08 0.03 0.05 percent, wholesale and retail sector increased by 15.7 percent, service industry sector increased by 24.3 percent During the review year, loans and advances of the bank and transportation, communication and public sector increased by 20.50 percent whereas deposit mobilization increased by 32.8 percent. increased by 16.54 percent, operating profit increased by 33.53 percent and net profit by 33.02 percent. Term loan extended by Banks and Financial Institutions increased by 32.8 percent, overdraft increased by 10.9 B. Country's Macroeconomic Situation percent, trust receipt (import) loan increased by 11.7 percent, demand and working capital loan increased by In fiscal year 2018/19, Real Gross Domestic Product (GDP) 23.6 percent, real estate loan (including residential personal growth rate at Producer’s Price was estimated to be 7.1 home loan) increased by 12 percent, margin nature loan percent which was 6.3 percent in previous year. High increased by 10.5 percent and hire purchase loan increased agricultural productivity, smooth energy import, high pace by 5.8 percent in the review year. in construction related activities, expansion of industrial production and high immigration of tourist leads high Import Export economic growth rate. Share of agriculture, industry and service sectors in GDP stands 27 percent, 15.2 percent and In the review period, merchandise imports increased 13.9 57.8 percent respectively in 2018/19. During review year, percent to Rs.1,418 billion and 540 million compared to an gross domestic saving to Gross Domestic Product stands increase of 25.8 percent in the previous year. Total trade 20.5 percent. deficit widened 13.5 percent to Rs.1,321 billion and 430

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million in review year. The export-import ratio increased to 4.97 percent in mid-July 2019 from 3.74 percent a marginally to 6.8 percent in the review year from 6.5 year ago. The weighted average inter-bank transaction rate percent in the corresponding period of the previous year. among commercial banks increased to 4.52 percent in Commodity-wise, import of petroleum products, readymade mid-July 2019 from 2.96 percent a year ago. garment, electrical goods, other machinery and parts, M.S. billet, among others, increased. However, imports of cement, The weighted average deposit rate and lending rate of transportation equipment and parts, telecommunication commercial banks stood at 6.60 percent and 12.13 percent equipment and parts, medical equipment and tools, respectively in mid-July 2019. Such rates were 6.49 percent polythene granules, among others, decreased. and 12.47 percent respectively in previous year. Similarly, average base rate of commercial banks decreased to 9.57 Foreign Exchange Reserve percent in mid-July 2019 from 10.47 percent a year ago.

Based on the imports of current fiscal year, the foreign Refinance exchange holdings of the banking sector is sufficient to cover the prospective merchandise imports for 8.9 months The outstanding refinance amount reached Rs. 22 billion and merchandise and services imports for 7.8 months. and 410 million in mid July 2019 compared to Rs.12 Gross foreign exchange reserves as on mid-July 2019 was billion and 230 million in mid-July 2018. Of which general Rs.1038 billion and 920 million which stood at Rs.1102 refinance has highest share amounting to Rs. 19 billion billion and 590 million in the previous year. and 310 million. The outstanding amount of refinance extended to BFIs for providing concessional housing loan to Remittance earthquake victims stands at Rs.2 billion and 210 million in mid-July 2019 to 1578 earthquake victims. Despite of decrease in number of Nepalese workers migrated for foreign employment by 32.6 percent; remittance was Government Debt increased by 16.5 percent in the review period which was increased by 8.6 percent in the previous year. Government of Nepal mobilized domestic debt of Rs. 62 billion and 70 million in fiscal year 2018/19. Net domestic Current Account and BOP Position debt mobilization in the review year stands at 1.8 percent of GDP which stood at 13 percent in the previous year. Current account marked a deficit of Rs. 265 billion and 370 million in the review year which was Rs. 247 billion and Capital Market 570 million in previous year. Similarly, Balance of Payments (BOP) remained at a deficit of Rs.67 billion and 400 million The NEPSE index increased by 3.8 percent and stood at in the review year compared to a surplus of Rs.960 million 1,259.0 points in mid-July 2019 which had fell by 23.4 in the previous year. Capital transfer amounted to Rs. 15 percent and remained at 1,212.4 points in the corresponding billion and 460 million in the review year which was Rs. 17 period of the previous year. Securities market capitalization billion and 720 million in the previous year. increased by 9.2 percent on y-o-y basis and reached Rs. 1567 billion and 500 million in mid July 2019 against a Inflation decrease of 22.7 percent to Rs. 1435 billion and 140 million a year ago. The ratio of market capitalization to GDP stood at In the FY 2018/19, the average consumer price inflation 45.2 percent in mid-July 2019 compared to 47.3 percent a stood at 4.6 percent compared to 4.2 percent a year ago. year ago. Of the total 215 companies listed in Nepal Stock Government has been able to keep inflation within defined Exchange Limited in mid July 2019, the number of banks limit through high agricultural production due to favorable and financial institutions (including insurance companies) climate, measures adopted for liquidity management and stood at 154 followed by 19 manufacturing and processing low international inflation. industries, 30 hydropower companies, and 4 hotels, trading institutions and other sectors each. The number of listed Interest Rate companies as at mid July 2018 was 196.

The weighted average 91-day Treasury bills rate increased (Source: Nepal Rastra Bank)

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C. Financial Summary Fiscal Year Particulars 2014/15 2015/16 2016/17 2017/18 2018/19 a. Financial Position of Previous Five years: Total Operating 1,503 2,200 2,947 4,025 5,413 NPR In Million Income Mid July Employee Expenses 182 259 345 608 912 Capital and Liabilities 2015 2016 2017 2018 2019 Other Operating 275 330 429 498 663 Share Capital 3,060 4,711 8,001 8,001 8,001 Expenses Exchange Fluctuation Reserves and Funds 370 682 1,093 2,808 4,023 - - - - - Loss Debenture and Bonds - 370 370 370 1,725 Operating Profit Borrowings 1,687 3,282 611 359 1,319 before Provision for 1,045 1,611 2,173 2,919 3,838 Deposits 34,045 46,344 57,754 79,139 92,140 Possible Loss Bills Payables - - - - - Provision for Possible 119 135 133 247 227 Income Tax Liabilities - - - 70 23 Losses Operating Profit 926 1,477 2,041 2,672 3,611 Other Liabilities 1,138 502 2,126 1,085 1,799 Non-Operating Income/ Total Capital and 40,301 55,891 69,955 91,831 109,030 7 71 45 0.2 (4) Liabilities Expense Assets Provision Written Back 42 16 3 8 9 Cash Balance 691 688 908 1,082 1,435 Profit from Regular 975 1,564 2,089 2,680 3,616 Balance with NRB 687 2,575 5,265 5,610 2,781 Operations Profit/Loss from Extra Balances with Bank and 393 150 741 465 637 (1) - (0) - - Financial Institutions ordinary activities Money at Call and Short - - - 600 770 Net Profit after Notice considering all 974 1,564 2,089 2,680 3,616 Investments 7,744 10,652 9,097 13,142 16,981 activities Loans Advances and Bill 28,264 40,455 51,265 69,243 83,439 Provision for Staff Purchase 89 142 186 271 364 Fixed Assets 615 655 727 948 1,229 Bonus Provision for Income Non-Banking Assets - - - - - 262 421 569 721 979 Tax Other Assets 1,907 716 1,952 741 1,757 Net Profit/(Loss) 624 1,000 1,333 1,688 2,274 Total Assets 40,301 55,891 69,955 91,831 109,030 (Figure after FY 2015/16 includes Sanima Capital and During the previous four years, net assets of the bank have figures after FY 2017/18 are presented as per Nepal increased from Rs. 40.30 billion to Rs. 109.03 billion. Financial Reporting Standards (NFRS).) Similarly, net worth of the bank has increased from Rs. 3.43 billion to Rs. 12.02 billion during the said period. During the last four years, net profit has increased from NPR 624 million to NPR 2 billion and 274 million. b. Profit/Loss Statement of Previous Five Years

NPR Million D. Infrastructure Fiscal Year Particulars 1. Branch expansion 2014/15 2015/16 2016/17 2017/18 2018/19 Interest Income 2,549 3,263 5,044 8,129 10,770 The Bank has been operating its services by continuously Interest Expenses 1,409 1,540 2,795 5,090 6,547 expanding its branch network from east to west. The Net Interest Income 1,139 1,723 2,250 3,039 4,223 Bank has been operating from 79 branches till date. In FY Commission and 2018/19 the bank has established four new branches inside 53 89 155 678 748 Discounts valley at Kantipath, Gatthaghar, Putalisadak and Jorpati. The Other Operating Income 131 235 348 26 67 Bank has planned to continue its branch expansion on a Exchange Fluctuation selective basis inside and outside valley during the fiscal 179 154 194 282 374 Income year 2019/20.

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2. Information Technology E. Human Resource Development

The bank has implemented the new advanced Core As on mid July 2019, 962 staff are working in Sanima Bank. Banking System (CBS) Finacle 10.2.17 and Internet The Bank has been adopting a policy for managing staff Banking FEBA (Finacle E-Banking Application) 11.2.8 in appropriately as per its requirement. In order to develop and the review fiscal year in order to meet the requirement of upgrade skills of its human resource, the Bank has marked advanced and scientific data analysis and MIS so as to participation of all employees in various seminars, in-house manage the inherent risks associated with expansion of and external trainings. Staff have already participated business. With an objective to make business processes in various skill based training, seminar and conference and system technology friendly through optimal utilization within and outside the country. On headcount basis, 1970 of Information Technology, distinct Technical Innovation staff were provided in-house training and 751 staff were Department has been established. Likewise with focus provided external training in various topics. During the on criticality of Information Security and Cyber Security, review year, 32 staff have participated in abroad trainings Information Security Department has been established. The and seminars. Annual performance appraisal is being bank has a policy to automate and digitize all its business conducted through online system from current fiscal year. processes. IT risk in banking industry is identified as a major Employee remuneration has been hiked in line with the risk; to mitigate which, the bank has been implementing increment in the profit and market scenario, a part from various security measures. Apart from this, the bank has this; staff’s perk has been increased by considering inflation planned to adopt new technologies in E-Banking sector as well. while optimally utilizing its resources. The department has been further strengthened under leadership of an Assistant F. Remittance Chief Executive Officer. In order to provide better and more reliable remittance Furthermore, the Bank has implemented the following services and to serve a wide array of customers living in measures to enhance Information Technology during FY Nepal and abroad, the Bank has started its own remittance 2018/19, service "Sanima Xpress".

a. The Bank has extended its ATM network and is With continuous effort to expand its services, the Bank facilitating customers from 74 ATM booths and has has entered into an agreement with Sharaf Exchange of planned to extend the service in various business Dubai, SGS Corporation of America and GPL Remittance of locations and new branches. Singapore in the review year to facilitate customers through remittance service. With this, Nepalese staying in Dubai, b. The Bank has implemented ePayment solution through America and Singapore can remit money easily and safely NCHL Connect IPS. via Sanima Xpress. Bank has providing remittance service in collaboration with 6 companies from Dubai, 2 from South c. The Bank has upgraded Mobile Banking V5 version. Korea, 2 from UK, 1 each from Malaysia, America, Australia, Singapore, 1 bank from India and Xpress Money. The bank d. The Bank has enhanced and relocated its Disaster aims to broaden its reach by building additional relations in Recovery System. remittance sector.

e. The Bank has redesigned its website to make it more G. Industrial and Business Relationship informative and user-friendly. The bank has acquired membership of Asian Banking f. The Bank has implemented AML solutions like Customer Association in the review year. Bank has been maintaining Profiling and Fraud Detection System (CPFDS), Swift an excellent industrial and business relationship, nationally Sanction Screening, Accuity Data For Customers Name and internationally. The Bank is committed towards putting Screening. continuous efforts to strengthen the relationship with its experienced and skillful staff and customers at all levels. g. Verified by Visa (VbV) has been implemented to secure We are pleased to announce that a wide range of business online payments made via cards. customers of Nepalese market are banking with us. The

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Bank has also been successful in maintaining excellent h. Inaruwa branch handed over Computer to "Apangata international trade relationship with Banks in India, China, Nagar Kamiti Samiti" for conducting computer classes Japan, America, Europe, Australia, Dubai, Korea and so on. to disabled students.

H. Corporate Social Responsibility The Bank has conducted other Corporate Social responsibility activities such as organization of free health Corporate Social Responsibility has been prioritized as a checkup camp, distribution of food, stationeries and water long-standing commitment at Sanima Bank. The Bank’s to several organizations, and similar other activities through contribution to the social sector with special focus on various branches during the review year. education and health sectors has benefited the deprived category. Continuing the trend, in the review year deserving I. Corporate Governance students with low income source studying in grade XI & XII are benefiting with our scholarship program through outside Corporate Governance has been considered integral to valley branches. sustainable growth of the Bank. Various committees and sub-committees are actively functioning in the Bank as Details of Corporate Social Responsibility activities prescribed by Nepal Rastra Bank. The committees are highly conducted via Head Office and various branches of the committed and focused to mitigate and manage various Bank during the review year are as follows: risks through the implementation of Corporate Governance. The Bank is committed through time to deepen long-term a. Press Council-Sanima Bank Rastriya Patrakarita relationship with regulatory authorities, customers and all Puraskar was awarded to journalist Mr. Krishna Jwala stakeholders through Corporate Governance. Devkota and Mr. Arun Baral amidst a program. J. Grievance Handling b. On the occasion of 14th Anniversary of Sanima Bank, Head office along with 13 branches had organized The Bank has handled 33 grievances out of 35 received blood donation program in partnership with Red Cross from customers during fiscal year 2018/19, as per the Society. provisions under point no. 21(10 (Gha)) of Directive 22 of Unified Directive 2075 issued by the central bank. c. Financial Literacy programs in various locations have been conducted by different branches of the bank. K. Internal Control System

d. Inaruwa and Dharan branch handed over one unit of The Bank has adequate internal control framework and LED-TV each to Community- District Police Committee, processes in place in managing risks and in controlling Sunsari and Community- Area Police Office-Dharan, its business and financial activities while reducing risks Sunsari. which can cause loss, ensure compliance with prevailing laws and regulations. Both the Audit committee and Risk e. Sanima Bank-Kalikot Branch handed over Rs. Management sub-committee have been taking appropriate 100,000.00 cheque to Palata Gaupalika for providing actions to control and mitigate overall risks after reviewing necessary assistance to the fire victims of Khada relevant reports on a regular basis. Similarly, Board of Basti,Kalikot. Directors have been analyzing the effectiveness of internal control system by reviewing the reports issued by external f. With coordination of ward commissioner, Birgunj branch auditor and regulators (on inspection) and implementing along with Kalaiya, Paterwasugauli and Parsagadhi appropriate actions for effective internal control. Apart branches have distributed kitchen items (gas stoves from this, several committees of the Bank such as and utensils) to some 50 storm victims at Purainiya Management committee, Assets- Liabilities Management village, Bara. committee, Risk Management committee, Internal Audit department and Compliance department are also actively g. Gongabu branch donated 71 books to Jalpa Library involved for the effectiveness of Internal Control System. situated at Jalpachowk, Baniyatar, Kathmandu. To review and supervise overall internal control system and risk management, distinct Integrated Risk Management

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Department has been established in the review year. N. Issuance of Debenture

L. Achievement of Current Fiscal Year and Future The bank has allotted "10% Sanima Debenture 2085" of Prediction NPR 1,354.71 million of NPR 1000 each on 14th January 2019 for its business growth. Also, the bank has plans to Sanima Bank has been able to generate operating profit issue additional debentures in this fiscal year. & net profit of NPR 654.4 million & NPR 398.9 million respectively in the first two months of current fiscal year. O. Appointment of Auditor Similarly, in the coming years, our efforts will be focused on a balanced growth guided by the core principles of liquidity M/s S.A.R. Associates, Chartered Accountants has been & capital and managing risks in a disciplined way. The Bank appointed as statutory auditor through previous annual shall continuously focus to solicit individual & other deposits, general meeting on recommendation of audit committee. retail banking and providing a complete financial solution in Under the provisions of Companies Act, M/s S.A.R. current year as well. We remain hopeful to generate good Associates, Chartered Accountants is disqualified for performance in this financial year as well despite of the reappointment hence it is proposed to appoint new auditor in intense competition in the banking sector. this general meeting as recommended by Audit Committee.

M. Changes in Board of Directors and Election Lastly, on behalf of the Board of Directors, I would like to extend my heartfelt gratitude to all the stakeholders, Election has been held for two representatives from public Government Entities, Nepal Rastra Bank, Securities Board, shareholders (Group 'Kha') in Board of Directors during the Office of Company Registrar, Nepal Stock Exchange Limited, review year; Mr. Bharat Kumar Pokhrel and Mr. Mahesh External Auditors, Media and all well-wishers for their Ghimire have been elected for upcoming four years. valuable suggestions, feedbacks and continued support. We Likewise, representative of promoter shareholders (Group expect similar support, suggestions and cooperation in the 'Ka') Mr. Shamba Lama has resigned and the vacant position coming days ahead. has been fulfilled with an appointment of Ms. Gayatri Thapa as women director by Board of Directors.

Thank you! On behalf of Board of Directors Binaya Kumar Shrestha Chairman September 22, 2019

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Additional Disclosures as per section 109 of the Companies Act, 2063 a) A review of the business during the previous year: the retained earnings at the end of the year 2018/19 which equates to a distribution of 21.05263% dividend Please refer 'Board of Director Report'. amounting to Rs 1,684,474,829.47 from the retained earning available at FY 2018/19 end. b) Impacts caused on the transactions of the Company, if any, from National and International Situation: i) Details of shares forfeited (number of shares, face value, amount received by the Company prior to Banking business is influenced by country's political and forfeiture, amount received by the Company after economic situation, Government and regulator policies, rules putting such forfeited shares into subscription and and regulations, business competition, country's diplomatic the amount refunded on account of refunded shares and economic relationship with international market, overall economic indicators, etc. Banking business is impressed The Bank has not forfeited any shares till date. by the factors as disclosed in 'country's macroeconomic situation' section of Board of Directors report. j) Progress of transactions of the company and its subsidiary company in the previous financial year c) Achievements of the current year as of the date of and review of the situation existing at the end of that preparation of the report, and opinion of the Board of financial year Directors on future actions: Progress of business transactions of the company during Please refer the ‘Board of Director Report’. current year was made in the Directors Report and attached financial statements. d) Regarding Banking Business k) Main transactions carried out by the company and Please refer the ‘Board of Director Report’. its subsidiary company during the financial year and any important change in the business of the e) Changes made in the Board of Directors, and reasons company during the period: therefore: Bank and its subsidiary have operated banking business Disclosed in the 'Board of Director Report'. and merchant banking business as defined by prevailing acts, rules and regulations. No major changes in business f) Main factors affecting the business: activities have been observed in the review period.

Disclosed in 'country's macroeconomic situation' and other l) Information furnished to the company by its principal sections of the 'Board of Director Report'. shareholders during the previous year g) Response of Board of Directors on remarks made, if During the previous year, no such information provided. any, in the Audit Report m) Details of the shareholding taken by the Directors The Board has directed management to improve/implement and officials of the company in the previous financial the general observations stated in the preliminary audit year and, in the event of their involvement in share report. The Bank is committed to improve the same. transaction of the company, details of information received by the company from them in that respect h) Dividend Bank's board of directors and high officials were not It is proposed for the distribution of 10% of Paid up capital involved in share trading of the Bank. as Stock dividend amounting to Rs. 800,125,544.00 and 11.05263% of Paid of Capital as Cash dividend (including n) Details of disclosure made about the personal tax on dividend) amounting to Rs. 884,349,285.47 from interest of any Director and his/her close relative in

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any agreements related with the company during the t) Amount of remuneration, allowances and facilities previous financial year paid to the Directors, Managing Director, Chief During the fiscal year, no such information has been made Executive and Officials available to the Bank. 1. Board of Directors has been benefitted by fees, allowances and other facilities as depicted below: o) Buyback of shares of the company, reasons thereof for buy back, number of shares bought back, face value of Sitting fees of NPR 10,000 and NPR 8,000 per Board the shares and the amount paid during the buy back meeting is being provided to Chairman and other Board The Bank has not bought back any share. members respectively. Apart from this, maximum of NPR 10,000 is being provided to board members for newspaper, p) Whether or not there is an internal control system, magazine, periodicals, telephone, internet and other and if there is any such system, details there of : services on monthly basis. No any other facility has been Disclosed in the 'Board of Director Report'. provided except as mentioned. q) Details of Operating Expenses of the previous year During fiscal year 2018/19, NPR 2,056,000 has been paid Operating expenses of the previous year is depicted below: to board of directors, after deduction of applicable tax as i) Staff Expenses NPR 1,259,767,735 per prevailing laws. (Including Staff Bonus) ii) Other Operating Expenses NPR 654,717,893 Salary, allowances and benefits paid to Chief Executive and Officials r) Name list of the members of Audit Committee, NPR In '000 remuneration, allowances and facilities received Particulars Chief Executive Other Chief by them, details of the functions performed by that Officer Officials committee and of suggestions, if any, made by that Salary, allowances 20,839 52,935 committee. and other benefits Members of the committee are as follows: Director Mr. Tuk Prasad Poudel Coordinator Facilities have been provided as per Employees Bylaws and Director Ms. Gayatri Thapa Member Bonus as per the Bonus Act. Head Internal Audit Mr. Niraj Dhakal Member Secretary u) Amount of dividends remaining unclaimed by Remuneration has not been provided to coordinator and members shareholders of the committee except sitting fees of NPR 8,000 per meeting. Amount of unclaimed dividend amounts to NPR 77,709,776. Audit Committee had met fifteen times during the financial year 2018/19. The committee is accomplishing its responsibility in v) Details of sale and purchase of properties pursuant compliance with directive no. 6 issued by the Central Bank. The to Section 141 committee extensively reviews internal control system, audit The Bank has not purchased any properties pursuant to procedures, techniques and programs, audit observations, risk this section. management of the Bank and status of corporate governance, and provided appropriate directions both to the management and to the w) Details of transactions carried on between the Board. Apart from this, the committee has discussed extensively associated companies pursuant to Section 175 on the reports submitted by the Central Bank and Statutory Auditor, while also providing appropriate recommendations and Such information has been disclosed in point number 7 suggestions to the Board during the fiscal year. “Related Party Disclosures” of annexure 5 "Disclosures and Additional Information" of this Annual Report. s) Amount, if any, outstanding and payable to the company by any Director, managing Director, Chief x) Any other matter to be mentioned in the Board of Executive, substantial shareholder or his/her close Directors’ report under Companies Act, 2063 and relative, or by any firm company, corporate body, in other prevailing laws: which he/she is involved No such information has been made available to the Bank. Nil

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Disclosure Related to Sub Rule (2) of Rule 26 as per annexure 15 of Securities Registration and Issuance Regulation, 2073

1. Report of the Board of Directors: Disclosed in the b. The Bank has not noticed any law suit filed by or “Director’s Report” part of this report. against the promoter or director of the Bank involving statutory regulations or criminal offence. 2. Auditor’s Report: Disclosed in the appropriate part of this c. The Bank has not noticed any information regarding Report and Financial Statements. law suit, if any, filed against the promoter and director for committing economic crimes. 3. Audited Financial Reports: Disclosed in the appropriate part of this Report and Financial Statements. 5. Analysis of stock performance of the Body Corporate

4. Legal Proceedings: a. Management’s view on the performance of the a. No mentionable law suits have been filed by the Bank stock of the body corporate: or against the Bank, except for regular law suit in The Bank’s share price is guided by the market normal course of banking business. operations of the capital market.

b. High, low and closing price of the stocks of the Bank, during each quarter of the preceding year along with total volume of trading shares and number of days traded are depicted below: No. of Trading Total no. of Total no. of Shares Quarter Max. Price Min. Price Last Price Days Transactions Traded First 356 305 335 62 4,177 1,207,190 Second 346 295 304 60 3,298 1,083,557 Third 329 286 318 60 3,124 831,134 Fourth 371 319 348 64 5,503 1,688,244 (Source: Nepal Stock Exchange) 6. Problems and Challenges Corporate Governance has been always prioritized and all a. Internal Problems and Challenges the relevant policies, provisions and directives have been Diversification of Income sources compiled with no compromise. Increase in cost of fund b. External Problems and Challenges Audit committee has been formed for the effective Rigorous competition between Banks and Financial implementation of internal control system. The said Institutions committee has been analyzing the effectiveness of internal Mismatch between increasing demand for loans control system by reviewing the reports issued by external and deposits collection auditor and regulators (on inspection) and implementing Lack of financial resources appropriate actions and advising management for effective c. Strategy internal control. Diversification of deposits and risk assets Exploration of new avenues for revenue generation Apart from this, several committees of the Bank such as and deposits mobilization Management Committee (MANCOM), Assets- Liabilities Development of advance technological services Management Committee (ALCO), Risk Management Capital Increment Committee and Credit Review Committee are also actively Development of more robust system and strong involved for making banking business effective, reliable and compliance culture scientific and also for intervening strategies on need basis.

7. Corporate Governance The Bank is continuously adhering all directions of Nepal Rastra Bank, directions and recommendations stated in NRB Bank fully adheres to all the relevant policies and provisions inspection report and independent auditor's report. Board of the Banks and Financial Institutions Act, 2073, directives, of Directors and management of the Bank are committed circulars and notification circulated by the Central Bank. to improve further by adhering corporate governance fully.

www.sanimabank.com 11 Annual Report 2018/19

12 www.sanimabank.com Annual Report 2018/19

www.sanimabank.com 13 Annual Report 2018/19

Consolidated Statement of Financial Position As on 16th July 2019 Amount In NPR. Group Bank Note Current Year Previous Year Current Year Previous Year Assets Cash and cash equivalent 4.1 4,779,994,808 4,531,900,641 4,636,422,437 4,530,152,334 Due from Nepal Rastra Bank 4.2 2,781,194,462 5,608,171,848 2,781,194,462 5,608,171,848 Placement with Bank and Financial Institutions 4.3 827,701,829 649,156,510 827,701,829 649,156,510 Derivative financial instruments 4.4 85,066,888 - 85,066,888 - Other trading assets 4.5 572,651,015 494,859,452 484,421,811 478,048,147 Loan and advances to B/FIs 4.6 2,020,420,376 1,645,223,405 2,020,420,376 1,645,223,405 Loans and advances to customers 4.7 81,418,905,928 67,598,133,216 81,418,860,580 67,598,133,761 Investment securities 4.8 13,642,937,700 9,615,731,842 13,611,190,018 9,413,443,775 Current tax assets 4.9 - - - - Investment in susidiaries 4.10 - - 250,000,000 250,000,000 Investment in associates 4.11 - - - - Investment property 4.12 - - - - Property and equipment 4.13 1,157,047,779 889,501,756 1,150,520,679 881,846,293 Goodwill and Intangible assets 4.14 71,489,746 58,140,309 70,319,347 56,550,539 Deferred tax assets 4.15 15,595,267 50,605,018 14,774,571 50,151,213 Other assets 4.16 1,656,746,810 689,951,809 1,713,594,966 661,074,779 Total Assets 109,029,752,608 91,831,375,806 109,064,487,965 91,821,952,603 Liabilities Due to Bank and Financial Instituions 4.17 3,694,458,442 1,346,959,039 3,694,458,442 1,346,959,039 Due to Nepal Rastra Bank 4.18 1,018,919,629 358,950,008 1,018,919,629 358,950,008 Derivative financial instruments 4.19 - 18,851,134 - 18,851,134 Deposits from customers 4.20 89,229,715,732 77,805,318,203 89,373,729,162 77,849,380,056 Borrowing 4.21 - - - - Current Tax Liabilities 4.9 22,537,584 69,570,852 24,771,881 66,294,857 Provisions 4.22 27,401,007 12,572,748 27,174,446 11,817,943 Deferred tax liabilities 4.15 - - - - Other liabilities 4.23 1,287,811,266 1,040,306,882 1,211,174,346 1,011,814,065 Debt securities issued 4.24 1,724,712,000 370,000,000 1,724,712,000 370,000,000 Subordinated Liabilities 4.25 - - - - Total liabilities 97,005,555,660 81,022,528,866 97,074,939,906 81,034,067,102 Equity Share capital 4.26 8,001,255,440 8,001,255,440 8,001,255,440 8,001,255,440 Share premium - - - - Retained earnings 1,785,963,624 1,156,659,737 1,751,506,637 1,136,681,538 Reserves 4.27 2,236,977,884 1,650,931,763 2,236,785,982 1,649,948,523 Total equity attributable to equity holders 12,024,196,948 10,808,846,940 11,989,548,059 10,787,885,501 Non-controlling interest - - - - Total equity 12,024,196,948 10,808,846,940 11,989,548,059 10,787,885,501 Total liabilities and equity 109,029,752,608 91,831,375,806 109,064,487,965 91,821,952,603 Contingent liabilities and commitment 4.28 21,935,734,478 29,004,329,135 21,935,734,478 28,851,318,655 Net assets value per share 150.28 135.09 149.85 134.83

Bhuvan Dahal Binaya Kumar Shrestha Directors As per our report of even date Chief Executive Officer Chairman Tuk Prasad Poudel Sunir Kumar Dhungel Gayatri Thapa Managing Partner SAR Associates Bibhor Jha Bharat Kumar Pokharel Chartered Accountants Head-Finance & Treasury Mahesh Ghimire Uttam Kumar Bhattarai Date: September 2, 2019 Place: Naxal, Kathmandu

14 www.sanimabank.com Annual Report 2018/19

Consolidated Statement of Profit or Loss For the year ended 16th July 2019 Amount In NPR. Group Bank Note Current Year Previous Year Current Year Previous Year Interest income 4.29 10,769,806,579 8,129,035,230 10,757,980,831 8,107,978,846 Interest expense 4.30 6,546,642,459 5,090,072,370 6,549,283,717 5,092,454,648 Net interest income 4,223,164,120 3,038,962,860 4,208,697,114 3,015,524,197 Fee and commission income 4.31 823,224,244 727,684,423 785,119,601 706,389,342 Fee and commission expense 4.32 74,987,742 50,152,348 73,254,193 50,152,348 Net fee and commission income 748,236,502 677,532,075 711,865,408 656,236,994 Net interest, fee and commission income 4,971,400,622 3,716,494,935 4,920,562,522 3,671,761,191 Net trading income 4.33 415,633,736 293,415,099 392,824,856 298,410,710 Other operating income 4.34 25,588,656 15,537,850 44,231,715 38,961,666 Total operating income 5,412,623,014 4,025,447,884 5,357,619,093 4,009,133,567 Impairment charge/(reversal) for loans and other losses 4.35 218,238,049 239,217,543 218,238,049 239,217,543 Net operating income 5,194,384,965 3,786,230,340 5,139,381,043 3,769,916,024 Operating expense Personnel expenses 4.36 1,275,258,347 879,064,446 1,259,767,735 865,555,664 Other operating expenses 4.37 521,747,039 390,683,713 515,552,094 383,730,300 Depreciation & Amortisation 4.38 141,045,082 107,533,605 139,165,799 105,455,444 Operating Profit 3,256,334,497 2,408,948,577 3,224,895,415 2,415,174,616 Non operating income 4.39 3,361,023 914,061 2,087,168 895,458 Non operating expense 4.40 6,999,259 734,365 6,826,064 734,365 Profit before income tax 3,252,696,261 2,409,128,273 3,220,156,519 2,415,335,708 Income tax expense 4.41 Current Tax 974,884,742 777,526,986 957,816,576 774,250,990 Deferred Tax 4,244,691 (56,493,106) 4,272,437 (56,418,506) Profit for the year 2,273,566,828 1,688,094,393 2,258,067,506 1,697,503,224 Profit attributable to: Equity holders of the Bank 2,273,566,828 1,688,094,393 2,258,067,506 1,697,503,224 Non-controlling interest - - - - Profit for the year 2,273,566,828 1,688,094,393 2,258,067,506 1,697,503,224 Earnings per share Basic earnings per share 28.42 21.10 28.22 21.22 Diluted earnings per share 28.42 21.10 28.22 21.22

www.sanimabank.com 15 Annual Report 2018/19

Consolidated Statement of Other Comprehensive Income For the year ended 16th July 2019 Amount In NPR. Group Bank

Note Current Year Previous Year Current Year Previous Year

Profit for the year 2,273,566,828 1,688,094,393 2,258,067,506 1,697,503,224

Other comprehensive income, net of income tax

a) Items that will not be reclassified to profit or loss

Gains/(losses) from investments in equity instruments measured at fair value (3,232,218) (9,801,770) (2,691,832) (8,163,038)

Gain/(losses) on revalution

Actuarial gains/(losses) on defined benefit plans 105,782,417 (74,023,798) 106,372,514 (74,023,798)

Income tax relating to above items (30,765,060) 25,147,670 (31,104,205) 24,656,051

Net other comrehensive income that will not be reclassified to profit or loss 71,785,139 (58,677,898) 72,576,477 (57,530,785)

b) Items that are or may be reclassified to profit or loss

Gains/(losses) on cash flow hedge

Exchange gains/(losses) (arising from translating financial assets of foreign operation)

Income tax relating to above items - - - -

Reclassify to profit or loss

Net other comrehensive income that are or may be reclassified to profit or loss - - - -

c) Share of other comprehensive income of associate accounted as per equity method - - - -

Other comprehensive income for the year, net of income tax 71,785,139 (58,677,898) 72,576,477 (57,530,785)

Total comprehensive income for the year 2,345,351,967 1,629,416,495 2,330,643,983 1,639,972,439

Total comprehensive income attributable to:

Equity holders of the Bank 2,345,351,967 1,629,416,495 2,330,643,983 1,639,972,439

Non-controlling interest - - - -

Total comprehensive income for the year 2,345,351,967 1,629,416,495 2,330,643,983 1,639,972,439

16 www.sanimabank.com Annual Report 2018/19

Consolidated Statement of Cash Flows For the year ended 16th July 2019 Amount In NPR. Group Bank Current Year Previous Year Current Year Previous Year CASH FLOWS FROM OPERATING ACTIVITIES Interest received 10,497,673,151 8,002,273,251 10,481,920,342 8,002,273,251 Fees and other income received 830,800,086 754,957,589 789,276,131 701,473,377 Dividend received 319,619 - - - Receipts from other operating activities 415,482,631 312,307,411 415,482,631 312,307,411 Interest paid (6,351,480,965) (5,092,440,963) (6,350,195,161) (5,092,440,963) Commission and fees paid (74,987,742) (50,152,348) (73,254,193) (50,152,348) Cash payment to employees (1,297,991,116) (722,689,017) (1,288,926,416) (728,799,274) Other expense paid (516,100,343) (376,854,190) (506,799,351) (383,765,844) Operating cash flows before changes in operating assets and liabilities 3,503,715,322 2,827,401,732 3,467,503,983 2,760,895,608 (Increase)/Decrease in operating assets Due from Nepal Rastra Bank 2,826,977,386 (342,870,204) 2,826,977,386 (342,870,204) Placement with bank and financial institutions (8,545,318) 333,086,667 (178,545,318) 333,086,667 Other trading assets (53,635,213) (90,126,962) (4,706,575) (71,808,565) Loan and advances to bank and financial institutions (375,196,972) (1,051,307,909) (375,196,972) (1,051,307,909) Loans and advances to customers (14,038,916,012) (16,788,980,230) (14,038,964,869) (16,788,980,230) Other assets (826,657,744) 367,753,361 (826,149,945) 367,753,361 Increase/(Decrease) in operating liabilities Due to bank and financial institutions 2,347,499,402 (756,560,268) 2,347,499,402 (756,560,268) Due to Nepal Rastra Bank 659,969,622 (252,059,097) 659,969,622 (252,059,097) Deposit from customers 11,380,335,676 21,241,939,572 11,524,349,106 21,688,324,196 Borrowings - - - - Other liabilities 267,986,219 420,917,477 111,235,705 (24,059,093) Net cash flow from operating activities before tax paid 5,683,532,369 5,909,194,139 5,513,971,524 5,862,414,465 Income taxes paid (924,705,484) (781,995,703) (916,293,600) (780,552,184) Net cash flow from operating activities 4,758,826,884 5,127,198,436 4,597,677,924 5,081,862,281 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities (4,197,746,243) (3,151,470,593) (4,197,746,243) (3,095,055,409) Receipts from sale of investment securities - 11,356,071 - - Purchase of property and equipment (416,155,545) (278,384,411) (415,830,648) (274,221,103) Receipt from the sale of property and equipment 16,189,423 16,189,423 Purchase of intangible assets (21,967,769) (53,235,136) (21,967,769) (53,235,136) Receipt from the sale of intangible assets - - Purchase of investment properties - - Receipt from the sale of investment properties - - Interest received - 1,855,212 - - Dividend received 2,994,020 4,296,384 21,994,020 4,208,435 Net cash used in investing activities (4,616,686,114) (3,465,582,473) (4,597,361,217) (3,418,303,213) CASH FLOWS FROM FINANCING ACTIVITIES Receipt from issue of debt securities 1,354,712,000 - 1,354,712,000 - Repayment of debt securities - - - Receipt from issue of subordinated liabilities - - - Repayment of subordinated liabilities - - - Receipt from issue of shares - 1,103,621,440 - 1,103,621,440 Dividends paid - - - Interest paid (192,353,655) (192,353,654.75) Other receipt/payment (1,056,404,948) (1,185,808,276) (1,056,404,948) (1,185,808,276) Net cash from financing activities 105,953,397 (82,186,836) 105,953,397 (82,186,836) Net increase (decrease) in cash and cash equivalents 248,094,167 1,579,429,127 106,270,104 1,581,372,232 Cash and cash equivalents at 17th July 2018 4,531,900,641 2,952,471,513 4,530,152,334 2,948,780,102 Effect of exchange rate fluctuations on cash and cash equivalents held - - - - Cash and cash equivalents at 16th July 2019 4,779,994,808 4,531,900,641 4,636,422,438 4,530,152,334

www.sanimabank.com 17 Annual Report 2018/19

Consolidated Statement of Changes in Equity For the year ended 16th July 2019 Amount In NPR. Group Attributable to equity holders of the Bank Non-con- Share Exchange Reval- General Regulatory Fair value Retained Other trolling Total equity Share Capital premi- equalisation uation Total reserve reserve reserve earning reserve interest um reserve reserve Balance at 16th July 2017 6,897,634,000 - 832,540,000 6,054,236 - - - 1,285,614,783 131,441,892 9,153,284,910 9,153,284,910 Comprehensive profit for the year Profit for the year 1,688,094,393 1,688,094,393 1,688,094,393 Other comprehensive income, net of tax (6,861,239) (51,816,659) (58,677,898) (58,677,898) Gains/(losses) from investment on equity (6,861,239) (6,861,239) (6,861,239) instruments measured at fair value Gains/(losses) on revalution Actuarial gains/(losses) on defined benefit plans (51,816,659) (51,816,659) (51,816,659) Gains/(losses) on cash flow hedge Exchange gains/(losses) (araising from trans-

lating financial assets of foreign operation) Total comprehensive income for the year - - - - - (6,861,239) - 1,688,094,393 (51,816,659) 1,629,416,495 1,629,416,495 Transfer to reserve during the period 339,504,000 3,452,862 337,775,191 (724,418,693) 69,832,175 26,145,534 26,145,534 Transfer from reserve during the year period 10,990,695 (10,990,695) - - Contributions from and distributions to owners - - Share issued - - Share based payments - - Dividends to equity holders - - Bonus shares issued 1,103,621,440 (1,103,621,440) - - Cash dividend paid - - Other - - Total contributions by and distributions 1,103,621,440 - 339,504,000 3,452,862 337,775,191 (6,861,239) - (128,955,045) 7,024,822 1,655,562,029 - 1,655,562,029 Balance at 16th July 2018 8,001,255,440 - 1,172,044,000 9,507,098 337,775,191 (6,861,239) - 1,156,659,737 138,466,714 10,808,846,940 - 10,808,846,940

Balance at 17th July 2018 8,001,255,440 - 1,172,044,000 9,507,098 337,775,191 (6,861,239) - 1,156,659,737 138,466,714 10,808,846,940 - 10,808,846,940 Restatement (20,533) (20,533) (20,533) Restated Opening Balance 8,001,255,440 - 1,172,044,000 9,507,098 337,775,191 (6,861,239) - 1,156,639,204 138,466,714 10,808,826,406 10,808,826,406 Comprehensive profit for the year Profit for the year 2,273,566,828 2,273,566,828 2,273,566,828 Other comprehensive income, net of tax (2,262,553) - 74,047,692 71,785,139 71,785,139 Gains/(losses) from investment on equity (2,262,553) (2,262,553) (2,262,553) instruments measured at fair value Gains/(losses) on revalution Actuarial gains/(losses) on defined benefit plans 74,047,692 74,047,692 74,047,692 Gains/(losses) on cash flow hedge Exchange gains/(losses) (araising from trans-

lating financial assets of foreign operation) Total comprehensive income for the year - - - - - (2,262,553) - 2,273,566,828 74,047,692 2,345,351,967 - 2,345,351,967 Transfer to reserve during the period - - 451,613,501 4,368,573 (8,496,613) - - (523,066,646) 75,581,184 - - Transfer from reserve during the year period ------(1,000,000) (8,805,664) (9,805,664) (9,805,664) Contributions from and distributions to owners - - Share issued - - Share based payments - - Dividends to equity holders - - Bonus shares issued - - Cash dividend paid (1,120,175,762) (1,120,175,762) (1,120,175,762) Other - - Total contributions by and distributions - - 451,613,501 4,368,573 (8,496,613) (2,262,553) - 629,324,421 140,823,212 1,215,370,542 - 1,215,370,542 Balance at 16th July 2019 8,001,255,440 - 1,623,657,501 13,875,671 329,278,578 (9,123,792) - 1,785,963,624 279,289,925 12,024,196,948 - 12,024,196,948

18 www.sanimabank.com Annual Report 2018/19

Bank Attributable to equity holders of the Bank Non-con- Share Exchange Reval- General Regulatory Fair value Retained Other trolling Total equity Share Capital premi- equalisation uation Total reserve reserve reserve earning reserve interest um reserve Reserve Balance at 16th July 2017 6,897,634,000 - 832,540,000 6,054,236 - - 1,280,242,935 131,441,892 9,147,913,063 9,147,913,063 Comprehensive profit for the year Profit for the year 1,697,503,224 1,697,503,224 1,697,503,224 Other comprehensive income, net of tax (5,714,127) (51,816,659) (57,530,785) (57,530,785) Gains/(losses) from investment on equity (5,714,127) (5,714,127) (5,714,127) instruments measured at fair value Gains/(losses) on revalution Actuarial gains/(losses) on defined benefit plans (51,816,659) (51,816,659) (51,816,659) Gains/(losses) on cash flow hedge Exchange gains/(losses) (araising from

translating financial assets of foreign operation) Total comprehensive income for the year - - - - - (5,714,127) - 1,697,503,224 (51,816,659) 1,639,972,439 1,639,972,439 Transfer to reserve during the period 339,504,000 3,452,862 335,644,839 (748,433,875) 69,832,175 - - Transfer from reserve during the year period 10,990,695 (10,990,695) - - Contributions from and distributions to owners - - Share issued - - Share based payments - - Dividends to equity holders - - Bonus shares issued 1,103,621,440 (1,103,621,440) - - Cash dividend paid - - Other - - Total contributions by and distributions 1,103,621,440 - 339,504,000 3,452,862 335,644,839 (5,714,127) - (143,561,397) 7,024,822 1,639,972,439 - 1,639,972,439 Balance at 16th July 2018 8,001,255,440 - 1,172,044,000 9,507,098 335,644,839 (5,714,127) - 1,136,681,538 138,466,714 10,787,885,501 - 10,787,885,501 Balance at 17th July 2018 8,001,255,440 - 1,172,044,000 9,507,098 335,644,839 (5,714,127) - 1,136,681,538 138,466,714 10,787,885,501 - 10,787,885,501 Comprehensive profit for the year Profit for the year 2,258,067,506 2,258,067,506 2,258,067,506 Other comprehensive income, net of tax (1,884,282) - 74,460,760 72,576,477 72,576,477 Gains/(losses) from investment on equity (1,884,282) (1,884,282) (1,884,282) instruments measured at fair value Gains/(losses) on revalution Actuarial gains/(losses) on defined benefit plans 74,460,760 74,460,760 74,460,760 Gains/(losses) on cash flow hedge Exchange gains/(losses) (araising from

translating financial assets of foreign operation) Total comprehensive income for the year - - - - - (1,884,282) - 2,258,067,506 74,460,760 2,330,643,983 - 2,330,643,983 Transfer to reserve during the period 451,613,501 4,368,573 (8,496,613) (523,066,646) 75,581,184 - - Transfer from reserve during the year period - (8,805,664) (8,805,664) (8,805,664) Contributions from and distributions to owners - - Share issued - - Share based payments - - Dividends to equity holders - - Bonus shares issued - - - Cash dividend paid (1,120,175,762) (1,120,175,762) (1,120,175,762) Other - - Total contributions by and distributions - - 451,613,501 4,368,573 (8,496,613) (1,884,282) - 614,825,099 141,236,280 1,201,662,558 - 1,201,662,558 Balance at 16th July 2019 8,001,255,440 - 1,623,657,501 13,875,671 327,148,226 (7,598,409) - 1,751,506,637 279,702,993 11,989,548,059 - 11,989,548,059

www.sanimabank.com 19 Annual Report 2018/19

Sanima Bank Ltd Notes to the Financial Statements Year ended 16th July 2019

1. BANK 2. BASIS OF PREPARATION

1.1 General 2.1. Statement of Compliance

Sanima Bank Limited (hereinafter referred to as “The Bank”) is The Financial Statements of Bank for the year ended 16th July, a public limited company, incorporated on 30th June 2004 as 2019comprising Statement of Financial Position, Statement per the then Companies Act 1964 of Nepal, and domiciled in of Comprehensive Income, Statement of Changes in Equity, Nepal. The Bank obtained license from Nepal Rastra Bank on Statement of Cash Flows and Notes to the Financial Statements 26th November 2004 and operated the banking business from (including Significant Accounting Policies), have been prepared in 6th December 2004. The Bank obtained license to operate as accordance with Nepal Financial Reporting Standards (hereafter “A” class financial institution under the Bank and Financial referred as NFRS), laid down by the Institute of Chartered Institutions Act, 2006 on 13th February 2012. The registered Accountants of Nepal and in compliance with the requirements office of the Bank is located at Alakapuri Building, Naxal, of all applicable laws and regulations. Kathmandu, Nepal. The Bank is listedin Nepal Stock Exchange Limited for public trading of stocks. 2.2. Reporting Period and Approval of Financial Statements 1.2 Principal Activities and Operations The Bank has prepared the financial statements in accordance Bank with NFRS depicting financial performance for FY 2018/19 and financial position of 16th July 2019 and the comparatives of FY The principal activities of the Bank are to provide full-fledged 2017/18. commercial banking services including, agency services, trade finance services, card services, e-commerce products The accompanied Financial Statements have been authorized and services, remittance and bullion trading services to its by the Board of Directors vide its resolution dated 2nd September customers through its strategic business units, branches, 2019 and recommended for its approval by the Annual General extension counters, ATMs and network of agents. Meeting of the shareholders.

Subsidiary and Associates 2.3. Functional and Presentation Currency

Ownership as on: The Financial Statements of Bank and Group are presented in Subsidiary Principal Activities th th 16 July 16 July Nepalese Rupees (Rs.), which is the currency of the primary 2019 2018 economic environment in which the Bank operates. There was Provides merchant/investment banking services such as no change in Bank’s presentation and functional currency during Management of public offerings, the period under review. portfolio management, Sanima underwriting of securities, 2.4. Use of Estimates, Assumptions and Judgments Capital management of mutual fund 100% 100% Limited schemes, depository participant's service under Central Depository The preparation of Financial Statements in conformity with Service (CDS) and administration Nepal Accounting Standards requires the management to and record keeping of securities of its clients make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts Sanima Share brokerage and dealership Securities services 100% - of assets, liabilities, income and expenses. Actual results may Limited differ due to these estimates.

As on 16th July 2019 and comparative period, bank has not Estimates and underlying assumptions are reviewed on an identified any associates. ongoing basis. Revisions to accounting estimates are recognized

20 www.sanimabank.com Annual Report 2018/19 in the period in which the estimate is revised and in any future determine whether provision should be made due to incurred periods affected. loss events for which there is objective evidence, but the effects of which are not yet evident. The bank has segregated The most significant areas of estimation, uncertainty and critical risk assets into five groups with similar risk characteristics judgments in applying accounting policies that have most i.e. home loan, auto loan, personal loan, short term loan and significant effect in the Financial Statements are as follows: long term loan for collective impairment assessment. The collective assessment takes in to account data from the loan 2.4.1 Going Concern portfolio such as levels of arrears, credit quality, portfolio size etc. and judgments based on current economic conditions as The Directors have made an assessment of Bank’s ability per Para 63 of NAS 39. Also the collective assessment takes to continue as a going concern and satisfied that it has the into account the past sixty months data for PD computation resources to continue in business for the foreseeable future. and five years data for loss given default (LGD) computation. Furthermore, Board is not aware of any material uncertainties Collective impairment assessment on loans and advances is that may cast significant doubt upon Bank’s ability to continue derived from product of PD and LGD. as a going concern and they do not intend either to liquidate or to cease operations of it. Therefore, the Financial Statements are The impairment loss on loans and advances as per NAS 39 is continued to be prepared on the going concern basis. Rs. 135.67 Million (Rs. 31.58 Million in previous year) and as per the norms prescribed by Nepal Rastra Bank for loan loss 2.4.2 Fair Value of Financial Instruments provision is Rs. 1,036.11 Million (Rs. 817.87 Million in previous year) in total. The impairment loss on loans and advances to Where the fair values of financial assets and financial liabilities BFIs as per paragraph 63 of NAS 39 is Rs. 3.14 Million(Rs. 1.02 recorded in the statement of financial position can be derived Million in previous year) and as per the norms prescribed by from active markets, they are derived from observable market Nepal Rastra Bank for loan loss provision is Rs. 20.20 Million data. However, if this is not available, judgment is required to (Rs. 16.50 Million in previous year). establish fair values. The valuation of financial instruments is described in more detail in Notes. Loans and advances have been impaired as the higher of amount derived as per the norms prescribed by Nepal Rastra Bank for 2.4.3 Impairment of Financial Assets – Loans and loan loss provision and amount determined as per paragraph Advances 63 of NAS 39, as per Carve-out pronounced on 20th September 2018. The Bank review their individually significant loans and advances at each statement of financial position date to assess whether The impairment loss on loans and advances is disclosed in Note an impairment loss should be recorded in the income statement. 4.6 and 4.7 to the financial statements. The bank has conducted objective evidence test for individual impairment through different parameters like inability to meet 2.4.4 Impairment of Investments measured through OCI loan agreements, substantial drop in profits/ turnover, significant adverse cash flows, significant adverse net worth situation, Bank reviews its investments classified as available for sale, problematic borrower financial position, etc. In particular, at each reporting date to assess whether they are impaired. Judgment of the management is required in the estimation of Objective evidence that an available for sale debt security is the amount and timing of future cash flows while determining impaired includes among other things significant financial the impairment loss. difficulty of the issuer, a breach of contract such as a default or delinquency in interest or principal payments etc. Bank These estimates are based on assumptions about a number of also records impairment charges on available for sale equity factors and actual results may differ, resulting in future changes investments where there is significant or prolonged decline to the impairment allowance. in fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. Bank generally Loans and advances of top 50 customers have been assessed treats ‘significant’ as 20% and ‘prolonged’ as greater than individually and found to be not impaired and all individually six months. In addition, Bank evaluates, among other factors, insignificant loans and advances are then assessed collectively, historical share price movements, duration and extent up to in groups of assets with similar risk characteristics, to which the fair value of an investment is less than its cost.

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2.4.5 Taxation a) Fixed Assets

Bank is subject to income tax and judgment is required to Fixed assets except land are stated at acquisition cost determine the total provision for current, deferred and other less accumulated depreciation. Acquisition cost includes taxes due to the uncertainties that exist with respect to the expenditures that are directly attributable to the acquisition interpretation of the applicable tax laws, at the time of preparation of the assets. of these Financial Statements. Assets with a value less than Rs. 10,000 are charged off as Deferred tax assets are recognized in respect of impairment a revenue expense irrespective of its useful life in the year allowances which will be recovered in the foreseeable future tax of purchase. losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Judgment is Leasehold improvements are capitalized at cost and required to determine the amount of deferred tax assets that can amortized over the lease period or ten years whichever is be recognized, based upon the likely timing and level of future earlier. The amount of amortization is charged as revenue taxable profits, together with future tax planning strategies. expenses.

Details on deferred tax assets/liability are disclosed in Note 4.15 b) Computer Software to the financial statements. Acquired computer software licenses are capitalized on 2.4.6 Defined Benefit Plans the basis of cost incurred to acquire and bring to use the specific software and are amortized over their useful life The cost of the defined benefit obligations and the present value estimated as 5 years from the date of acquisition or over the of their obligations are determined using actuarial valuations. period of the license, whichever is less.

The actuarial valuation involves making assumptions about 2.4.9 Commitments and Contingencies discount rates, future salary increases, mortality rates and possible future liability increases if any. Due to the long term All discernible risks are accounted for in determining the nature of these plans, such estimates are subject to uncertainty. amount of all known liabilities. Contingent liabilities are possible All assumptions are reviewed at each reporting date. obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of In determining the appropriate discount rate, management economic benefit is not probable or cannot be reliably measured. considers the average interest rates of Nepal government bonds Contingent liabilities are not recognized in the Statement of with maturities of five years or more. The mortality rate is based Financial Position but are disclosed unless they are remote. on publicly available mortality tables. Future salary increases are based on expected future salary increase rates of Bank and 2.4.10 Provisions for Liabilities and Contingencies attrition rate are based on the past period’s attrition rates. The Bank faces legal claims against it in the normal course 2.4.7 Fair Value of Property, Plant and Equipment of business. Management has made judgments as to the likelihood of any claim succeeding in making provisions. The The freehold land and buildings of the bank are not reflected at time of concluding legal claims is uncertain, as is the amount of fair value and no revaluation has been carried at the reporting possible outflow of economic benefits. date. 2.5. Changes in Accounting Policies 2.4.8 Useful Life-timeof the Property, Plant and Equipment The bank has changed its accounting policies, wherever required, Bank reviews the residual values, useful lives and methods to ensure compliance with NFRS. Detailed accounting policies of depreciation of property, plant and equipment at each are mentioned in Note 3. The effect of change in accounting reporting date. Judgment of the management is exercised in the policy at the date of transition has been given to the retained estimation of these values, rates, methods and hence they are earnings (and reserves, if applicable). subject to uncertainty.

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2.6. New Standards in issue but not yet effective 2.12. Comparative Information

There are no standards which have been issued but not yet The Financial Statement of the Bank provides comparative effective up to the date of issuance of the financial statements. information in respect of previous periods. The accounting policies have been consistently applied by Bank with those of the previous 2.7. New standards and interpretation not adapted financial year in accordance with NAS 01 Presentation of Financial Statements, except those which had to be changed as a result All the standards and interpretation which have been issued for of application of the new NFRS. Further, comparative information implementation have been adopted. is reclassified wherever necessary to comply with the current presentation. 2.8. Discounting 3. SIGNIFICANT ACCOUNTING POLICIES The fair value of debt securities shall be determined by discounting by the future cash flows by the coupon interest rate. The accounting policies set out below have been applied The Bank has a policy to treat share/debenture issue expenses consistently to all periods presented in these Financial Statements, up to 1% of share/debentures issue price as immaterial. and deviations if any have been disclosed accordingly. Considering those expenses as immaterial and impracticable to determine reliably, same has not been considered in computation 3.1. Basis of Measurement of effective interest rate as per Carve-out (optional) pronounced on 20th September 2018. The Financial Statements of Bank have been prepared on the historical cost basis, except for the following material items in Employee benefits has been determined by considering discount the Statement of Financial Position: rate as the average yield on corporate bonds issued during the period.  Liabilities for defined benefit obligations are recognized at the present value of the defined benefit obligation less the 2.9. Responsibility for Financial Statements fair value of the plan assets.

The Board of Directors is responsible for the preparation and  Unquoted investments available for sale are measured presentation of Financial Statements of Sanima Bank Limited as through OCI. per the provisions of the Companies Act,2006. 3.2. Basis of consolidation 2.10. Presentation of Financial Statements a. Business Combinations and Goodwill The financial statements have been presented as per NAS 01 Business combinations are accounted for using the acquisition (Presentation of Financial Statements). method as per the requirements of Nepal Accounting Standard - NFRS 3 (Business Combinations). The Bank measures goodwill 2.11. Materiality and Aggregation as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the In compliance with Nepal Accounting Standard - NAS 01 acquiree, less the net recognized amount (generally fair value) (Presentation of Financial Statements), each material class of of the identifiable assets acquired and liabilities assumed, similar items is presented separately in the Financial Statements. all measured as of the acquisition date. When the excesses Items of dissimilar nature or functions too are presented negative, a bargain purchase gain is immediately recognized in separately unless they are immaterial. Financial Assets and the profit or loss. Financial Liabilities are offset and the net amount reported in the Statement of Financial Position only when there is a legally The Bank elects on a transaction by transaction basis whether enforceable right to offset the recognized amounts and there to measure non-controlling interest at its fair value, or at its is an intention to settle on a net basis, or to realize the assets proportionate share of the recognized amount of the identifiable and settle the liability simultaneously. Income and expenses are net assets, at the acquisition date. The consideration transferred not offset in the Statement of Profit or Loss unless required or does not include amounts related to the settlement of pre-existing permitted by an Accounting Standard. relationships. Such amounts are generally recognized in profit or

www.sanimabank.com 23 Annual Report 2018/19 loss. Transactions costs, other than those associated with the issue d. Loss of Control of debt or equity securities, that the Bank incurs in connection with a business combination are expensed as incurred. Upon the loss of control, the Bank derecognizes the assets and liabilities of the Subsidiary, any non-controlling interests b. Non-controlling interest (NCI) and other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in Non-controlling interest (NCI), also known as minority interest, the Statement of Profit or loss. is an ownership position whereby a shareholder owns less than 50% of outstanding shares and has no control over decisions. If the Bank retains any interest in the previous Subsidiary, then Non-controlling interests are measured at the net asset value of such interest is measured at fair value at the date that control entities and do not account for potential voting rights. is lost. Subsequently it is accounted for as equity-accounted investee or in accordance with the Bank’s accounting policy For each business combination, the Group elects to measure for financial instruments depending on the level of influence any non-controlling interest in the acquiree at fair value. retained.

Changes in group interest in subsidiary that do not result in the e. Special Purpose Entity (SPE) loss of control are accounted for transactions of owners in the capacity of owners. Adjustments to non-controlling interest are A special purpose vehicle/entity is a "bankruptcy-remote entity" based on proportionate amount of net assets of subsidiary. that a parent company uses to isolate or securitize assets and it often holds this off-balance sheet. Some also call this a c. Subsidiaries "bankruptcy-remote entity" or "variable interest entities" since its operations are limited to the acquisition and financing of Subsidiaries are entities that are controlled by the Bank. The specific assets as a method of isolating risk. A special purpose Bank is presumed to control an investee when it is exposed vehicle/entity is a subsidiary company with an asset/liability or has rights to variable returns from its involvement with the structure and legal status that makes its obligations secure, investee and has the ability to affect those returns through even if the parent company goes bankrupt. its power over the investee. At each reporting date the Bank reassesses whether it controls an investee if facts and Group does not have any SPE. circumstances indicate that there are changes to one or more elements of control mentioned above. f. Transaction elimination on consolidation

The Financial Statements of Subsidiaries are fully consolidated Intra group balances and transactions, any unrealized income (except stated otherwise) from the date on which control is and expenses arising from intra group transactions, are transferred to the Bank and continue to be consolidated until the eliminating in preparing the consolidated financial statements. date when such control ceases. The Financial Statements of the Unrealized gains/losses arising from transactions with equity Bank’s Subsidiaries are prepared for the same reporting period accounted investees are eliminated against the investments to as per the Bank, using consistent accounting policies. the extent of group interest of investee.

The cost of acquisition of a Subsidiary is measured as the fair 3.3. Cash and cash equivalent value of the consideration, including contingent consideration, given on the date of transfer of title. The acquired identifiable Cash and Cash Equivalents include cash in hand, balances with assets, liabilities are measured at their fair values at the date banks, placements with banks and money at call and at short of acquisition. Subsequent to the initial measurement, the Bank notice with maturity less than three months. continues to recognize the investments in Subsidiaries at cost. Details of the Cash and Cash Equivalents are given in Note 4.1 When a Subsidiary is acquired or sold during the year, operating to the Financial Statements. results of such Subsidiary is included from the date of acquisition or to the date of disposal. 3.4. Financial Assets and financial liabilities

All Subsidiaries of the Bank have been incorporated in Nepal. a. Recognition

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All financial assets and liabilities are initially recognized on acquired principally for the purpose of selling or repurchasing in the trade date, i.e. the date that Bank becomes a party to the the near term or holds as a part of a portfolio that is managed contractual provisions of the instrument. This includes ‘regular together for short-term profit or position taking. This category way trades’. Regular way trade means purchases or sales of also includes derivative financial instruments entered into by financial assets that required delivery of assets within the time Bank that are not designated as hedging instruments in hedge frame generally established by regulation or convention in the relationships as defined by Nepal Accounting Standards NAS 39 market place. (Financial Instruments: Recognition and Measurement).

The classification of financial instruments at the initial Financial assets held for trading are recorded in the Statement recognition depends on their purpose and characteristics and of Financial Position at fair value. Changes in fair value are the management’s intention in acquiring them. recognized in ‘Net trading income’. Dividend income is recorded in ‘Net trading income’ when the right to receive the payment b. Classification and Measurement has been established.

Financial Assets Bank evaluates its held for trading asset portfolio, other than derivatives, to determine whether the intention to sell them in All financial instruments are measured initially at their fair value the near future is still appropriate. When Bank is unable to trade plus transaction costs that are directly attributable to acquisition these financial assets due to inactive markets and management’s or issue of such financial instruments except in the case of intention to sell them in the foreseeable future significantly such financial assets and liabilities at fair value through profit or changes, Bank may elect to reclassify these financial assets. loss, as per the Nepal Accounting Standard - NAS 39 (Financial Instruments: Recognition and Measurement). Transaction cost Financial assets held for trading include instruments such as in relation to financial assets and financial liabilities at fair value government securities and equity instruments that have been through profit or loss are dealt with the Statement of Profit or Loss. acquired principally for the purpose of selling or repurchasing in the near term. At the inception, a financial asset is classified into one of the following: ii. Financial Assets Designated at Fair Value through Profit or Loss a. Financial assets at fair value through profit or loss Bank designates financial assets at fair value through profit or i. Financial assets held for trading loss in the following circumstances:

ii. Financial assets designated at fair value through profit Such designation eliminates or significantly reduces or loss measurement or recognition inconsistency that would otherwise arise from measuring the assets b. Financial Assets at amortized cost The assets are part of a group of Financial assets, c. Financial assets at fair value through OCI financial liabilities or both, which are managed and their performance evaluated on a fair value basis, in The subsequent measurement of financial assets depends accordance with a documented risk management or on their classification. investment strategy

Financial Assets at Fair Value through Profit or Loss The asset contains one or more embedded derivatives that significantly modify the cash flows that would A financial asset is classified as fair value through profit or loss if it otherwise have been required under the contract. is held for trading or is designated at fair value through profit or loss. Financial assets designated at fair value through profit or loss i. Financial Assets Held for Trading are recorded in the Statement of Financial Position at fair value. Changes in fair value are recorded in ‘Net gain or loss Financial assets are classified as held for trading if they are on financial instruments designated at fair value through profit

www.sanimabank.com 25 Annual Report 2018/19 or losses’ in the Statement of Profit or Loss. Interest earned or Loss. The losses arising from impairment are recognized in is accrued under ‘Interest income’, using the effective interest ‘Impairment charge / reversal for loans and other losses’ in the rate method, while dividend income is recorded under ‘Other Statement of Profit or Loss. operating income’ when the right to receive the payment has been established. However, Bank has a policy to treat loan administration fees up to 1% of loan amount as immaterial.Considering those fees as The Bank has not designated any financial assets upon initial immaterial and impracticable to determine reliably, same has recognition as designated at fair value through profit or loss. not been considered in computation of effective interest rate as per Carve-out (optional) pronounced on 20th September 2018. iii. Financial Assets measured at amortized cost Staff Loans measured at fair value Held to Maturity Financial Assets are non-derivative financial assets with fixed or determinable payments and fixed maturities The bank has a policy to provide home loan, hire purchase which the Bank has the intention and ability to hold to maturity. loan and home loan tied up with insurance to employees After the initial measurement, held to maturity financial at subsidized interest rate. The Bank has measured the staff investments are subsequently measured at amortized cost using loans at fair value. The bank is considering average cost of fund the effective interest rate, less impairment. The amortization is (7.48%) as fair market interest rate for deriving fair value of staff included in ‘Interest income’ in the Statement of Profit or Loss. loans though the loans are provided to staffs at interest rate of The losses arising from impairment of such investments are 4%(Hire Purchase) and 5%(Home loan). Difference of book value recognized in the Statement of Profit or Loss. with fair value of loans has been shown as prepaid employee benefits. The Amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial Financial Assets measured at fair value through OCI recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of Financial assets measured through OCI include equity and debt any difference between the initial amount recognized and the securities. Equity Investments classified as ‘Fair value through maturity amount, minus any reduction for impairment. OCI’ are those which are neither classified as ‘Held for neither Trading ’nor ‘Designated. Debt securities in this category are Loans and Receivables from Customers intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes Loans and receivables include non-derivative financial assets in the market conditions. with fixed or determinable payments that are not quoted in an active market, other than: After initial measurement, available for sale financial investments are subsequently measured at fair value. Unrealized gains Those that the Bank intends to sell immediately or in and losses are recognized directly in equity through ‘Other the near term and those that the Bank, upon initial comprehensive income / expense’ in the ‘Fair value reserve’. recognition, designates as fair value through profit or When the investment is disposed of the cumulative gain or loss loss previously recognized in equity is recognized in the Statement of Profit or Loss under ‘Other operating income’. Where Bank Those that the Bank, upon initial recognition, designates holds more than one investment in the same security, they are as available for sale deemed to be disposed off on a first-in-first-out basis. Interest earned whilst holding ‘Financial investments at fair value through Those for which the Bank may not recover substantially OCI’ is reported as ‘Interest income’ using the effective interest all of its initial investment through contractual cash rate. Dividend earned whilst holding ‘Financial investments at flows, other than because of credit deterioration. fair value through OCI’ are recognized in the Statement of Profit or Loss as ‘other operating income’ when the right to receive After initial measurement, loans and receivables shall be the payment has been established. The losses arising from subsequently measured at amortized cost using the effective impairment of such investments are recognized in the Statement interest rate, less allowance for impairment. The amortization of Profit or Loss under ‘Impairment charge for loans and other shall be included in ‘Interest Income’ in the Statement of Profit losses’ and removed from the ‘Available for sale reserve’.

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Financial Liabilities investment strategy

At the inception, Bank determines the classification of its The liability contains one or more embedded derivatives financial liabilities. Accordingly financial liabilities are classified that significantly modify the cash flows that would as: otherwise have been required under the contract. a. Financial liabilities at fair value through profit or loss Financial Liabilities At Amortized Cost

i. Financial liabilities held for trading Financial instruments issued by Bank that are not classified as fair value through profit or loss are classified as financial ii. Financial liabilities designated at fair value through liabilities at amortized cost, where the substance of the profit or loss contractual arrangement results in Bank having an obligation either to deliver cash or another financial asset to another Bank, b. Financial liabilities at amortized cost or to exchange financial assets or financial liabilities with another Bank under conditions that are potentially unfavorable to the Financial Liabilities at Fair Value through Profit or Bank or settling the obligation by delivering variable number of Loss Bank’s own equity instruments.

Financial Liabilities at fair value through profit or loss include After initial recognition, such financial liabilities are subsequently financial liabilities held for trading and financial liabilities measured at amortized cost using the effective interest rate designated upon initial recognition as fair value through profit method. Amortization is included in ‘Interest Expenses’ in the or loss. Subsequent to initial recognition, financial liabilities at Statement of Profit or Loss. Gains and losses are recognized fair value through profit or loss are measured at fair value and in the Statement of Profit or Loss when the liabilities are changes therein are recognized in profit or loss. derecognized.

(i) Financial Liabilities Held for Trading Reclassification

Financial liabilities are classified as held for trading if they are (i) Reclassification of Financial Instruments ‘At fair value acquired principally for the purpose of selling or repurchasing in through profit or loss’, the near term or holds as a part of a portfolio that is managed together for short-term profit or position taking. This category Bank does not reclassify derivative financial instruments out of includes derivative financial instrument entered into by Bank the fair value through profit or loss category when it is held or that are not designated as hedging instruments in hedge issued. relationships as defined by Nepal Accounting Standard - NAS 39 (Financial Instruments: Recognition and Measurement). Non-derivative financial instruments designated at fair value through profit or loss upon initial recognition is not reclassified (ii) Financial Liabilities Designated at Fair Value through subsequently out of fair value through profit or loss category. Profit or Loss Bank may, in rare circumstances reclassify financial instruments Bank designates financial liabilities at fair value through profit or out of fair value through profit or loss category if such instruments loss at following circumstances: are no longer held for the purpose of selling or repurchasing in the near term notwithstanding that such financial instruments Such designation eliminates or significantly reduces may have been acquired principally for the purpose of selling or measurement or recognition inconsistency that would repurchasing in the near term. Financial assets classified as fair otherwise arise from measuring the liabilities. value through profit or loss at the initial recognition which would have also met the definition of ‘Loans and Receivables’ as at The liabilities are part of a group of Financial assets, that date is reclassified out of the fair value through profit or loss financial liabilities or both, which are managed and category only if Bank has the intention and ability to hold such their performance evaluated on a fair value basis, in asset for the foreseeable future or until maturity. accordance with a documented risk management or

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The fair value of financial instruments at the date of reclassification increases its estimates of future cash receipts as a result of is treated as the new cost or amortized cost of the financial increased recoverability of those cash receipts, the effect of instrument after reclassification. Any gain or loss already that increase is recognized as an adjustment to the effective recognized in respect of the reclassified financial instrument until interest rate from the date of the change in estimate rather than the date of reclassification is not reversed to the Statement of an adjustment to the carrying amount of the asset at the date of Profit or Loss. change in estimate.

If a financial asset is reclassified, and if Bank subsequently (iii) Reclassification of ‘Financial Instruments amortized increases its estimates of the future cash receipts as a result at cost’ of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the effective As a result of a change in intention or ability, if it is no longer interest rate from the date of the change in estimate rather than appropriate to classify an investment as amortized at cost, Bank an adjustment to the carrying amount of the asset at the date of may reclassify such financial assets as at fair value through OCI change in estimate. and re- measured at fair value. Any difference between the carrying value of the financial asset before reclassification and fair value is (ii) Reclassification of ‘Financial Assets measured at fair recognized in equity through other comprehensive income. value through OCI’ However, if Bank were to sell or reclassify more than an Bank may reclassify financial assets out of available for sale insignificant amount of held to maturity investments before category as a result of change in intention or ability or in rare maturity [other than in certain specific circumstances permitted circumstances that a reliable measure of fair value is no longer in Nepal Accounting Standard - NAS 39 (Financial Instruments: available. Recognition and Measurement)], the entire category would be tainted and would have to be reclassified as ‘Investment The fair value of financial instruments at the date of reclassification is measured at fair value through OCI’. Furthermore, Bank would treated as the new cost or amortized cost of the financial instrument be prohibited from classifying any financial assets as ‘Held to after reclassification. Difference between the new amortized cost Maturity’ during the following two years. These reclassifications and the maturity value is amortized over the remaining life of the are at the election of management and determined on an asset using the effective interest rate. Any gain or loss already instrument by instrument basis. recognized in Other Comprehensive Income in respect of the reclassified financial instrument is accounted as follows: c. Derecognition

1. Financial assets with fixed maturity : Derecognition of Financial Assets

Gain or loss recognized up to the date of reclassification Bank derecognizes a financial asset (or where applicable a part of is amortized to profit or loss over the remaining life of the financial asset or part of a group of similar financial assets) when: investment using the effective interest rate. If the financial asset is subsequently impaired, any previous gain or loss The rights to receive cash flows from the asset have that has been recognized in other comprehensive income is expired; or reclassified from equity to profit or loss. Bank has transferred its rights to receive cash flows from the asset or 2. Financial assets without fixed maturity : Bank has assumed an obligation to pay the received cash flows in full without material delay to a third party Gain or loss recognized up to the date of reclassification under a ‘pass-through’ arrangement and either Bank is recognized in profit or loss only when the financial asset has transferred substantially all the risks and rewards is sold or otherwise disposed of. If the financial asset is of the asset or it has neither transferred nor retained subsequently impaired, any previous gain or loss that substantially all the risks and rewards of the asset, but has been recognized in other comprehensive income is has transferred control of the asset. reclassified from equity to profit or loss. On derecognition of a financial asset, the difference between the If a financial asset is reclassified, and if Bank subsequently carrying amount of the asset (or the carrying amount allocated

28 www.sanimabank.com Annual Report 2018/19 to the portion of the asset derecognized) and the sum of the between market participants at the measurement date. The consideration received (including any new asset obtained less fair value measurement is based on the presumption that the any new liability assumed) and any cumulative gain or loss transaction to sell the asset or transfer the liability takes place that had been recognized in other comprehensive income is either: recognized in profit or loss. • In the principal market for the asset or liability or When Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement and • In the absence of principal market, in the most has neither transferred nor retained substantially all of the risks advantageous market for asset or liability. and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Bank’s continuing All assets and liabilities for which fair value is measured or involvement in the asset. In that case, Bank also recognizes an disclosed in the financial statements are categorized within the associated liability. The transferred asset and the associated fair value hierarchy, described as follows, based on the lowest liability are measured on a basis that reflects the rights and level input that is significant to the fair value measurement as obligations that Bank has retained. a whole:

When Bank’s continuing involvement that takes the form of • Level 1 - Valuation technique using quoted guaranteeing the transferred asset, the extent of the continuing market price: financial instruments with quoted prices involvement is measured at the lower of the original carrying for identical instruments in active markets. amount of the asset and the maximum amount of consideration received by Bank that Bank could be required to repay. • Level 2 - Valuation technique using observable inputs: financial instruments with quoted prices for Derecognition of Financial Liabilities similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets A financial liability is derecognized when the obligation under the and financial instruments valued using models where liability is discharged or cancelled or expired. Where an existing all significant inputs are observable. financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability • Level 3 – Valuation technique with significant are substantially modified, such an exchange or modification unobservable inputs: financial instruments valued is treated as derecognition of the original liability and the using valuation techniques where one or more recognition of a new liability. significant inputs are unobservable.

The difference between the carrying value of the original financial Level 1 liability and the consideration paid is recognized in profit or loss. When available, the Bank measures the fair value of an instrument Offsetting of Financial Instruments using quoted prices in an active market for that instrument or dealer price quotations (assets and long positions are measured Financial assets and financial liabilities are offset and the net at a bid price, liabilities and short positions are measured at an amount presented in the Statement of Financial Position when asking price), without any deduction for transaction costs. and only when Bank has a legal right to set off the recognized amounts and it intends either to settle on a net basis or to A market is regarded as active if quoted prices are readily and realize the asset and settle the liability simultaneously. Income regularly available and represent actual and regularly occurring and expenses are presented on a net basis only when permitted market transactions on an arm’s length basis. under NFRSs or for gains and losses arising from a group of similar transaction such as in trading activity. Level 2 d. Determination of fair value If a market for a financial instrument is not active, then the Bank establishes fair value using a valuation technique. Valuation ‘Fair value’ is the price that would be received to sell an asset techniques include using recent arm’s length transactions or paid to transfer a liability (exit price) in an orderly transaction between knowledgeable, willing parties (if available),

www.sanimabank.com 29 Annual Report 2018/19 reference to the current fair value of other instruments that liquidity risk or model uncertainties; to the extent that the Group are substantially the same, discounted cash flow analysis and believes a third-party market participant would take them into option pricingmodels. The chosen valuation technique makes account in pricing a transaction. maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that Assets and Liabilities Recorded at Fair Value market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing A description of how fair values are determined for assets financial instruments. Inputs to valuation techniques reasonably and liabilities that are recorded at fair value using valuation represent market expectations and measures of the risk-return techniques is summarized below which incorporates the bank’s factors inherent in the financial instrument. The Bank calibrates estimate of assumptions that a market participant would make valuation techniques and tests them for validity using prices from when valuing the instruments. observable current market transactions in the same instrument or based on other available observable market data. Derivative financial Instruments

The best evidence of the fair value of a financial instrument at Derivative financial instruments such as forward foreign exchange initial recognition is the transaction price, i.e. the fair value of contracts are valued using a valuation technique with market the consideration given or received, unless the fair value of that observable inputs (Level 2). The most frequently applied valuation instrument is evidenced by comparison with other observable technique is forward pricing model which incorporates various current market transactions in the same instrument, i.e. inputs including foreign exchange spot and forward premiums. without modification or repackaging, or based on a valuation technique whose variables include only data from observable Financial Investments measured at fair value through OCI markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially Quoted equities, Quoted Mutual Funds classified as financial measured at the transaction price and any difference between investments measured at fair value through OCI are valued using this price and the value initially obtained from a valuation model quoted market prices in the active markets as at the reporting is subsequently recognised in profit or loss on an appropriate date (Level 1). basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the Foreign Quoted Debt Securities classified as financial investments transaction is closed out. measured at fair value through OCI are valued using market rate published by the Stock exchange in which the Securities is listed Level 3 (Level 1).

Certain financial instruments are recorded at fair value using Unquoted equities, classified as financial investments measured valuation techniques in which current market transactions at fair value through OCI are valued using a valuation technique or observable market data are not available. Their fair value with market observable inputs (Level 2). The most frequently is determined using a valuation model that has been tested applied valuation technique is proxy pricing which incorporates against prices or inputs to actual market transactions and the inputs of market price of similar market instruments. using the Bank’s best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid e. Impairment and ask prices to reflect costs to close out positions, credit and debit valuation adjustments, liquidity spread and limitations in At each reporting date, Bank assesses whether there is any the models. Also, profit or loss calculated when such financial objective evidence that a financial asset or group of financial instruments are first recorded (day 1 profit or loss) is deferred assets not carried at fair value through profit or loss is impaired. and recognised only when the inputs become observable or on A financial asset or group of financial assets is deemed to be derecognition of the instrument. impaired if and only if there is objective evidence of impairment as a result of one or more events, that have occurred after the Fair values reflect the credit risk of the instrument and include initial recognition of the asset (an ‘incurred loss event’) and that adjustments to take account of the credit risk of the Bank entity loss event (or events) has an impact on the estimated future and the counterparty where appropriate. Fair value estimates cash flows of the financial asset or group of financial assets that obtained from models are adjusted for any other factors, such as can be reliably estimated.

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Objective evidence of impairment may include: indications that the payment arrangements and the agreement of new loan the borrower or a group of borrowers is experiencing significant conditions. Once the terms have been renegotiated, any financial difficulty; the probability that they will enter bankruptcy impairment is measured using the original EIR as calculated or other financial reorganization; default or delinquency in interest before the modification of terms and the loan is no longer or principal payments; and where observable data indicates that considered past due. Management continually reviews there is a measurable decrease in the estimated future cash renegotiated loans to ensure that all criteria are met and that flows, such as changes in arrears or economic conditions that future payments are likely to occur. The loans continue to be correlate with defaults. subject to an individual impairment assessment, calculated as per the central bank’s directive. Impairment of Financial Assets carried at Amortized Cost Collateral Valuation For financial assets carried at amortized cost, such as amounts due from banks, held to maturity investments etc., Bank first The Bank seeks to use collateral, where possible, to mitigate its assesses individually whether objective evidence of impairment risks on financial assets. The collateral comes in various forms exists for financial assets that are individually significant or such as cash, securities, letters of credit/guarantees, real estate, collectively for financial assets that are not individually significant. receivables, inventories, other non-financial assets and credit In the event Bank determines that no objective evidence of enhancements such as netting agreements. The fair value of impairment exists for an individually assessed financial asset, collateral is generally assessed, at a minimum, at inception and financial assets in a group with similar credit risk characteristics based on the guidelines issued by the central bank (Nepal Rastra are collectively assesses for impairment. However, assets Bank). Non-financial collateral, such as real estate, is valued that are individually assessed for impairment and for which based on data provided by third parties such as independent an impairment loss is or continues to be recognized are not valuator and audited financial statements. included in a collective assessment of impairment. Collateral Repossessed or Where Properties have Impairment of loans and advances (financial assets measured Devolved to the Bank at amortized cost) has been determined as per the directive of Nepal Rastra Bank. The Bank’s policy is to determine whether a repossessed asset is best used for its internal operations or should be sold. The Reversal of Impairment immovable property acquired by foreclosure of collateral from defaulting customers, or which has devolved on the Bank as part If the amount of an impairment loss decreases in a subsequent settlement of debt, has not been accounted for as an investment period and the decrease can be related objectively to an event property or as part of the assets of the Bank in accordance with occurring after the impairment was recognised, the excess directions issued by the Nepal Rastra Bank. is written back by reducing the financial asset impairment allowance account accordingly. The write-back is recognized in Collateral repossessed are considered as Non-Banking Assets, the Statement of Profit or Loss. are the assets obtained as security for loans & advances subsequently taken over by the Bank in the course of loan Write-off of Financial Assets measured at Amortized recovery. Such assets are valued at fair market value or total Cost amount due from the borrower, whichever is lower and the balance loan remaining is charged to profit and loss account Financial assets (and the related impairment allowance in the same year. Provision for possible losses on non-banking accounts) are normally written off either partially or in full, when assets equal to the takeover value is made in the year of takeover there is no realistic prospect of recovery. Where financial assets by a charge to the Income Statement. are secured, this is generally after receipt of any proceeds from the realization of security. Impairment of Financial Assets measured at fair value through OCI Impairment of Rescheduled Loans and Advances For financial investments measured at fair value through OCI, Where possible, the Bank seeks to restructure loans rather than Bank assesses at each reporting date whether there is objective to take possession of collateral. This may involve extending evidence that an investment is impaired.

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In the case of debt instruments, Bank assesses individually for short term with an intention to trade have been classified as whether there is objective evidence of impairment based on trading assets. Trading assets are measured at fair value with the same criteria as financial assets carried at amortized cost. any changes in fair value being recognised in Profit or Loss. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost 3.6. Derivative assets and derivative liabilities and the current fair value, less any impairment loss on that investment previously recognised in the Income Statement. Derivative financial instruments such as forward foreign Future interest income is based on the reduced carrying amount exchange contracts are valued using a valuation technique with and is accrued using the rate of interest used to discount the market observable inputs. The most frequently applied valuation future cash flows for the purpose of measuring the impairment technique is forward pricing model which incorporates various loss. If, in a subsequent period, the fair value of a debt instrument inputs including foreign exchange spot and forward premiums. increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognised, the 3.7. Property and Equipment impairment loss is reversed through the Income Statement. Recognition In the case of equity investments classified as fair value through OCI, objective evidence would also include a ‘significant’ or Property, plant and equipment are tangible items that are held for ‘prolonged’ decline in the fair value of the investment below its use in the production or supply of services, for rental to others or cost. Where there is evidence of impairment, the cumulative loss for administrative purposes and are expected to be used during measured as the difference between the acquisition cost and the more than one period. The Bank applies the requirements of current fair value, less any impairment loss on that investment the Nepal Accounting Standard - NAS 16 (Property, Plant and previously recognised in profit or loss is removed from equity Equipment) in accounting for these assets. Property, plant and and recognized in the Statement of profit or loss. However, any equipment are recognised if it is probable that future economic subsequent increase in the fair value of an impaired available for benefits associated with the asset will flow to the entity and the sale equity security is recognised in other comprehensive income. cost of the asset can be measured reliably measured.

Bank writes-off certain financial investments measured at fair Measurement value through OCI when they are determined to be uncollectible. An item of property, plant and equipment that qualifies for Impairment of Non-Financial Assets recognition as an asset is initially measured at its cost. Cost includes expenditure that is directly attributable to the acquisition The Bank assesses at each reporting date whether there is an of the asset and cost incurred subsequently to add to, replace indication that an asset may be impaired. If any indication exists, part of an item of property, plant & equipment. The cost of self- or when annual impairment testing for an asset is required, constructed assets includes the cost of materials and direct labor, the Bank estimates the asset’s recoverable amount. An asset’s any other costs directly attributable to bringing the asset to a recoverable amount is the higher of an asset’s or the fair value working condition for its intended use and the costs of dismantling of the Cash Generating Units (CGU) fair value less costs to sell and removing the items and restoring the site on which they are and its value in use. Where the carrying amount of an asset or located. Purchased software that is integral to the functionality CGU exceeds its recoverable amount, the asset is considered of the related equipment is capitalized as part of computer impaired and is written down to its recoverable amount. equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items In assessing value in use, the estimated future cash flows are (major components) of property, plant and equipment. discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of Cost Model money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. Property and equipment is stated at cost excluding the costs of day–to–day servicing, less accumulated depreciation and 3.5. Trading Assets accumulated impairment in value. Such cost includes the cost of replacing part of the equipment when that cost is incurred, if Financial assets such as government securities, equity etc. held the recognition criteria are met.

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Revaluation Model The depreciable amount of an item of property, plant and equipment is allocated on systematic basis over its useful life The Bank has not applied the revaluation model to the any class and is depreciated as follows: of freehold land and buildings or other assets. Such properties are carried at a previously recognised GAAP Amount. Useful Life Nature of Asset Depreciation Rate On revaluation of an asset, any increase in the carrying amount is (in Years) recognised in ‘Other comprehensive income’ and accumulated Building 50 5 in equity, under capital reserve or used to reverse a previous Furniture 10 25 revaluation decrease relating to the same asset, which was Office Equipment 10 25 charged to the Statement of Profit or Loss. In this circumstance, Vehicles 7 20 the increase is recognised as income to the extent of previous Computers 7 25 write down. Any decrease in the carrying amount is recognised Plant and Machinery 10 15 as an expense in the Statement of Profit or Loss or debited to the Leasehold Assets 10 Years or Lease Other Comprehensive income to the extent of any credit balance period whichever existing in the capital reserve in respect of that asset. is less The decrease recognised in other comprehensive income Depreciation on assets acquired during the year is computed reduces the amount accumulated in equity under capital on a proportionate basis from date of purchase or put to use, reserves. Any balance remaining in the revaluation reserve in whichever is earlier. respect of an asset is transferred directly to retained earnings on retirement or disposal of the asset. Changes in Estimates Subsequent Cost The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each The subsequent cost of replacing a component of an item of financial year end. property, plant and equipment is recognized in the carrying amount of the item, if it is probable that the future economic benefits embodied within that part will flow to the Bank and it Capital Work in Progress can be reliably measured. The cost of day to day servicing of These are expenses of capital nature directly incurred in the property, plant and equipment are charged to the Statement of construction of buildings, major plant and machinery and system Profit or Loss as incurred. development, awaiting capitalization. Capital work-in-progress Derecognition would be transferred to the relevant asset when it is available The carrying amount of an item of property, plant and equipment for use, i.e. when it is in the location and condition necessary is derecognized on disposal or when no future economic benefits for it to be capable of operating in the manner intended by are expected from its use. The gain or loss arising from de- management. Capital work-in-progress is stated at cost less recognition of an item of property, plant and equipment is included any accumulated impairment losses. in the Statement of Profit or Loss when the item is derecognized. When replacement costs are recognized in the carrying amount 3.8. Intangible Assets of an item of property, plant and equipment, the remaining Recognition carrying amount of the replaced part is derecognized. Major inspection costs are capitalized. At each such capitalization, the An intangible asset is an identifiable non-monetary asset without remaining carrying amount of the previous cost of inspections physical substance, held for use in the production or supply is derecognized.The gain or losses arising from derecognition of of goods or services, for rental to others or for administrative an item of property, plant and equipment is included in profit or purposes. An intangible asset is recognised if it is probable that the loss when the item is derecognized. future economic benefits that are attributable to the asset will flow Depreciation to the entity and the cost of the asset can be measured reliably. An intangible asset is initially measured at cost. Expenditure incurred Depreciation is calculated by using the straight line method on an intangible item that was initially recognised as an expense on cost or the reducing balance method on carrying value of by the Bank in previous annual Financial Statements or interim property, plant & equipment other than freehold land.

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Financial Statements are not recognised as part of the cost of an from its use. The gain or loss arising on de recognition of an item intangible asset at a later date. of intangible assets is included in the Statement of Profit or Loss when the item is derecognized. Computer Software 3.9. Investment Property Cost of purchased licenses and all computer software costs incurred, licensed for use by the Bank, which are not integrally related to Properties held to earn rental and or capital appropriation associated hardware, which can be clearly identified, reliably are recognised as investment property. Such properties are measured, and it’s probable that they will lead to future economic measured at cost. benefits, are included in the Statement of Financial Position under the category ‘Intangible assets’ and carried at cost less accumulated 3.10. Income Tax amortization and any accumulated impairment losses. As per Nepal Accounting Standard- NAS 12 (Income Taxes) tax Goodwill expense is the aggregate amount included in determination of profit or loss for the period in respect of current and deferred Goodwill, if any that arises upon the acquisition of Subsidiaries taxation. Income Tax expense is recognised in the statement of is included in intangible assets. Goodwill is measured at initial Profit or Loss, except to the extent it relates to items recognised recognition in accordance with Note. Goodwill is measured at directly in equity or other comprehensive income in which case it cost less accumulated impairment losses. is recognised in equity or in other comprehensive income.

Subsequent Expenditure Current Tax

Expenditure incurred on software is capitalized only when it is Current tax assets and liabilities consist of amounts expected probable that this expenditure will enable the asset to generate to be recovered from or paid to Inland Revenue Department in future economic benefits in excess of its originally assessed respect of the current year, using the tax rates and tax laws standard of performance and this expenditure can be measured enacted or substantively enacted on the reporting date and any and attributed to the asset reliably. All other expenditure is adjustment to tax payable in respect of prior years. expensed as incurred. Deferred Tax Amortization of Intangible Assets Deferred tax is provided on temporary differences at the Intangible Assets, except for goodwill, are amortized on a reporting date between the tax bases of assets and liabilities straight–line basis in the Statement of Profit or Loss from the and their carrying amounts for financial reporting purposes. date when the asset is available for use, over the best of its useful Deferred tax liabilities are recognised for all taxable temporary economic life based on a pattern in which the asset’s economic differences except: benefits are consumed by the bank. Amortization methods, useful lives, residual values are reviewed at each financial year Where the deferred tax liability arises from the initial end and adjusted if appropriate. The Bank assumes that there is recognition of goodwill or of an asset or liability in a no residual value for its intangible assets. transaction that is not a business combination, and at the time of transaction, affects neither the accounting Acquired computer software licenses are capitalized on the profit nor taxable profit or loss. basis of cost incurred to acquire and bring to use the specific In respect of taxable temporary differences associated software and are amortized over their useful life estimated as with investments in subsidiaries, where the timing of the 5 years from the date of acquisition or over the period of the reversal of the temporary differences can be controlled license, whichever is less. and is probable that the temporary differences will not reverse in the foreseeable future. Derecognition of Intangible Assets Deferred tax assets are recognised for all deductible temporary The carrying amount of an item of intangible asset is derecognized differences, carried forward unused tax credits and unused tax on disposal or when no future economic benefits are expected losses (if any), to the extent that it is probable that the taxable

34 www.sanimabank.com Annual Report 2018/19 profit will be available against which the deductible temporary that date. Where a provision is measured using the cash flows differences, carried forward unused tax credits and unused tax estimated to settle the present obligation, its carrying amount is losses can be utilized except: determined based on the present value of those cash flows. A provision for onerous contracts is recognized when the expected Where the deferred tax asset relating to the deductible benefits to be derived by the Bank from a contract are lower temporary differences arising from the initial recognition of than the unavoidable cost of meeting its obligations under the an asset or liability in a transaction that is not a business contract. The provision is measured as the present value of the combination, and at the time of transaction, affects neither lower of the expected cost of terminating the contract and the the accounting profit nor taxable profit or loss. expected net cost of continuing with the contract. In respect of deductible temporary differences associated with investments in Subsidiaries, deferred tax assets are Before a provision is established, the Bank recognizes any recognised only to the extent that it is probable that the impairment loss on the assets associated with that contract. The temporary differences will reverse in the foreseeable expense relating to any provision is presented in the Statement future and taxable profit will be available against which of Profit or Loss net off any reimbursement. the temporary difference will be utilized. 3.13. Revenue Recognition The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is probable that sufficient profit will Revenue is recognised to the extent that it is probable that the be available to allow the deferred tax asset to be utilized. Unrecognized economic benefits will flow to Bank and the revenue can be deferred tax assets are reassessed at each reporting date and are reliably measured. The following specific recognition criteria recognised to the extent that it has become probable that future taxable must also be met before revenue is recognised. profit will allow the deferred tax asset to be recovered. Interest Income Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or For all financial instruments measured at amortized cost, interest the liability is settled, based on tax rates (and tax laws) that have bearing financial assets classified as measured at fair value been enacted or substantively enacted at the reporting date. through OCI and financial instruments designated at fair value through profit or loss, interest income or expense is recorded Current and deferred tax assets and liabilities are offset only to using the EIR. EIR is the rate that exactly discounts estimated the extent that they relate to income taxes imposed by the same future cash payments or receipts through the expected life of the taxation authority. financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. 3.11. Deposits, debt securities issued and subordinated liabilities The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) Deposits, debt securities issued and subordinated liabilities have and includes any fees or incremental costs that are directly been measured at amortized cost. Bank has a policy to treat attributable to the instrument and are an integral part of the debt securities issue expenses up to 1% of debt securities issue EIR, but not future credit losses. The carrying amount of the price as immaterial thus the same has not been considered in financial asset or financial liability is adjusted if the bank revises computation of fair value of debt securities. its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change 3.12. Provisions in carrying amount is recorded as ’Interest income’ for financial assets and ’Interest and similar expense’ for financial liabilities. A provision is recognised if, as a result of a past event, the However, for a reclassified financial asset for which the bank Bank has a present legal or constructive obligation that can be subsequently increases its estimates of future cash receipts as estimated reliably, and it is probable that an outflow of economic a result of increased recoverability of those cash receipts, the benefits will be required to settle the obligation. The amount effect of that increase is recognised as an adjustment to the EIR recognised is the best estimate of the consideration required from the date of the change in estimate. to settle the present obligation at the reporting date, taking in to account the risks and uncertainties surrounding the obligation at Bank has a policy to treat loan administration fees up to 1% of loan

www.sanimabank.com 35 Annual Report 2018/19 amount as immaterial. Considering loan administration and other Bank account (a fund) and will have no legal or constructive fees as immaterial and impracticable to determine reliably, same obligation to pay further contributions even if the fund does not has not been included in computation of effective interest rate as hold sufficient assets to pay all employee benefits relating to per Carve-out (optional) pronounced on 20th September 2018. employee services in the current and prior periods as defined in Nepal Accounting Standards – NAS 19 (Employee Benefits). Bank has policy to suspend the recognition of interest income for loan due for more than 12 months where the net realizable The contribution payable by the employer to a defined contribution value of security is sufficient to cover payment of principal and plan in proportion to the services rendered to Bank by the accrued interest. However, if the value of collateral is insufficient, employees and is recorded as an expense under ‘Personnel Bank ceases to accrue interest on loan. Expense’ as and when they become due. Unpaid contribution are recorded as a liability under ‘Other Liabilities’ in Notes 4.23. Fee and Commission Income Bank contributed 10% of the salary of each employee to the Fees earned for the provision of services over a period of time Employees’ Provident Fund. The above expenses are identified are accrued over the period, which include service fees and as contributions to ‘Defined Contribution Plans’ as defined in commission income. Loan commitment fees for loans that Nepal Accounting Standards – NAS 19 (Employee Benefits). are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised Defined Benefit Plans as an adjustment to the EIR on the loan. A defined benefit plan is a post-employment benefit plan other Dividend Income than a defined contribution plan. Accordingly, staff gratuity and Dividend income is recognized when the right to receive payment leave encashment has been considered as defined benefit plans is established. as per Nepal Accounting Standards – NAS 19 (Employee Benefits).

Net Trading Income (a) Gratuity Net Trading Income includes all gains and losses from changes in fair value and related capital gain/loss and dividend from An actuarial valuation is carried out every year to ascertain the financial assets ‘Held for Trading’. full liability under gratuity.

Net income from other financial instrument measured at Bank’s obligation in respect of defined benefit obligation is fair value through Profit or Loss calculated by estimating the amount of future benefit that employees have earned for their service in the current and Net income from other financial instrument measured at fair prior periods and discounting that benefit to determine its value through Profit or Loss includes all gains/(losses) arised present value, then deducting the fair value of any plan assets from the revaluation of financial instrument at fair value. to determine the net amount to be shown in the Statement of Financial Position. The value of a defined benefit asset is 3.14. Interest expense restricted to the present value of any economic benefits available in the form of refunds from the plan or reduction on the future For all financial liabilities measured at amortized cost, interest contributions to the plan. In order to calculate the present value expense is recognised using the EIR. EIR is the rate that of economic benefits, consideration is given to any minimum exactly discounts estimated future cash payments through the funding requirement that apply to any plan in Bank. An economic expected life of the financial liabilities or a shorter period, where benefit is available to Bank if it is realizable during the life of the appropriate, to the net carrying amount of the financial liability. plan, or on settlement of the plan liabilities.

3.15. Employee Benefits Bank determines the interest expense on the defined benefit liability by applying the discount rate used to measure the Defined Contribution Plans defined benefit liability at the beginning of the annual period. The discount rate is the average yield on government bonds A defined contribution plan is a post-employment benefit plan issued during the period having maturity of five years or under which the Bank makes fixed contribution into a separate more.

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The increase in gratuity liabilities attributable to the services corresponding liability to the lessor is included in ‘Other liabilities’. A provided by employees during the year ended 16th July, 2019 finance lease and its corresponding liability are recognized initially (current service cost) has been recognised in the Statement of at the fair value of the asset or if lower, the present value of the Profit or Loss under ‘Personnel Expenses’ together with the net minimum lease payments. Finance charges payable are recognised interest expense. Bank recognizes the total actuarial gain/(loss) in ‘Interest expenses’ over the period of the lease based on the that arises in computing Bank’s obligation in respect of gratuity in interest rate implicit in the lease so as to give a constant rate of other comprehensive income during the period in which it occurs. interest on the remaining balance of the liability.

The demographic assumptions underlying the valuation are Operating Lease retirement age (58 years), early withdrawal from service and retirement on medical grounds. All other leases are classified as operating leases. When acting as lessor, Bank includes the assets subject to operating leases (b) Unutilized Accumulated Leave in ‘Property, plant and equipment’ and accounts for them accordingly. Impairment losses are recognized to the extent that Bank’s liability towards the accumulated leave which is expected residual values are not fully recoverable and the carrying value to be utilized beyond one year from the end of the reporting of the assets is thereby impaired. period is treated as other long term employee benefits. Bank’s net obligation towards unutilized accumulated leave is calculated When Bank is the lessee, leased assets are not recognized on the by discounting the amount of future benefit that employees have Statement of Financial Position. Rentals payable and receivable earned in return for their service in the current and prior periods under operating leases are accounted for on a straight-line to determine the present value of such benefits. The discount basis over the periods of the leases and are included in ‘Other rate is the average yieldon government bonds issued during the operating expenses’ and ‘Other operating income’, respectively. period having maturity of five years or more.The calculation is performed using the Projected Unit Credit method. Net change in The bank has recognized lease payments under operating lease liability for unutilized accumulated leave including any actuarial as an expense on the straight line basis over the lease term. gain and loss are recognized in the Statement of Profit or Loss under ‘Personnel Expenses’ in the period in which they arise. 3.17. Foreign currency translation

3.16. Leases All foreign currency transactions are translated into the functional currency, which is Nepalese Rupees, using the exchange rates The determination of whether an arrangement is a lease, or it prevailing at the dates when the transactions were affected. contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the Monetary assets and liabilities denominated in foreign arrangement is dependent on the use of a specific asset or currencies at the reporting date are translated to Nepalese assets and the arrangement conveys a right to use the asset. Rupees using the spot foreign exchange rate ruling at that date and all differences arising on non-trading activities are taken Finance Lease to ‘Other Operating Income’ in the Statement of Profit or Loss. The foreign currency gain or loss on monetary items is the Agreements which transfer to counterparties substantially all difference between amortized cost in the functional currency at the risks and rewards incidental to the ownership of assets, the beginning of the period, adjusted for effective interest and but not necessarily legal title, are classified as finance lease. payments during the period, and the amortized cost in foreign When Bank is the lessor under finance lease, the amounts due currency translated at the rates of exchange prevailing at the under the leases, after deduction of unearned interest income, end of the reporting period. are included in, ‘Loans & receivables from other customers’, as appropriate. Interest income receivable is recognised in ‘Net Non-monetary items in a foreign currency that are measured interest income’ over the periods of the leases so as to give a in terms of historical cost are translated using the exchange constant rate of return on the net investment in the leases. rates as at the dates of the initial transactions. Non-monetary items in foreign currency measured at fair value are translated When Bank is a lessee under finance leases, the leased assets are using the exchange rates at the date when the fair value was capitalized and included in ‘Property, Plant and Equipment’ and the determined.

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Foreign exchange differences arising on the settlement or 3.19. Share capital and reserves reporting of monetary items at rates different from those which were initially recorded are dealt with in the Statement Share capital and reserves have been treated as equity instrument of Profit or Loss. However, foreign currency differences arising as per NAS 32 representing the net assets of the entity. Bank on available-for-sale equity instruments are recognized in other has a policy to treat share/debenture issue expenses upto 1% of comprehensive income. issue amount as immaterial. Thus, same has not been deducted from capital/debenture and has been charged to profit or loss 3.18. Financial guarantee and loan commitments of relevant period.

Contingent Liabilities are possible obligations whose existence 3.20. Earnings per share including diluted will be confirmed only by uncertain future events or present obligations where the transfer of economic benefits is not Bank presents basic and diluted Earnings per share (EPS) data probable or cannot be reliably measured as defined in the Nepal for its ordinary shares. Basic EPS is calculated by dividing the Accounting Standard- NAS 37 (Provisions, Contingent Liabilities profit and loss attributable to ordinary equity holders of Bank by and Contingent Assets). the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting both To meet the financial needs of customers, the Bank enters into the profit and loss attributable to the ordinary equity holders and various irrevocable commitments and contingent liabilities. the weighted average number of ordinary shares outstanding, These consist of financial guarantees, letter of credit and other for the effects of all dilutive potential ordinary shares, if any. undrawn commitments to lend. Letters of credit, guarantees and acceptances commit the Bank to make payments on behalf of 3.21. Segment Reporting customers in the event of a specific act, generally related to the import or export of goods. They carry a similar credit risk to The bank has identified its geographical segments on the basis loans. Operating lease commitments of the Bank (as a lessor of business activities in 7 different provinces of the country. and as a lessee) and pending legal claims against the Bank too form part of commitments of the Bank. Contingent liabilities are Management monitors the operating results of its segments not recognised in the Statement of Financial Position but are separately for the purpose of making decisions about resource disclosed unless they are remote. But these contingent liabilities allocation and performance assessment. Segment performance do contain credit risk and are therefore form part of the overall is evaluated based on operating profits or losses which, in risk of the Bank. certain respects, are measured differently from operating profits or losses in the consolidated financial statements. Income taxes Financial guarantees are initially recognised in the Statement are managed on a group basis and are not allocated to operating of Financial Position (within ‘other liabilities’) at fair value, being segments.Transfer prices between operating segments are on the premium received. Subsequent to initial recognition, the an arm’s length basis in a manner similar to transactions with Bank’s liability under each guarantee is measured at the higher third parties. of the amount initially recognised less cumulative amortization recognised in the Statement of Profit or Loss, and the best 3.22. Dividend on Ordinary Shares estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Dividend on ordinary shares are recognised as liability and deducted from equity when they are approved by the Annual Any increase in the liability relating to the financial guarantees General Meeting of shareholders. Interim Dividends are is recorded in the Statement of Profit or Loss under ‘Impairment deducted from equity when they are declared and no longer Charges for Loans & other losses’. The premium received is at the discretion of the Bank. Dividend proposed for the year recognised in the Statement of Profit or Loss under ‘Net fees after reporting date and before the authorization of financial and commission income’ on a straight line basis over the life of statements has been disclosed in notes as non-adjusting the guarantee. event.

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4.1 Cash and Cash Equivalent Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Cash in hand 1,435,466,780 1,082,295,735 1,435,466,780 1,082,295,735 Balances with B/FIs 637,151,940 467,150,163 645,579,569 465,401,856 Money at call and short notice 769,949,308 600,092,329 769,949,308 600,092,329 Other 1,937,426,780 2,382,362,414 1,785,426,780 2,382,362,414 Total 4,779,994,808 4,531,900,641 4,636,422,437 4,530,152,334

Cash and cash equivalent- Other Placement with maturity upto 3 months Axis Bank Dubai 881,814,881 1,983,065,454 881,814,881 1,983,065,454 Nepal Investment Bank Ltd. 33,012,488 32,936,877 33,012,488 32,936,877 ST.CH.Bank Singapore 319,856,807 116,336,046 319,856,807 116,336,046 Axis Bank Singapore 550,742,604 550,742,604 Gandaki Bikas Bank Ltd 20,000,000 Kailash Bikas Bank Ltd. 40,000,000 Muktinath Bikas Bank Ltd. 25,000,000 Om Development Bank Ltd. 30,000,000 Sanima Bank Ltd. 14,000,000 Shangrila Development Bank Ltd. 23,000,000 Deposit Collection Instrument - 250,024,038 - 250,024,038 Total 1,937,426,780 2,382,362,414 1,785,426,780 2,382,362,414 4.2 Due from Nepal Rastra Bank Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Statutory balances with NRB 2,768,182,555 5,575,806,134 2,768,182,555 5,575,806,134 Securities purchased under resale agreement - - - - Other deposit and receivable from NRB 13,011,906 32,365,714 13,011,906 32,365,714 Total 2,781,194,462 5,608,171,848 2,781,194,462 5,608,171,848 4.3 Placements with Bank and Financial Instituitions Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Placement with domestic B/FIs - - - - Placement with foreign B/FIs 827,701,829 649,156,510 827,701,829 649,156,510 Less: Allowances for impairment - - - - Total 827,701,829 649,156,510 827,701,829 649,156,510

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4.4 Derivative Financial Instruments Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Held for trading Interest rate swap Currency swap Forward exchange contract Others Held for risk management Interest rate swap - - Currency swap - - Forward exchange contract 85,066,888 - 85,066,888 - Other - - Total 85,066,888 - 85,066,888 - 4.5 Other Trading Assets Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Teasury bills - - - - Government bonds 407,063,913 407,357,338 407,063,913 407,357,338 NRB Bonds - - Domestic Corporate bonds - - Equities 165,587,102 87,502,114 77,357,898 70,690,809 Other - - Total 572,651,015 494,859,452 484,421,811 478,048,147 Pledged Non-pledged

Government bonds includes interest receivable amount on National Saving Bonds amounting Rs. 7,703,913 at current year and Rs. 7,457,338 at previous year end.

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Information Relating to Investment in Equities Group Bank Current Year Previous Year Current Year Previous Year Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value Investment in quoted equity Nepal Doorsanchar Company Ltd. 47775 shares of Rs.100 each (Bank) 31,595,084 33,304,029 31,548,092 34,649,647 31,182,743 32,959,089 31,182,743 34,290,769 48275 shares of Rs.100 each (Group) Hydroelectricity Investment and Development Company Ltd. 160342 shares of Rs. 100 each 14,576,600 25,698,894 14,576,600 22,492,058 14,576,600 25,698,894 14,576,600 22,492,058 Nabil Equity Fund 844878 shares of Rs. 10 each (Bank) 8,505,100 7,899,550 8,496,492 8,348,291 8,448,780 7,847,240 8,448,780 8,293,010 850510 shares of Rs. 10 each (Group) Global IME Sammunat Scheme 47466 shares of Rs. 10 each 474,660 395,975 474,660 414,404 474,660 395,975 474,660 414,404 Laxmi Equity Fund 116991 shares of Rs. 10 each 1,169,910 888,624 1,169,910 943,363 1,169,910 888,624 1,169,910 943,363 Mithila Micro Finace Ltd. 75 shares of Rs. 100 each - 30,089 - 30,313 - 30,089 - 30,313 Siddhartha Equity Fund 250000 shares of Rs. 10 each 2,500,000 2,511,149 2,500,000 2,379,245 2,500,000 2,511,149 2,500,000 2,379,245 Citizen Mutual Fund-1 200000 shares of Rs. 10 each 2,000,000 2,026,838 2,000,000 1,847,648 2,000,000 2,026,838 2,000,000 1,847,648 Nabil Balance Fund-2 250000 shares of Rs. 10 each 2,500,000 2,500,000 - - 2,500,000 2,500,000 - - Citizen Mutual Fund 1 (CMF-11) 250000 shares of Rs. 10 each 2,500,000 2,500,000 - - 2,500,000 2,500,000 - - Agriculture Development Bank 1500 Shares of Rs. 100 each 619,530 610,739 ------Century Commercial Bank Ltd. 2000 Shares of Rs. 100 each 341,951 352,407 ------Nepal Bank Ltd. 218514 Shares of Rs. 100 each 61,183,920 73,090,311 ------NMB Bank Ltd. 1 Share of Rs. 100 each - 380 ------Siddhartha Bank Limited 153 shares of Rs. 100 each - - 47,978 45,693 - - - - Nepal Investment Bank Limited 3707 shares of Rs. 100 each 1,344,578 1,915,275 4,532,636 4,503,627 - - - - Citizen Bank International Limited 7754 shares of Rs. 100 each 2,140,104 1,729,080 546,466 530,725 - - - - NMB Hybrid Fund L-1 7887 shares of Rs. 10 each 78,870 78,751 72,312 76,081 - - - - NIBL Pragati Fund 8577 shares of Rs. 10 each 85,770 63,526 68,307 76,846 - - - - Nepal SBI Bank Limited 3 shares of Rs. 100 each - 1,401 1,538 1,490 - - - - Samata Microfinance Bittiya Sanstha Limited 12 shares of Rs. 100 each - - 19,388 16,485 - - - - Nepal Life Insurance Co. Ltd. 1862 shares of Rs. 100 each 1,196,304 1,670,113 3,151,977 3,229,900 - - - - Forward Community Microfinance Bittiya Sanstha Ltd. 409 shares of Rs. 100 each 747,503 540,708 742,205 722,673 - - - - Om Development Bank Ltd. 1035 shares of Rs. 100 each 311,102 202,977 162,943 157,687 - - - - Shangrila Development Bank Ltd. 29 shares of Rs. 100 each 7,475 4,590 184,659 177,862 - - - - Gandaki Bikas Bank Limited 2535 shares of Rs. 100 each 756,542 545,096 423,088 433,665 - - - - Janata Bank Nepal Ltd. 216 shares of Rs. 100 each 50,642 46,016 266,490 268,200 - - - - Chhimek Laghubitta Bikas Bank Limited 1218 shares of Rs. 100 each 1,212,159 1,151,893 221,270 208,660 - - - - Sana Kisan Bikas Bank Ltd 429 shares of Rs. 100 each 440,902 404,862 407,359 396,090 - - - - Nirdhan Utthan Bank Limited 200 shares of Rs. 100 each 236,353 167,443 186,900 169,219 - - - - First Micro Finance Development Bank Ltd. 897 shares of Rs. 100 each 518,890 334,861 506,310 482,200 - - - - Nabil Bank Limited 3024 shares of Rs. 100 each 2,313,672 2,408,314 ------Nabil Bank Limited Promotor Share 2700 shares of Rs. 100 each - - 2,029,327 1,846,553 - - - - Swabalamban Laghubitta Bittiya Sanstha Limited 2422 shares of Rs. 100 each 2,711,282 2,109,713 2,788,304 2,688,567 - - - - Life Insurance Co. Nepal 253 shares of Rs. 100 each 386,156 402,978 379,996 364,922 - - - - Chilime Hydro Power 1 share of Rs. 100 each - 519 ------Total 142,505,058 165,587,102 77,505,207 87,502,114 65,352,693 77,357,898 60,352,693 70,690,809

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4.6 Loan and Advances to B/FIs Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Loans to microfinance institutions 2,040,624,948 1,661,722,984 2,040,624,948 1,661,722,984 Other - - Less: Allowances for impairment 20,204,571 16,499,580 20,204,571 16,499,580 Total 2,020,420,376 1,645,223,405 2,020,420,376 1,645,223,405

Product Deprived sector loans 2,020,457,146 1,649,957,966 2,020,457,146 1,649,957,966 Sub total 2,020,457,146 1,649,957,966 2,020,457,146 1,649,957,966 Interest receivable 20,167,802 11,765,019 20,167,802 11,765,019 Grand total 2,040,624,948 1,661,722,984 2,040,624,948 1,661,722,984

4.6.1: Allowances for impairment Balance at Sawan 1 16,499,580 6,061,805 16,499,580 6,061,805 Impairment loss for the year: Charge for the year 3,704,992 10,437,774 3,704,992 10,437,774 Recoveries/reversal - - - - Amount written off - - - - Balance at Ashad end 20,204,571 16,499,580 20,204,571 16,499,580

4.7 Loans and Advances to Customers Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Loan and advances measured at amortized cost 82,434,811,082 68,399,505,195 82,434,765,734 68,399,505,740 Less: Impairment allowances Collective impairment 813,299,544 649,945,188 813,299,544 649,945,188 Individual impairment 202,605,609 151,426,791 202,605,609 151,426,791 Net amount 81,418,905,928 67,598,133,216 81,418,860,580 67,598,133,761 Loan and advances measured at FVTPL - - - - Total 81,418,905,928 67,598,133,216 81,418,860,580 67,598,133,761

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4.7.1 Analysis of Loan and Advances - By Product Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Product Term loans 17,266,760,515 11,817,221,698 17,266,760,515 11,817,221,698 Overdraft 8,237,963,435 7,785,095,709 8,237,963,435 7,785,095,709 Trust receipt/Import loans 2,154,212,411 1,181,905,000 2,154,212,411 1,181,905,000 Demand and other working capital loans 14,527,383,644 11,473,733,631 14,527,383,644 11,473,733,631 Personal residential loans 5,873,119,844 5,147,487,244 5,873,119,844 5,147,487,244 Real estate loans 5,869,534,155 6,162,304,032 5,869,534,155 6,162,304,032 Margin lending loans 298,594,452 329,442,651 298,594,452 329,442,651 Hire purchase loans 4,928,578,940 4,949,637,467 4,928,578,940 4,949,637,467 Deprived sector loans 2,121,207,698 1,735,881,700 2,121,207,698 1,735,881,700 Bills purchased 5,903,043 - 5,903,043 - Staff loans 751,106,222 362,363,658 751,061,131 362,364,203 Other 20,115,042,693 17,248,896,416 20,115,042,693 17,248,896,416 Sub total 82,149,407,052 68,193,969,206 82,149,361,961 68,193,969,750 Interest receivable 285,404,029 205,535,990 285,403,772 205,535,990 Grand total 82,434,811,082 68,399,505,195 82,434,765,734 68,399,505,740

Staff loans comprises of home loan, auto loan, overdraft loan and advances to staffs including interest receivables. Staff loans except staff advances amounting to Rs. 3.96 million are measured at fair value considering discount rate of 7.48% in current year. Staff advances are provided for a period upto 12 months. 4.7.2 Analysis of Loan and Advances - By Currency Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Nepalese rupee 80,833,438,278 67,718,126,103 80,833,392,930 67,718,126,648 Indian rupee - - - - United State dollar 1,539,228,000 681,379,092 1,539,228,000 681,379,092 Great Britain pound - - - - Euro 62,144,803 - 62,144,803 - Japenese yen - - - - Chinese yuan - - - - Other - - - - Total 82,434,811,082 68,399,505,195 82,434,765,734 68,399,505,740

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4.7.3 Analysis of Loan and Advances - By Collateral Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Secured - - Movable/immovable assets 80,547,812,510 66,420,132,646 80,547,812,510 66,420,132,646 Gold and silver 79,281,905 149,209,889 79,281,905 149,209,889 Guarantee of domestic B/FIs - - - - Government guarantee - - - - Guarantee of international rated bank - 29,604,509 - 29,604,509 Collateral of export document 608,218,400 763,436,821 608,218,400 763,436,821 Collateral of fixed deposit receipt 529,882,841 644,538,304 529,882,841 644,538,304 Collateral of Government securities 1,100,000 1,043,934 1,100,000 1,043,934 Counter guarantee - - - - Personal guarantee 27,513,505 351,500 27,513,505 351,500 Other collateral 641,001,921 391,187,594 640,956,573 391,188,139 Subtotal 82,434,811,082 68,399,505,195 82,434,765,734 68,399,505,740 Unsecured Grant Total 82,434,811,082 68,399,505,195 82,434,765,734 68,399,505,740 4.7.4 Allowances for Impairment Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Specific allowances for impairment Balance at Sawan 1 151,426,791 53,383,445 151,426,791 53,383,445 Impairment loss for the year: - - Charge/(reversal) for the year 51,178,818 98,043,346 51,178,818 98,043,346 Write-offs - - Exchange rate variance on foreign currency - - impairment Other movement - - Balance at Ashad end 202,605,609 151,426,791 202,605,609 151,426,791 Collective allowances for impairment Balance at Sawan 1 649,945,188 519,217,382 649,945,188 519,217,382 Impairment loss for the year: - - Charge/(reversal) for the year 163,354,356 130,727,805 163,354,356 130,727,805 Exchange rate variance on foreign currency - - impairment Other movement - - Balance at Ashad end 813,299,544 649,945,188 813,299,544 649,945,188 Total allowances for impairment 1,015,905,153 801,371,979 1,015,905,153 801,371,979

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4.8 Investment Securities Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Investment securities measured at amortized cost 12,933,242,288 8,967,804,213 12,933,242,288 8,797,804,213 Investment in equity measured at FVTOCI 709,695,412 647,927,630 677,947,730 615,639,562 Total 13,642,937,700 9,615,731,842 13,611,190,018 9,413,443,775 4.8.1 Investment Securities Measured at Smortized Cost Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Debt securities - - Government bonds 9,430,724,898 5,645,787,081 9,430,724,898 5,645,787,081 Government treasury bills 3,502,517,390 3,152,017,250 3,502,517,390 3,152,017,250 Nepal Rastra Bank bonds - - - - Nepal Rastra Bank deposits instruments - - - - Other - 170,000,000 - - Less: specific allowances for impairment - (119) - (119) Total 12,933,242,288 8,967,804,213 12,933,242,288 8,797,804,213 4.8.2 Investment in Equity Measured at Fair Value Through other Comprehensive Income Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Equity instruments Quoted equity securities 189,892,812 160,836,962 158,145,130 160,836,962 Unquoted equity securities 519,802,600 487,090,668 519,802,600 454,802,600 Total 709,695,412 647,927,630 677,947,730 615,639,562

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4.8.3 Information Relating to Investment in Equities Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value Investment in quoted equity Sanima Equity Fund 16900000 shares of Rs. 10 each (Bank) 202,926,800 189,892,812 202,926,800 193,125,030 169,000,000 158,145,130 169,000,000 160,836,962 20292680 shares of Rs. 10 each (Group)

Investment in unquoted equity Sanima Life Insurance Co. Ltd. 280,000,000 280,000,000 280,000,000 280,000,000 280,000,000 280,000,000 280,000,000 280,000,000 2800000 shares of Rs. 100 each Nepal Clearing House Company Ltd. 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 33103 shares of Rs. 100 each Sanima Insurance Ltd. 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 1000000 shares of Rs. 100 each Swet Ganga Hydropower and Construction Ltd (Lower Likhu Hydro 50,000,000 50,000,000 25,000,000 25,000,000 50,000,000 50,000,000 25,000,000 25,000,000 Power Project) 500000 shares of Rs. 100 each Sanima Middle Tamor Hydro Power Limited 50,000,000 50,000,000 25,000,000 25,000,000 50,000,000 50,000,000 25,000,000 25,000,000 500000 shares of Rs. 100 each Mathillo Mailun Khola Jalvidhyut Ltd 37,500,000 37,500,000 22,500,000 22,500,000 37,500,000 37,500,000 22,500,000 22,500,000 375000 shares of Rs. 100 each Total 722,729,400 709,695,412 657,729,400 647,927,630 688,802,600 677,947,730 623,802,600 615,639,562

4.9 Current Tax Assets Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Current tax assets Current year income tax assets 1,007,451,953 692,715,137 999,339,551 691,029,387 Tax assets of prior periods 1,966,300,053 1,265,835,671 1,956,865,057 1,265,835,671 Current tax liabilities Current year income tax liabilities 973,129,676 778,999,752 957,816,576 774,250,990 Tax liabilities of prior periods 2,023,159,914 1,249,121,908 2,023,159,914 1,248,908,924 Total (22,537,584) (69,570,852) (24,771,881) (66,294,857)

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4.10 Investment in Subsidiaries Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Investment in quoted subsidiaries Investment in unquoted subsidiaries - - 250,000,000 250,000,000 Total investment - - 250,000,000 250,000,000 Less: Impairment allowances - - - - Net carrying amount - - 250,000,000 250,000,000 4.10.1 Investment in Quoted Subsidiaries Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Fair Cost Fair Value Cost Cost Fair Value Cost Fair Value Value …………………….Ltd. ……hares of Rs. …….each Total 4.10.2 Investment in Unquoted Subsidiaries Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value Sanima Capital .Ltd. 2,500,000 shares of 250,000,000 250,000,000 250,000,000 250,000,000 Rs.100.each Sanima Securities Ltd. - - - - Total 250,000,000 250,000,000 250,000,000 250,000,000

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4.10.3 Information relating to Subsidiaries of the Bank Amount In Rs. Group Bank Percentage of ownership held Percentage of ownership held by the Bank Current Year Previous Year Current Year Previous Year Sanima Capital Ltd. 100% 100% 4.10.4 Non Controlling Interest of the Subsidiaries Amount In Rs. Group Bank Current Year Current Year ...Ltd …Ltd. …Ltd …Ltd. ...Ltd …Ltd. …Ltd …Ltd. Equity interest held by NCI (%) Profit/(loss) allocated during the year Accumulated balances of NCI as on Ashad end…….. Dividend paid to NCI Previous Year Previous Year ...Ltd …Ltd. …Ltd …Ltd. ...Ltd …Ltd. …Ltd …Ltd. Equity interest held by NCI (%) Profit/(loss) allocated during the year Accumulated balances of NCI as on Ashad end…….. Dividend paid to NCI 4.11 Investment in Associates Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Investment in quoted associates Investment in unquoted associates Total investment Less: Impairment allowances Net carrying amount 4.11.1 Investment in Quoted Associates Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value …………………….Ltd. ……hares of Rs. …….each Total

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4.11.2 Investment in Unquoted Associates Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value …………………….Ltd. ……hares of Rs. …….each Total 4.11.3 Information Relating to Associates of the Bank Amount In Rs. Group Bank Percentage of ownership held Percentage of ownership held Current Year Previous Year Current Year Previous Year ……………………….Ltd. ……………………….Ltd. ……………………….Ltd. ……………………….Ltd. ………………………. 4.11.4 Equity Value of Associates Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year ……………………….Ltd. ……………………….Ltd. ……………………….Ltd. ……………………….Ltd. ………………………. 4.12 Investment Properties Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Investment properties measured at fair value Balance as on Sawan 1, …….. Addition/disposal during the year Net changes in fair value during the year Adjustment/transfer Net amount

Investment properties measured at cost Balance as on Sawan 1, …….. Addition/disposal during the year Adjustment/transfer Accumulated depreciation Accumulated impairment loss Net amount Total

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4.13 Property and Equipment Amount In Rs. Group

Total as on Leasehold Computer & Furniture & Equipment Particulars Land Building Vehicles Machinery 16th July Properties Accessories Fixture & Others 2019

Cost

As on 16th July 2017 210,336,100 139,364,847 141,583,765 91,928,532 173,384,156 87,756,099 81,701,108 119,070,700 1,045,125,307

Addition during the Year ------

Acquisition ------

Capitalization - - 80,356,845 83,320,276 50,807,724 30,716,784 21,260,286 45,181,608 311,643,523

Disposal during the year - - (4,706,208) (2,124,547) (12,881,079) (1,597,234) (313,100) (8,528,899) (30,151,067)

Adjustment/Revaluation - - (621,702) - - 136,033 - - (485,669)

Balance as on 16th July 2018 210,336,100 139,364,847 216,612,700 173,124,261 211,310,801 117,011,682 102,648,294 155,723,409 1,326,132,094

Addition during the Year

Acquisition

Capitalization 218,991,070 - 17,569,178 27,473,561 76,778,400 10,546,516 10,752,229 22,313,514 384,424,468

Disposal during the year - - (2,998,280) (3,380,474) (25,175,304) (1,201,172) (80,275) (2,812,070) (35,647,574)

Adjustment/Revaluation - - (1,665,081) - - (352,439) - (9,335) (2,026,855)

Balance as on 16th July 2019 429,327,170 139,364,847 229,518,517 197,217,348 262,913,897 126,004,588 113,320,248 175,215,518 1,672,882,133

Depreciation and Impairment

As on 16th July 2017 - 34,183,175 50,212,604 47,337,168 69,530,310 57,042,467 31,868,147 68,344,837 358,518,708

Depreciation charge for the Year - 5,259,084 16,872,931 22,857,702 25,670,736 10,197,937 8,624,141 15,418,226 104,900,757

Impairment for the year -

Disposals - - (2,410,357) (1,424,821) (9,313,571) (1,243,592) (252,091) (6,048,808) (20,693,240)

Adjustment ------

As on 16th July 2018 - 39,442,259 64,675,178 68,770,049 85,887,475 65,996,812 40,240,197 77,714,255 442,726,225

Impairment for the year ------

Depreciation charge for the Year - 4,996,129 21,584,011 28,096,315 32,432,833 13,939,154 10,003,474 21,374,833 132,426,750

Disposals - - (1,894,015) (3,056,651) (17,279,057) (987,341) (55,538) (2,325,171) (25,597,774)

Adjustment ------

As on 16th July 2019 - 44,438,388 84,365,174 93,809,713 101,041,251 78,948,624 50,188,133 96,763,917 549,555,201

Capital Work in Progress 2017 ------35,864,112 35,864,112

Capital Work in Progress 2018 - 6,095,887 ------6,095,887

Capital Work in Progress 2019 - 33,720,847 ------33,720,847

Net Book Value

As on 15th July 2017 210,336,100 105,181,672 91,371,161 44,591,364 103,853,846 30,713,632 49,832,961 86,589,975 722,470,711

As on 16th July 2018 210,336,100 106,018,475 151,937,522 104,354,212 125,423,326 51,014,870 62,408,097 78,009,154 889,501,756

As on 16th July 2019 429,327,170 128,647,306 145,153,342 103,407,635 161,872,646 47,055,963 63,132,115 78,451,601 1,157,047,779

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Bank

Total as on Leasehold Computer & Furniture & Equipment Particulars Land Building Vehicles Machinery 16th July Properties Accessories Fixture & Others 2019

Cost

As on 16th July 2017 210,336,100 139,364,847 137,861,126 90,363,192 169,408,656 87,387,174 81,701,108 117,179,531 1,033,601,734

Addition during the Year -

Acquisition -

Capitalization 80,356,845 83,320,276 50,807,724 30,716,784 21,260,286 45,181,608 311,643,523

Disposal during the year (4,706,208) (2,124,547) (12,881,079) (1,597,234) (313,100) (8,528,899) (30,151,067)

Adjustment/Revaluation (621,702) 136,033 (485,669)

Balance as on 16th July 2018 210,336,100 139,364,847 212,890,061 171,558,921 207,335,301 116,642,757 102,648,294 153,832,240 1,314,608,521

Addition during the Year

Acquisition

Capitalization 218,991,070 17,500,300 27,414,685 76,778,400 10,342,722 10,752,229 22,313,514 384,092,921

Disposal during the year (2,998,280) (3,380,474) (25,175,304) (1,201,172) (80,275) (2,812,070) (35,647,574)

Adjustment/Revaluation (1,665,081) (352,439) (9,335) (2,026,855)

Balance as on 16th July 2019 429,327,170 139,364,847 225,727,000 195,593,132 258,938,397 125,431,868 113,320,248 173,324,349 1,661,027,012

Depreciation and Impairment

As on 16th July 2017 - 34,183,175 49,795,608 47,006,586 68,729,987 56,941,519 31,868,147 67,860,191 356,385,213

Depreciation charge for the Year 5,259,084 16,500,667 22,549,012 25,035,700 10,130,943 8,624,141 15,066,595 103,166,142

Impairment for the year -

Disposals (2,410,357) (1,424,821) (9,313,571) (1,243,592) (252,091) (6,048,808) (20,693,240)

Adjustment -

As on 16th July 2018 - 39,442,259 63,885,918 68,130,777 84,452,116 65,828,870 40,240,197 76,877,978 438,858,115

Impairment for the year -

Depreciation charge for the Year 4,996,129 21,208,049 27,861,722 31,924,805 13,861,550 10,003,474 21,111,109 130,966,839

Disposals (1,894,015) (3,056,651) (17,279,057) (987,341) (55,538) (2,325,171) (25,597,774)

Adjustment -

As on 16th July 2019 - 44,438,388 83,199,952 92,935,848 99,097,864 78,703,079 50,188,133 95,663,916 544,227,180

Capital Work in Progress 2017 ------35,864,112 35,864,112

Capital Work in Progress 2018 - 6,095,887 ------6,095,887

Capital Work in Progress 2019 - 33,720,847 ------33,720,847

Net Book Value

As on 15th July 2017 210,336,100 105,181,672 88,065,518 43,356,606 100,678,669 30,445,655 49,832,961 85,183,452 713,080,633

As on 16th July 2018 210,336,100 106,018,475 149,004,143 103,428,144 122,883,185 50,813,887 62,408,097 76,954,262 881,846,293

As on 16th July 2019 429,327,170 128,647,306 142,527,049 102,657,284 159,840,533 46,728,789 63,132,115 77,660,433 1,150,520,679

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4.14 Goodwill and Intangible Assets Amount In Rs. Group Software Total as on Particulars Goodwill Other Purchased Developed 16th July 2019 Cost As on 16th July 2017 - 15,982,219 - - 15,982,219 Addition during the Year - - - - - Acquisition - 881,400 - - 881,400 Capitalization - 9,272,238 - - 9,272,238 Disposal during the year - - - - - Adjustment/Revaluation - - - - - Balance as on 16th July 2018 - 26,135,857 - - 26,135,857 Addition during the Year Acquisition - - - - - Capitalization - 68,219,969 - - 68,219,969 Disposal during the year - - - - - Adjustment/Revluation - - - - - Balance as on 16th July 2019 - 94,355,825 - - 94,355,825 Amortization and Impairment As on 16th July 2017 - 11,614,899 - - 11,614,899 Amortization charge for the Year - 2,632,848 - - 2,632,848 Impairment for the year - - - - - Disposals - - - - - Adjustment - - - - - As on 16th July 2018 - 14,247,747 - - 14,247,747 Amortization charge for the Year - 8,618,332 - - 8,618,332 Impairment for the year - - - - - Disposals - - - - - Adjustment - - - - - As on 16th July 2019 - 22,866,079 - - 22,866,079 Capital Work in Progress 2017 - - - - - Capital Work in Progress 2018 - 46,252,200 - - 46,252,200 Capital Work in Progress 2019 - - - - - Net Book Value - As on 15th July 2017 - 4,367,320 - - 4,367,320 As on 16th July 2018 - 58,140,309 - - 58,140,309 As on 16th July 2019 - 71,489,746 - - 71,489,746

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Bank Software Total as on Particulars Goodwill Other Purchased Developed 16th July 2019 Cost As on 16th July 2017 14,766,763 14,766,763 Addition during the Year - Acquisition - Capitalization 9,272,238 9,272,238 Disposal during the year - Adjustment/Revaluation - Balance as on 16th July 2018 - 24,039,000 - - 24,039,000 Addition during the Year Acquisition - Capitalization 68,219,969 68,219,969 Disposal during the year - - Adjustment/Revluation - Balance as on 16th July 2019 - 92,258,969 - - 92,258,969 Amortization and Impairment As on 16th July 2017 11,451,360 11,451,360 Amortization charge for the Year 2,289,301 2,289,301 Impairment for the year - Disposals - Adjustment - As on 16th July 2018 - 13,740,661 - - 13,740,661 Amortization charge for the Year 8,198,961 8,198,961 Impairment for the year - Disposals - Adjustment - As on 16th July 2019 - 21,939,622 - - 21,939,622 Capital Work in Progress 2017 - - Capital Work in Progress 2018 46,252,200 46,252,200 Capital Work in Progress 2019 - - Net Book Value As on 15th July 2017 - 3,315,403 - - 3,315,403 As on 16th July 2018 - 56,550,539 - - 56,550,539 As on 16th July 2019 - 70,319,347 - - 70,319,347

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4.15 Deferred Tax Amount In Rs. Group Bank Current Year Current Year Net Deferred Deferred Net Deferred Deferred Tax Deferred Tax Deferred Tax Assets/ Tax Tax Assets/ Assets Liabilities Tax Assets (Liabilities) Liabilities (Liabilities) Deferred tax on temporory differences on following items Loan and Advance to B/FIs ------Loans and advances to customers ------Investment properties ------Investment securities 3,910,197 - 3,910,197 3,256,461 - 3,256,461 Property & equipment - 12,195,691 (12,195,691) - 12,257,717 (12,257,717) Employees' defined benefit plan 19,121,839 - 19,121,839 18,892,853 - 18,892,853 Lease liabilities 4,882,974 - 4,882,974 4,882,974 - 4,882,974 Provisions ------Other temporory differences ------Deferred tax on temporory differences 27,915,009 12,195,691 15,719,318 27,032,288 12,257,717 14,774,571 Deferred tax on carry forward of unused tax losses - Deferred tax due to changes in tax rate - Net Deferred tax asset/(liabilities) as on 16th July 2019 15,595,267 14,774,571 Deferred tax (asset)/liabilities as on 17th July 2018 (50,605,018) (50,151,213) Origination/(Reversal) during the year 35,009,751 35,376,642 Deferred tax expense/(income) recognised in profit or loss 4,244,691 4,272,437 Deferred tax expense/(income) recognised in other comprehensive income 30,765,060 31,104,205 Deferred tax expense/(income) recognised in directly in equity - -

Previous Year Previous Year Net Deferred Deferred Net Deferred Deferred Tax Deferred Tax Deferred Tax Assets/ Tax Tax Assets/ Assets Liabilities Tax Assets (Liabilities) Liabilities (Liabilities) Deferred tax on temporory differences on following items Loan and Advance to B/FIs ------Loans and advances to customers ------Investment properties ------Investment securities 5,508,395 - 5,508,395 5,016,776 - 5,016,776 Property & equipment - 9,468,333 (9,468,333) - 9,333,416 (9,333,416) Employees' defined benefit plan 54,467,818 - 54,467,818 54,467,818 - 54,467,818 Lease liabilities ------Provisions 97,102 - 97,102 - - - Other temporory differences 36 - 36 36 - 36 Deferred tax on temporory differences 60,073,351 9,468,333 50,605,018 59,484,629 9,333,416 50,151,213 Deferred tax on carry forward of unused tax losses - - Deferred tax due to changes in tax rate - - Net Deferred tax asset/(liabilities) as on 16th July 2018 50,605,018 50,151,213 Deferred tax (asset)/liabilities as on 16th July 2017 31,035,758 30,923,343 Origination/(Reversal) during the year (81,640,776) (81,074,556) Deferred tax expense/(income) recognised in profit or loss (56,493,106) (56,418,506) Deferred tax expense/(income) recognised in other comprehensive income (25,147,670) (24,656,051) Deferred tax expense/(income) recognised in directly in equity - -

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4.16 Other Assets Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Assets held for sale - - - Other non banking assets - - - - Bills receivable - - - - Accounts receivable 54,604,439 12,200,164 126,303,050 - Accrued income 14,491,692 2,034,385 - - Prepayments and deposit 99,459,207 56,539,248 99,242,100 56,396,458 Income tax deposit - - - - Deferred employee expenditure 517,025,892 470,926,770 517,024,256 470,926,770 Other 971,165,579 148,251,242 971,025,559 133,751,552 Total 1,656,746,810 689,951,809 1,713,594,966 661,074,779 4.17 Due to Bank and Financial Institutions Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Money market deposits - - - - Interbank borrowing 300,000,000 - 300,000,000 - Other deposits from BFIs 2,910,358,506 1,333,967,155 2,910,358,506 1,333,967,155 Settlement and clearing accounts - - - - Other 484,099,936 12,991,884 484,099,936 12,991,884 Total 3,694,458,442 1,346,959,039 3,694,458,442 1,346,959,039 4.18 Due to Nepal Rastra Bank Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Refinance from NRB 1,018,919,629 358,950,008 1,018,919,629 358,950,008 Standing Liquidity Facility - - - - Lender of last resort facility from NRB - - - - Securities sold under repurchase agreements - - - - Other payable to NRB - - - - Total 1,018,919,629 358,950,008 1,018,919,629 358,950,008

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4.19 Derivative Financial Instruments Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Held for trading Interest rate swap - - - - Currency swap - - - - Forward exchange contract - - - - Others - - - - Held for risk management Interest rate swap - - - - Currency swap - - - - Forward exchange contract - 18,851,134 - 18,851,134 Other - - - - Total - 18,851,134 - 18,851,134 4.20 Deposits from customers Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Institutions customers: Term deposits 18,414,500,775 15,726,516,752 18,414,500,775 15,726,516,752 Call deposits 7,747,172,445 6,650,885,625 7,891,183,874 6,694,943,479 Current deposits 5,440,688,062 4,675,530,880 5,440,690,062 4,675,534,880 Other 993,244,989 732,655,104 993,244,989 732,655,104 Individual customers: Term deposits 24,932,577,667 20,744,492,037 24,932,577,667 20,744,492,037 Saving deposits 30,977,444,549 28,190,732,459 30,977,444,549 28,190,732,459 Current deposits 665,856,298 1,007,372,148 665,856,298 1,007,372,148 Other 58,230,947 77,133,197 58,230,947 77,133,197 Total 89,229,715,732 77,805,318,203 89,373,729,162 77,849,380,056 4.20.1 Currency wise Analysis of Deposit from Customers Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Nepalese rupee 87,117,694,174 77,127,774,602 87,261,707,605 77,171,836,455 Indian rupee - - - - United State dollar 2,062,608,988 657,224,517 2,062,608,988 657,224,517 Great Britain pound 40,412,095 1,530,112 40,412,095 1,530,112 Euro 6,370,163 14,414,048 6,370,163 14,414,048 Japenese yen - - - - Chinese yuan - - - - Other 2,630,312 4,374,923 2,630,312 4,374,923 Total 89,229,715,732 77,805,319,203 89,373,729,162 77,849,380,056

56 www.sanimabank.com Annual Report 2018/19

4.21 Borrowing Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Domestic Borrowing Nepal Government - - - - Other Institutions - - - - Other - - - - Sub total - - - - Foreign Borrowing Foreign Bank and Financial Institutions - - - - Multilateral Development Banks - - - - Other Institutions - - - - Sub total - - - - Total - - - - 4.22 Provisions Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Provisions for redundancy - - - - Provision for restructuring - - - - Pending legal issues and tax litigation - - - - Onerous contracts - - - - Other 27,401,007 12,572,748 27,174,446 11,817,943 Total 27,401,007 12,572,748 27,174,446 11,817,943 4.22.1 Movement in Provision Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Balance at Sawan 1 12,009,452 43,636,196 11,817,943 43,355,931 Provisions made during the year 27,248,752 11,175,968 26,374,516 11,817,943 Provisions used during the year (9,070,530) (43,346,089) (9,070,530) (43,355,931) Provisions reversed during the year (2,786,667) 1,106,673 (1,947,484) - Unwind of discount - - - - Balance at Ashad end 27,401,007 12,572,748 27,174,446 11,817,943

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4.23 Other Liabilities Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Liability for employees defined benefit obligations 20,869,384 106,717,613 20,545,471 106,717,613 Liability for long-service leave 42,870,080 74,841,781 42,430,707 74,841,781 Short-term employee benefits - 137,256 - - Bills payable 36,018,692 - 36,018,692 - Creditors and accruals 44,006,334 81,971,860 43,147,627 58,172,892 Interest payable on deposit 5,331,072 1,476,252 5,331,072 1,476,252 Interest payable on borrowing 3,354,022 473,941 3,354,022 473,941 Liabilities on defered grant income - - - - Unpaid Dividend 77,709,776 5,815,703 77,709,776 5,815,703 Liabilities under Finance Lease - - - - Employee bonus payable 363,521,807 270,583,697 357,795,169 268,370,634 Other 694,130,098 498,288,780 624,841,809 495,945,249 Total 1,287,811,266 1,040,306,882 1,211,174,346 1,011,814,065

Unpaid Dividend Details of unpaid dividend as on balance sheet date have been presented as under: Dividend Payable of FY Current Year (Rs.) Previous Year (Rs.) Remarks 2013/14 255,830 259,040 Bagamati Development 2012/13 126,830 126,830 Bank 2017/18 71,961,350 - 2011/12 2,205,254 2,223,331 Sanima Bank 2010/11 1,641,452 1,661,564 2009/10 1,519,059 1,544,937 Total 77,709,776 5,815,703 4.23.1 Defined Benefit Obligations Amount In Rs. The amounts recognised in the statement of financial position are as follows: Group Bank Current Year Previous Year Current Year Previous Year Present value of unfunded obligations - - - - Present value of funded obligations - - - - Total present value of obligations - - - - Fair value of plan assets 116,378,377 65,415,333 115,793,067 65,415,333 Present value of net obligations 20,869,384 106,717,613 20,545,471 106,717,613 Recognised liability for defined benefit obligations 137,247,761 172,132,945 136,338,538 172,132,945

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4.23.2 Plan Assets Plan assets comprise: Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Equity securities - - - - Government bonds - - - - Bank deposit - - - - Other 116,378,377 65,415,333 115,793,067 65,415,333 Total 116,378,377 65,415,333 115,793,067 65,415,333

4.23.3 Movement in the Present Value of Defined Benefit Obligations Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Defined benefit obligations at beginning of year 172,132,946 65,209,444 172,132,946 65,209,444 Actuarial losses/(gains) (107,369,764) 72,187,432 (107,930,595) 72,187,432 Benefits paid by the plan (4,777,449) (1,355,356) (4,752,951) (1,355,356) Current service costs and interest 77,262,028 36,091,426 76,889,138 36,091,426 Defined benefit obligations at year end 137,247,761 172,132,946 136,338,538 172,132,946 4.23.4 Movement in the Fair Value of Plan Assets Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Fair value of plan assets at beginning of year 65,415,333 39,519,866 65,415,333 39,519,866 Opening balance adjustment - - 12,369,913 - Contributions paid into the plan 38,633,733 27,250,823 38,633,733 27,250,823 Benefits paid during the year (3,978,786) (1,355,356) (3,978,786) (1,355,356) Actuarial (losses) gains - - - - Expected return on plan assets 3,352,874 - 3,352,874 - Fair value of plan assets at year end 103,423,154 65,415,333 115,793,067 65,415,333 4.23.5 Amount Recognised in Profit or Loss Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Current service costs 85,770,535 38,673,976 85,672,127 38,209,989 Interest on obligation 7,737,049 3,227,489 7,737,049 3,227,489 Acturial (gain)/loss (57,407,871) 40,672,264 (57,529,802) 40,672,264 Expected return on plan assets - - - - Total 36,099,713 82,573,729 35,879,374 82,109,742

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4.23.6 Amount Recognised in Other Comprehensive Income Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Acturial (gain)/loss (105,782,417) 74,023,798 (106,372,514) 74,023,798 Total (105,782,417) 74,023,798 (106,372,514) 74,023,798

Acturial gain or loss represents adjustments to acturial assumptions used to value the bank's defined benefit obligations. As expected return on Plan assets is nil, no actuary gain/loss is recognised on Plan assets as per NAS 19. 4.23.7 Actuarial Assumptions Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Discount rate 10%/10% 5.16%/0% 10% 5.16% Expected return on plan asset 10%/10% 5%/0% 10% 5% Future salary increase 10%/11% 10%/0% 10% 10% Withdrawal rate (on the basis of past service) 0 to 4 years 12.75%/11.11% 14.02%/0% 12.75% 14.02% 4 to 8 years 16.06%/0% 9.59%/0% 16.06% 9.59% 8 to 12 years 6.54%/0% 2.41%/0% 6.54% 2.41% more than 12 0%/0% 0%/0% 0% 0% Assumptions of Bank and Sanima Capital has been separately disclosed in Group section.

4.24 Debt Securities Issued Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Debt securities issued designated as at fair value through profit or loss - - - - Debt securities issued at amortised cost 1,724,712,000 370,000,000 1,724,712,000 370,000,000 Total 1,724,712,000 370,000,000 1,724,712,000 370,000,000

The bank has issued 370,000 units of debentures with Rs. 1000 unit price on 5th August 2015 having maturity period of 7 years and 1,354,712 units of debentures with Rs. 1000 unit price on 13th January 2019 having maturity period of 10 years.

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4.25 Subordinated Liabilities Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Redeemable preference shares - - - - Irredemable cumulative preference shares (liabilities component) - - - - Other - - - - Total - - - - 4.26 Share Capital Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Ordinary shares 8,001,255,440 8,001,255,440 8,001,255,440 8,001,255,440 Convertible preference shares (equity component only) - - - - Irredemable preference shares (equity component only) - - - - Perpetual debt (equity component only) - - - - Total 8,001,255,440 8,001,255,440 8,001,255,440 8,001,255,440 4.26.1 Ordinary Shares Amount In Rs. Bank Current Year Previous Year Authorized Capital 90,000,000 Ordinary share of Rs. 100 each 9,000,000,000 9,000,000,000

Issued capital 8,0012,554.4 Ordinary share of Rs. 100 each 8,001,255,440 8,001,255,440

Subscribed and paid up capital 8,0012,554.4 Ordinary share of Rs. 100 each 8,001,255,440 8,001,255,440 Total 8,001,255,440 8,001,255,440 4.26.2 Ordinary Share Ownership Amount In Rs. Bank Current Year Previous Year Percent Amount Percent Amount Domestic ownership Nepal Government - - - - "A" class licensed institutions - - - - Other licensed intitutions - - - - Other Institutions 12.01 960,625,000 8.37 669,318,700 Public 87.99 7,040,630,440 91.63 7,331,936,740 Other - - - - Foreign ownership - - - - Total 100.00 8,001,255,440 100.00 8,001,255,440

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Details of shareholders holding 0.50% or more shares: Name of Shareholder No. of Share Holding % ARUN KUMAR OJHA 6,351,707 7.94 TEK RAJ NIRAULA 5,673,124 7.09 NIRAJ GOVINDA SHRESTHA 4,975,452 6.22 JIBA NATH LAMICHHANE 4,425,881 5.53 BINAYA KUMAR SHRESTHA 3,749,576 4.69 GHAN SHYAM THAPA 3,432,629 4.28 AMALA INVESTMENT PRIVATE LIMITED 3,176,920 3.97 KHEM RAJ LAMICHHANE 2,877,224 3.60 EMPLOYEES PROVIDENT FUND 2,718,835 3.40 Jai Ganesh Investment Com Pvt. Ltd 2,175,542 2.72 RAM KRISHNA SHAH 2,023,301 2.53 DILIP SHRESTHA 985,952 1.22 DINESH MANI SHRESTHA 623,127 0.76 GEETA CHHETRI 519,124 0.67 TULASI RAM DHAKAL 404,139 0.53 4.27 Reserves Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Statutory General Reserve 1,623,657,501 1,172,044,000 1,623,657,501 1,172,044,000 Exchange Equalisation Reserve 13,875,671 9,507,098 13,875,671 9,507,098 Corporate Social Responsibility Fund 35,610,900 21,835,889 35,610,900 21,835,889 Capital Redemption Reserve 211,428,572 158,571,429 211,428,572 158,571,429 Regulatory Reserve 329,278,578 337,775,191 327,148,226 335,644,839 Investment Adjustment Reserve 350,000 350,000 350,000 350,000 Capital Reserve - - - - Assets Revaluation Reserve - - - - Fair Value Reserve (9,123,792) (6,861,239) (7,598,409) (5,714,127) Dividend Equalisation Reserve - - - - Actuarial Gain/(Loss) 11,569,201 (62,478,491) 11,982,269 (62,478,491) Employee Training Fund 143,366 - 143,366 - Other Reserve Capital Adjustment Reserve 20,187,887 20,187,887 20,187,887 20,187,887 Total 2,236,977,884 1,650,931,763 2,236,785,982 1,649,948,523

The bank has a Corporate Social Responsibility policy in line with Nepal Rastra Bank i.e. to create CSR reserve of 1% on Net Profit of current Fiscal Year. Accordingly, in financial year 2018/19, the bank appropriated Corporate Social Responsibility Reserve of amount Rs.22,596,858.

CSR reserve fund Amount (Rs.) Opening Balance as at 17th July 2018 21,835,889 Less: CSR activities for FY 2018/19 (8,805,664) Add: Reserve @1% on Net Profit 22,580,675 Closing Balance as at 16th July 2019 35,610,900

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4.28 Contingent Liabilities and Commitments Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Contingent liabilities 14,675,306,811 15,494,649,942 14,675,306,811 15,341,639,462 Undrawn and undisbursed facilities 7,225,872,262 13,461,330,806 7,225,872,262 13,461,330,806 Capital commitment 34,555,404 48,348,387 34,555,404 48,348,387 Lease Commitment - - - - Litigation - - - - Total 21,935,734,478 29,004,329,135 21,935,734,478 28,851,318,655 4.28.1 Contingent Liabilities Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Acceptance and documentary credit 4,093,196,329 4,504,474,909 4,093,196,329 4,504,474,909 Bills for collection 47,631,304 133,800,045 47,631,304 133,800,045 Forward exchange contracts - - - - Guarantees 10,471,144,278 10,692,528,177 10,471,144,278 10,692,528,177 Underwriting commitment - 153,010,480 - - Other commitments 63,334,901 10,836,331 63,334,901 10,836,331 Total 14,675,306,811 15,494,649,942 14,675,306,811 15,341,639,462 4.28.2 Undrawn and Undisbursed Facilities Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Undisbursed amount of loans 4,258,340,199 10,841,652,515 4,258,340,199 10,841,652,515 Undrawn limits of overdrafts 2,722,242,920 2,619,678,291 2,722,242,920 2,619,678,291 Undrawn limits of credit cards 245,289,143 - 245,289,143 Undrawn limits of letter of credit - - - - Undrawn limits of guarantee - - - - Total 7,225,872,262 13,461,330,806 7,225,872,262 13,461,330,806

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4.28.3 Capital Commitments Amount In Rs. Capital expenditure approved by relevant authority of the bank but provision has not been made in financial statements Group Bank Current Year Previous Year Current Year Previous Year Capital commitments in relation to Property and Equipment Approved and contracted for 18,737,199 38,827,459 18,737,199 38,827,458.77 Approved but not contracted for - - - - Sub total 18,737,199 38,827,459 18,737,199 38,827,459 Capital commitments in relation to Intangible assets Approved and contracted for 15,818,206 9,520,928 15,818,206 9,520,928 Approved but not contracted for - - - - Sub total 15,818,206 9,520,928 15,818,206 9,520,928 Total 34,555,404 48,348,387 34,555,404 48,348,387 4.28.4 Lease Commitments Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Operating lease commitments Future minimum lease payments under non cancellable operating lease, where the bank is lessee Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years Sub total Finance lease commitments Future minimum lease payments under non cancellable operating lease, where the bank is lessee Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years Sub total Grand total

4.28.5 Litigation None

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4.29 Interest Income Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Cash and cash equivalent 78,055,569 7,653,716 62,311,850 7,653,716 Due from Nepal Rastra Bank 5,976,361 - 5,976,361 - Placement with bank and financial institutions 54,740,669 61,789,984 58,667,730 40,734,779 Loan and advances to bank and financial institutions 169,850,233 96,195,414 169,850,233 96,195,414 Loans and advances to customers 9,704,835,510 7,512,618,809 9,704,835,510 7,512,618,809 Investment securities 518,302,644 387,026,213 518,302,644 387,026,213 Loan and advances to staff 235,840,893 62,813,227 235,831,803 62,812,047 Other 2,204,700 937,867 2,204,700 937,867 Total interest income 10,769,806,579 8,129,035,230 10,757,980,831 8,107,978,846

Interest income on loan and advances to staff Realised interest 50,316,913 25,745,043 50,308,080 25,743,864 Accrued interest 1,107,622 99,161 1,107,365 99,161 Finance expense under NFRS 184,416,357 36,969,022 184,416,357 36,969,022 Total 235,840,893 62,813,227 235,831,803 62,812,047 4.30 Interest Expense Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Due to bank and financial institutions 40,107,005 21,967,040 40,107,005 21,967,040 Due to Nepal Rastra Bank 39,661,112 16,659,637 39,661,112 16,659,637 Deposits from customers 6,350,122,920 5,025,474,735 6,354,049,981 5,027,857,013 Borrowing - - - - Debt securities issued 94,192,331 25,970,959 94,192,331 25,970,959 Subordinated liabilities - - - - Other 22,559,091 - 21,273,288 - Total interest expense 6,546,642,459 5,090,072,370 6,549,283,717 5,092,454,648

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4.31 Fees and Commission Income Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Loan administration fees 245,042,333 238,263,456 245,042,333 238,263,456 Service fees 1,740,765 2,820,537 - - Consortium fees 85,038,000 95,438,785 85,038,000 95,438,785 Commitment fees 30,927,047 43,883,028 30,927,047 43,883,028 DD/TT/Swift fees 28,288,446 24,730,602 28,288,446 24,730,602 Credit card/ATM issuance and renewal fees 122,537,734 112,511,359 122,537,734 112,511,359 Prepayment and swap fees 9,155,487 - 9,155,487 - Investment banking fees - - - - Asset management fees 31,636,130 15,757,664 - - Brokerage fees - - - - Remittance fees 16,335,899 14,738,812 16,335,899 14,738,812 Commission on letter of credit 39,070,618 36,936,960 39,070,618 36,936,960 Commission on guarantee contracts issued 102,435,724 65,777,614 102,435,724 65,777,614 Commission on share underwriting/issue 1,289,811 1,991,579 - - Locker rental 6,267,858 4,991,925 6,267,858 4,991,925 Other fees and commission income 103,458,392 69,842,102 100,020,455 69,116,801 Total Fees and Commission Income 823,224,244 727,684,423 785,119,601 706,389,342 4.32 Fees and Commission Expense Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year ATM management fees 13,492,866 1,336,520 13,492,866 1,336,520 VISA/Master card fees 53,872,105 41,553,486 53,872,105 41,553,486 Guarantee commission - - - - Brokerage 213 - - - DD/TT/Swift fees 5,210,946 6,100,926 5,210,946 6,100,926 Remittance fees and commission 678,276 1,161,416 678,276 1,161,416 Other fees and commission expense 1,733,335 - - - Total Fees and Commission Expense 74,987,742 50,152,348 73,254,193 50,152,348

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4.33 Net Trading Income Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Changes in fair value of trading assets 19,246,771 (10,730,357) 1,667,088 (5,057,958) Gain/loss on disposal of trading assets 4,909,578 2,033,367 - 1,356,579 Interest income on trading assets 32,302,668 29,234,186 32,302,668 29,234,186 Dividend income on trading assets 2,816,260 4,208,435 2,496,642 4,208,435 Gain/loss foreign exchange transation 356,358,458 268,669,468 356,358,458 268,669,468 Other - - - - Net Trading Income 415,633,736 293,415,099 392,824,856 298,410,710

Interest income from National Saving Bond of Rs. 32.30 million is presented as net trading income.

Difference in fair value of trading assets as compared to previous year's value is recognised as net trading income. Fair value of trading equities as at 16th July 2019 is Rs. 77.36 Million whose cost is Rs. 65.35 Million and as at 16th July 2018, fair value is Rs. 70.69 Million whose cost is Rs. 60.35 Million.

4.34 Other Operating Income Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Foreign exchange revauation gain 17,474,293 13,811,446 17,474,293 13,811,446 Gain/loss on sale of investment securities - (669,378) - (669,378) Fair value gain/loss on investment properties - - - - Dividend on equity instruments 497,378 1,685,906 19,497,378 26,125,000 Gain/loss on sale of property and equipment 7,260,044 (1,245,909) 7,260,044 (1,245,909) Gain/loss on sale of investment property - - - - Operating lease income - - - - Gain/loss on sale of gold and silver - - - - Locker rent - - - - Other 356,941 1,955,784 - 940,506 Total 25,588,656 15,537,850 44,231,715 38,961,666

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4.35 Impairment Charge/(reversal) for Loan and Other Losses Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Impairment charge/(reversal) on loan and advances to B/FIs 3,704,992 10,437,774 3,704,992 10,437,774 Impairment charge/(reversal) on loan and advances to customer 214,533,174 228,771,151 214,533,174 228,771,151 Impairment charge/(reversal) on financial Investment (117) 8,618 (117) 8,618 Impairment charge/(reversal) on placement with banks and financial institutions - - - - Impairment charge/(reversal) on property and equipment - - - - Impairment charge/(reversal) on goodwill and intangible assets - - - - Impairment charge/(reversal) on investment properties - - - Total 218,238,049 239,217,543 218,238,049 239,217,543 4.36 Personnel Expense Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Salary 300,933,773 220,744,122 296,594,762 217,012,872 Allowances 291,232,509 199,602,508 287,199,182 196,736,649 Gratuity expense 60,121,254 32,438,243 60,032,789 32,198,620 Provident fund 30,363,340 21,820,752 29,910,476 21,506,213 Uniform 856,540 458,995 856,540 458,995 Training & development expense 16,737,055 13,827,025 16,663,115 13,814,025 Leave encashment (24,021,541) 50,135,486 (24,153,415) 49,911,122 Medical 1,994,817 1,224,574 1,994,817 1,224,574 Insurance 6,371,114 4,216,598 6,277,736 4,176,110 Employees incentive 11,160,275 3,548,116 11,160,275 200,000 Cash-settled share-based payments - - - - Pension expense - - - - Finance expense under NFRS 184,421,876 36,969,567 184,416,357 36,969,022 Other expenses related to staff 31,565,527 23,494,763 31,019,930 22,976,828 Subtotal 911,736,540 608,480,749 901,972,566 597,185,029 Employees bonus 363,521,807 270,583,697 357,795,169 268,370,634 Grand total 1,275,258,347 879,064,446 1,259,767,735 865,555,664

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4.37 Other Operating Expense Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Directors' fee 2,126,000 2,082,000 2,056,000 1,984,000 Directors' expense 1,501,007 2,163,024 1,487,671 2,150,422 Auditors' remuneration 1,524,300 1,413,000 1,400,000 1,300,000 Other audit related expense 112,314 5,000 - - Professional and legal expense 2,200,549 1,491,251 2,171,722 1,491,251 Office administration expense 408,261,737 304,263,965 405,949,499 299,261,154 Operating lease expense 97,398,813 63,916,363 97,398,813 62,194,363 Operating expense of investment properties - - - - Corporate social responsibility expense - 8,180,178 - 8,180,178 Onerous lease provisions - - - - Other 8,622,318 7,168,933 5,088,389 7,168,933 Total 521,747,039 390,683,713 515,552,094 383,730,300 4.38 Depreciation & Amortisation Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Depreciation on property and equipment 132,426,750 104,900,757 130,966,839 103,166,143 Depreciation on investment property - - - - Amortisation of intangible assets 8,618,332 2,632,848 8,198,961 2,289,301 Total 141,045,082 107,533,605 139,165,799 105,455,444 4.39 Non Operating Income Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Recovery of loan written off 692,572 - 692,572 - Other income 2,668,451 914,061 1,394,595 895,458 Total 3,361,023 914,061 2,087,168 895,458

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4.40 Non Operating Expense Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Loan written off 6,826,064 415,500 6,826,064 415,500 Redundancy provision - - Expense of restructuring - - Other expense 173,195 318,865 - 318,865 Total 6,999,259 734,365 6,826,064 734,365 4.41 Income Tax Expense Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Current tax expense Current year 973,129,676 777,526,986 957,816,576 774,250,990 Adjustments for prior years 1,755,066 - - Deferred tax expense Origination and reversal of temporary differences 4,244,691 (56,493,106) 4,272,437 (56,418,506) Changes in tax rate - - Recognition of previously unrecognised tax losses - - Total income tax expense 979,129,433 721,033,880 962,089,013 717,832,485

4.41.1 Reconciliation of Tax Expense and Accounting Profit Amount In Rs. Group Bank Current Year Previous Year Current Year Previous Year Profit before tax 3,271,696,261 2,435,253,273 3,220,156,519 2,415,335,708 Tax amount at tax rate of 30 (including prior years tax) 983,263,944 729,580,104 966,046,956 724,600,713 Add: Tax effect of expenses that are not deductible for tax purpose 59,031,295 95,348,627 58,401,409 94,628,077 Less: Tax effect on exempt income (67,410,497) (47,401,746) (66,631,789) (44,977,799) Add/less: Tax effect on other items 4,244,691 (56,493,106) 4,272,437 (56,418,506) Total Tncome Tax Expense 979,129,433 721,033,880 962,089,013 717,832,485 Effective Tax Rate 29.9% 29.6% 29.9% 29.7%

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Statement of Distributable Profit or Loss For the year ended 16th July 2019 (As per NRB Regulation) Amount In Rs. Bank Current Year Previous Year Net Profit or (Loss) as per Statement of Profit or Loss 2,258,067,506 1,697,503,224 Appropriations: a. General Reserve 451,613,501 339,504,000 b. Foreign Exchange Fluctuation Fund 4,368,573 3,452,862 c. Capital Redemption Reserve 52,857,143 52,857,143 d. Corporate Social Responsibility Fund 22,580,675 16,975,032 e. Employees' Training Fund 143,366 - f. Capital Adjustment Reserve - - g. Investment Adjustment Reserve - - h. Other - - Profit or (loss) befor regulatory adjustment 1,726,504,248 1,284,714,187 Regulatory adjustment : a. Interest receivable (-)/previous accrued interest received (+) (87,474,238) (217,301,008) b. Short loan loss provision in accounts (-)/reversal (+) - - c. Short provision for possible losses on investment (-)/reversal (+) - - d. Short loan loss provision on Non Banking Assets (-)/resersal (+) - - e. Deferred tax assets recognised (-)/ reversal (+) 35,376,642 (50,151,213) f. Goodwill recognised (-)/ impairment of Goodwill (+) - - g. Bargain purchase gain recognised (-)/resersal (+) - - h. Acturial loss recognised (-)/reversal (+) 62,478,491 (62,478,491) i. Other (+/-) (1,884,282) (5,714,127) Distributable Profit or (Loss) 1,735,000,860 949,069,348

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Sanima Bank Ltd 5. Disclosures & Additional Information Year ended 16th July 2019

5.1. FINANCIAL RISK MANAGEMENT framework. Chief Risk Officer (CRO), along with his team, is responsible for overall risk management of the Bank which Introduction and Overview includes managing, assessing, identifying, monitoring and reducing pertinent global, macro and micro-economic level Risk is inherent in the Bank’s activities but is managed through a business risks that could interfere with Banks objective and process of ongoing identification, measurement and monitoring, goals and whether the Bank is in substantial compliance with subject to risk limits and other controls. This process of risk its internal operating policies and other applicable regulations management is critical to the Bank’s continuing profitability and procedures, external, legal, regulatory or contractual and each individual within the Bank is accountable for the risk requirements on a continuous basis. Further, CRO ensures exposures relating to his or her responsibilities. The Bank is integration of all major risk in capital assessment process. The mainly exposed to; Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits 1. Credit Risk and controls, and to monitor adherence to established limits. 2. Liquidity Risk Risk management policies and systems are reviewed annually 3. Market Risk to reflect changes in market conditions, products and services 4. Operational Risk offered. The Bank, through its training and management standards and procedures, continuously updates and maintains Risk Management Framework a disciplined and constructive control environment, in which all employees are assigned and made to understand their The Board of Directors has overall responsibility for the respective roles and responsibilities. Risk Management structure establishment and oversight of the Bank’s risk management is depcited below:

Board of Directors

Risk Management Committee

Chief Risk Risk Officer Managemant

Credit Risk Integrated Risk Management Management

Credit Risk Reporting Operational Risk Market and Liquidity Risk

Treasury Mid Office

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5.1.1. Credit Risk Amount In Rs. Current Year Previous Year Risk is an inherent feature of any business and it drives Deposits with own bank 1,146,152,193 1,230,908,316 an entity towards income generation. Likewise, Risk Deposit with other banks 18,262,044 - management objective of the Bank is to strike balance and financial institutions between risk and return, and ensure optimum Risk-adjusted Securities issued by Nepal return on capital. A reasonable level of return is essential Government and Nepal - - for sustainability of the business. However, taking higher risk Rastra Bank in search of higher earnings may have chances to result in Gold & Silver 79,241,905 149,209,889 failure of business. Thus effective risk management is a must Total 1,243,656,142 1,380,118,205 for business success. Towards this end Sanima Bank has implemented robust risk management architecture as well as Collateral and other credit enhancements policies and processes approved by the Board of Directors. These encompass independent identification, measurement The amount and type of collateral required depends on an and management of risks across various facets of banking assessment of the credit risk of the counterparty. Guidelines are operation. in place covering the acceptability and valuation of each type of collateral. The general creditworthiness of customers tends Board level risk management committee has been set up under to be the most relevant indicator of credit quality of a loan. NRB Directive for ensuring/reviewing bank's risk appetite are However, collateral provides additional security and the Bank in line with the policies and CRO acts as member secretary. generally requests large borrowers to provide same. The Bank CRO closely monitors and report on credit related risks in RMC may take collateral in the form of a first charge over real estate meeting. and residential properties, floating charges over all corporate assets and other liens and guarantees. The Bank’s policy is to Credit Risk Mitigation (CRM) pursue timely realisation of the collateral in an orderly manner. The proceeds are used to reduce or repay the outstanding claim. The Bank has extensive policy and guidelines to mitigate credit The Bank generally does not use non-cash collateral for its own risks. The Bank’s credit policy has strengthened minimizing operations. credit risk and provided support to make qualitative analysis based on sound credit principles and procedures. Bank has Definition of Past Due a policy to consider as security for pledge, hypothecated or mortgage which have value considering physical control and Bank consider that any amounts uncollected one day or more legal title. Bank has considered eligible CRM as prescribed by beyond their contractual due date are ‘past due’. Capital Adequacy standard. Collateral taken as Deposit with own Bank, Deposit with other BFIs, National Saving & Development Past due but not impaired loans Bonds, and Gold & Silver have been considered as CRM and adjusted on overall risk weighted exposure on credit risk in line Past due but not impaired loans are those for which contractual with the standard. interest or principal payments are past due, but the Bank believes that impairment is not appropriate on the basis of the The Bank has developed a risk assessment culture and has in stage of collection of amounts owed to the Bank. place the required reports for assessing concentration of risks. Periodic performance reporting based on Balanced Scorecard, 5.1.2. Market Risk in line with capital strength, to the Board is also in place. These reports are periodically put up to the board. Board also reviews Market risk is the risk that the fair value or future cash flows the same and issues instructions, as appropriate, to the Bank’s of financial instruments will fluctuate due to changes in management. market variables such as interest rates, foreign exchange rates, commodity prices and equity prices. The bank classifies During the current financial year, the Bank has availed the exposures to market risk into either trading or non–trading benefits of credit risk mitigation as under: portfolios and manages each of those portfolios separately. The

www.sanimabank.com 73 Annual Report 2018/19 bank has separate market risk management policy in place as and liquidity on a daily basis. The bank has formulated separate a guiding document. liquidity risk management policy and developed internal control processes and contingency plans for managing liquidity risk. Market Risks are discussed at Asset Liability Management This incorporates an assessment of expected cash flows and Committee (ALCO) of the Bank and even discussed at respective the availability of high grade collateral which could be used to division level on open position on daily basis. The limits for secure additional funding if required. open position are controlled, level wise which ensures in-depth knowledge of the market and movement before taking decision The Bank maintains a portfolio of highly marketable and (by choice). The monthly reports on such aspects are well diverse assets assumed to be easily liquidated in the event of discussed and dealt in ALCO. The committee ensures functioning an unforeseen interruption of expected cash flow. The Bank of the jobs in line with the policies and procedures and suggests/ also has committed lines of credit that could be utilized to recommends for necessary steps collectively to address the risk meet liquidity needs. Further, the Bank maintains a statutory on interest rate movement, exchange rate movement and equity deposit with the Nepal Rastra Bank equal to approx. 3.17% of price changes. Most of the market operations (investments) are customer local deposits. In accordance with the bank’s policy, done from the Treasury Front Office which reports to the Chief the liquidity position is assessed and managed under a variety Financial Officer and exposure accounting including booking of scenarios, giving due consideration to stress factors relating of income/expense is done from Treasury Back Office which to both the market in general and specific to the Bank. The reports to the Chief Operating Officer. The Bank assesses the most important of these is to maintain the required ratio of open position on daily basis and calculates risk exposure for liquid assets to liabilities, to meet the regulatory requirement allocation of required capital in line with Basel provisions. Likely . Liquid assets consist of cash, short–term bank deposits and impact on earnings due to change in the market condition and liquid debt securities available for immediate sale. Further the change in the standing of the counterparty are well assessed Statutory Liquidity Ratio of the Bank for the month of ended 16th periodically and necessary actions are taken as appropriate. July 2019 is as follows. TFO is equipped with advanced dealing platform for timely and effectively concluding the deals. Similarly the unit is equipped Statutory Liquidity Ratio with modern and advanced information system on global news, market movements and any incidents so that bank can manage For the Month ended 16th July 2019 19.47 and maintain the position favorably. Analysis of financial assets and liabilities by remaining 5.1.3. Liquidity Risk & Funding management contractual maturities

Liquidity risk is the risk that the Bank will encounter difficulties in The table below summarises the maturity profile of the meeting its financial commitments that are settled by delivering undiscounted cash flows of the Bank’s financial assets and cash or another financial asset. Hence the bank may be unable liabilities as at ended 16th July 2019. Repayments which are to meet its payment obligations when they fall due under both subject to notice are treated as if notice were to be given normal and stress circumstances. To limit this risk, management immediately. However, the Bank expects that many customers has arranged diversified funding sources in addition to its core will not request repayment on the earliest date it could be deposit base, and adopted a policy of continuously managing required to pay and the table does not reflect the expected cash assets with liquidity in mind and of monitoring future cash flows flows indicated by its deposit retention history.

Contractual maturities & undiscounted cashflows of financial assets & liabilities Amount In Rs. On Up to 3 to 12 More than 16 July 2019 Total Demand 3 months months 1 year Financial Assets Cash & Cash Equivalent 1,435,466,780 3,200,955,657 - - 4,636,422,437 Due from NRB - 2,781,194,462 - - 2,781,194,462 Derivative Financial Assets - 85,066,888 - - 85,066,888

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On Up to 3 to 12 More than 16 July 2019 Total Demand 3 months months 1 year Due from Banks and Finan- - 772,654,140 55,047,689 - 827,701,829 cial Instituions

Loans & Advances (Net) 18,907,023,980 16,531,480,895 83,439,280,956 48,000,776,081 Investment Securities - 484,421,811 4,013,130,595 9,598,059,423 14,095,611,829 Investment in subsidiaries - - - 250,000,000 250,000,000 Total undiscounted 1,435,466,780 26,231,316,939 20,599,659,179 57,848,835,504 106,115,278,401 Assets Financial Liabilities Due to Bank and Financial 388,892,603 2,518,465,903 787,099,936 - 3,694,458,442 Instituions Due to NRB - 835,423,428 183,496,202 - 1,018,919,629

Due to Customers 877,487,995 25,338,273,584 19,767,115,054 89,373,729,161 43,390,852,528 Debts Issued & Other - - - 1,724,712,000 1,724,712,000 Borrowed Funds Other Financial Liabilities 77,709,776 87,851,414 - 62,976,178 228,537,368 Total Undiscounted 1,344,090,375 28,780,014,328 20,737,711,192 45,178,540,706 96,040,356,600 Liabilities Net Financial Assets/ 91,376,405 (2,548,697,389) (138,052,013) 12,670,294,798 10,074,921,802 (Liabilities) 5.1.4. Fair value of Financial instruments Financial investments – Measured through OCI

Financial instruments are recorded at fair value. The following Financials assets measured through OCI, primarily consist of is a description of how fair values are determined for financial quoted equities and quoted mutual fund units, are valued using instruments that are recorded at fair value using valuation the quoted market price in active markets as at the reporting techniques. These incorporate the bank’s estimate of date. For unquoted securities those are carried at cost. assumptions that a market participant would make when valuing the instruments. 5.1.5. Operational Risk

For all financial instruments where fair values are determined Operational risk is the risk of losses arising from failed internal by referring to externally quoted prices or observable pricing processes, systems failure, human error, fraud or external inputs to models, independent price determination or validation events. When controls fail to perform, operational risks can cause is obtained. In an inactive market, direct observation of a traded damage to reputation, have legal or regulatory implications, or price may not be possible. In these circumstances, the Bank lead to financial loss. Strategic and Reputational Risks are not uses alternative market information to validate the financial covered in Operational Risk. instrument’s fair value, with greater weight given to information that is considered to be more relevant and reliable. Financials Effective operational risk management systems aims to assets measured at fair value (either through PL or OCI), primarily minimizing losses and customer dissatisfaction due to failure consisting of quoted equities and quoted mutual fund units, are in processes, focusing on flows in products and their design valued using the quoted market price in active markets as at the that can expose the Bank to losses due to fraud, analyzing the reporting date. If unquoted, those are carried at cost. impact of failures in technology / system, developing plans to

www.sanimabank.com 75 Annual Report 2018/19 meet external shocks that can adversely impact continuity in programs are conducted on periodic basis and staffs identified the Bank’s operations. Bank has introduced a “comprehensive for the program get the opportunity for training, seminar and operational risk monitoring and reporting framework” as well as workshop. Adequate numbers of trainings are conducted and “output checking” at all branches covering all transactions on staffs required with training are given the opportunity for skill daily basis to minimize operational risk. enhancement. Knowledge sharing is one of the core methods of skill development. If a staff gets any training, s/he is encouraged One of the growing risks among others these days is Operations to share the same among the peers in the division/branch. Risk that arises out of inefficient processes and people inside and outside the Bank. Asset Liability Management Committee In operations, the Bank has put in place a maker and checker (Alco) is the management committee where operating risk, concept in which a transaction has to compulsorily go through market risk and other risks are discussed, in line with ALM two individuals from a control standpoint with proper transaction Policy. Banking System (BS) is another area of concern where right to capture deviations, if any. Similarly MIS Reports are it has witnessed growing threat from outside. Information and generated to check correctness of transactions and any Technology Division in the Bank reviews and checks the security mistakes are promptly addressed and rectified. The activities of aspects in line with IT Policy of the Bank. Bank has conducted a personnel and division / branch can be viewed and monitored an IS Audit of the Bank’s system and suggestions given by the centrally through an integrated system, which helps in minimizing audit with respect to safety and security standards are being put the risk of misconduct, if any. The Bank has an on-line replication in place. Disaster Recovery Site (DRS) which captures the record of each transaction that takes place at the Production Server. Both Bank has separate division umder Integrated Risk Management the sites (Production Server and Disaster Recovery – Back up department to oversee operation risk . The division is headed site) are housed in well-conditioned and high shock resistant by senior level staff with adequate access to the daily report, buildings and are at different seismic zone, far from each other. operational processes and right to recommend the changes DRS is outsourced to a professionally managed company having in the system and procedures. The head of operation risk expertise in the sector. Drill is being done periodically and is directly reports to the Chief Risk Officer. Bank has SIMs being tested occasionally to assess the functioning of DRS. (Standing Instruction Manuals) for all businesses of the Bank. All the activities are undertaken in line with the set criteria Each desktop is implemented with Active Directory System in the Standing Instruction Manual, policies and guidelines (ADS) which does not allow user to take away the data including Directives and circulars from central bank (the in devices like data traveler (pen drive) or bring in data regulatory authority). Similarly daily functions at operations for processing or any other purposes posing threat to the are independently reported through separate reporting repository. Similarly individual data in desk are also stored line other than business generation and credit risk where and backed up in periodic interval at data center so that any independence of checking and control is complied with. loss of data in desktop can be retrieved from data center. Processes are reviewed periodically so that their perfection can The Bank has a separate Legal division which is adequately be weighed and any shortcoming can be addressed. Most of manned by qualified and experienced staff. All legal agreements, the functions like line approval, bill payment, loan disbursement deeds and documents including claims and charges are are centralized which controls activities that can cause mistake thoroughly studied prior to making any decision involving such due to inadequate knowledge on the part of staff. Similarly documents. Compliance with existing rules and regulations and awareness to the public is made on our services and products business practices globally and locally are taken into account periodically by placing the notices in the website of the Bank, before arriving at the decision. The cases where the Bank needs or in branches or publishing notices as appropriate. Staffs are expert's opinion on any of the issues the same is done through given orientation on the job including that of system of the Bank the expert in the respective field. before they are placed for the job and are guided to follow the SIMs for the job. Any staff for the first time in any job is put under 5.1.6. Currency Risk the supervision of an experienced staff and is allowed to work independently after attaining required skills. Currency risk arises as a result of fluctuations in the value of a financial instruments due to changes in foreign exchange Bank has Whistle Blowing Policy to report to senior or rates. The Bank’s Board has set limits on positions by currency management directly on anyone’s suspicious conduct outside in line with NRB directives (maximum position for all currency and inside the Bank. Skill development and skill enhancement excluding INR is 30% of core capital). In accordance with the

76 www.sanimabank.com Annual Report 2018/19 bank’s policy, positions are monitored on a daily basis and also to review every year. The ICAAP has two major components; reviewed in ALCO meeting and hedging strategies are used to first is an internal process to identify, measure, manage and ensure positions are maintained within established limits. Market report risks to which the bank is exposed or could be exposed risk management policy and Treasury Manual of the bank are in the future; and second is an internal process to plan and the guiding documents for the management and mitigation of manage a bank’s capital so as to ensure adequate capital. The currency risk. Bank prepares the ICAAP report annually complying with the NRB requirement. The report is reviewed and analyzed by Risk The table below indicates the currencies to which the bank had Management Committee and Board. The report is prepared as significant exposures as at 16 July 2019 and the effect to the per BASEL III norms considering various adverse scenarios. The Gain/Loss in case of a market exchange rates up/drop by 5 Bank also conducts the stress testing on thirty two different %. The analysis calculates the effect of a reasonably possible unfavorable scenarios on quarterly basis and is reviewed by movement of the currency rate against the NPR, with all other senior management, Risk Management Committee and Board. variables held constant, on the income statement (due to the fair The Bank in line with BASEL provisions and ICAAP document value of currency sensitive non–trading monetary assets and assesses risk exposures and allocated sufficient capital/cushion liabilities) and equity (due to the change in fair value of currency for perceived risks. The adequacy of capital is main agenda of swaps and forward foreign exchange contracts used as cash any ALCO, Man-Com and Board meetings. flow hedges). A negative amount in the table reflects a potential net reduction in income statement or equity, while a positive 5.2.2. Quaantitative disclosures amount reflects a net potential increase. An equivalent decrease in each of the below currencies against NPR would have resulted 1 Capital structure and capital adequacy in an equivalent but opposite impact. • Tier 1 Capital and a breakdown of its Components: Net Open Effect on Currency Code Position the exchange gain/ Particulars Amount (Rs.) (Liabilitty) (loss) Paid up Equity Share Capital 8,001,255,440 All Currencies (27,304,875) (1,365,244) Irredeemable Non-cumulative preference shares - Share Premium - 5.2. CAPITAL MANAGEMENT Proposed Bonus Equity Shares - Statutory General Reserves 1,623,657,501 The Bank's capital management policies and practices support Retained Earnings 1,751,506,637 its business strategy and ensure that it is adequately capitalised Un-audited current year cumulative profit - to withstand even in severe macroeconomic downturns. Sanima Capital Redemption Reserves Fund 211,428,572 Bank is a licensed institution that provides financial services. Therefore it must comply with capital requirement of central Capital Adjustment Reserves 20,187,887 bank which is Nepal Rastra Bank. The Bank's capital consists of Dividend Equalization Reserves - Tier I capital and Tier II capital. Deferred Tax Reserve - Less: Goodwill - 5.2.1. Qualitative disclosures Less: Intagible Assets 70,319,347 Less: Fictitious Assets - Nepal Rastra Bank has directed the Banks to develop own Less: Deferred Tax Assets - internal policy, procedures and structures to manage all material Less: Investment in equity of licensed Financial risk inherent in business for assessing capital adequacy in - Institutions relation to the risk profiles as well as strategies for maintaining Less: Investment in equity of institutions with capital levels. This includes basic requirements of having 767,500,000 financial interests good governance, efficient process of managing all material Less: Investment in equity of institutions in excess risks and an effective regime for assessing and maintaining adequate capital. The Bank has various BODs approved risk of limits Less: Investments arising out of underwriting management policies for proper governance. The Bank has developed a comprehensive ICAAP document which is subject commitments

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Particulars Amount (Rs.) • Total Qualifying Capital: Less: Purchase of Land & Building in excess of Particulars Amount (Rs.) limit & utilized Core Capital (Tier 1) 10,770,216,689 Less: Reciprocal crossholdings Supplementary Capital (Tier 2) 2,594,197,566 Less: Other Deductions Total Capital Fund 13,364,414,256 Total Tier 1 Capital 10,770,216,689 • Capital Adequacy Ratio: • Tier 2 Capital and Breakdown of its Components: The capital adequacy ratio of the bank as on 16th July, 2019 is Particulars Amount (Rs.) 13.19%. Cumulative and/or Redeemable Preference - Share • Summary of the bank’s internal approach to assess the adequacy of its capital to support current and future Subordinated Term Debt 1,576,712,000 activities, if applicable: Hybrid Capital Instruments - Stock Premium - Sanima Bank adopts healthy risk management framework. The bank follows Internal Capital Adequacy Assessment Process General loan loss provision 1,003,259,895 (ICAAP) and Risk Management Guideline while taking decision Exchange Equalization Reserves 13,875,671 on any business. It has always taken note of ICAAP and has taken Investments Adjustment Reserves 350,000 steps accordingly in ensuring soundness of capital position and sustainability of the business. The bank’s policies and procedures Assets Revaluation Reserves - are approved by the Board of Directors and these documents Special Reserve Fund - provide guidance on independent identification, measurement Total Tier 2 Capital 2,594,197,566 and management of risks across various businesses. Bank’s different committees like Audit Committee, Risk Management • Details of Subordinated Term Debt: Committee review the business and risks periodically and take account of stress test results, scenario analysis so as to align The Bank has issued “7% Sanima Debenture 2079” of face value risk, return and capital in sustainable manner. Rs.1,000 per unit for Rs. 370,000,000 on 20th Shrawan 2072 having maturity of 7 years from issue. The bank has also issued The bank also defines risk aspects, considering domestic "10% Sanima Debenture 2085" of face value Rs. 1,000 per economic scenario, and puts in place the system to minimize unit for Rs. 1,354,712,000 on 30th Poush 2075. The bank has and remove such risk. The risk appetite and approach towards created debenture redemption reserve as per the requirement risk taking is well discussed in management level and board of NRB, the balance of which stands at Rs.211,428,572. As level. It is always aligned with the business, its return and at the year end, the outstanding amount of debenture is Rs capital. Basel disclosures have been complied with, addressing 1,724,712,000 whereas Rs1,576,712,000 is only eligible to be the risks and adopting measures to minimize their impact. recognized as supplementary Capital (Tier II). Increasing complexities in risks, weakness of businesses and fast changing world with intense competition pose a threat to • Deductions from Capital: sustainability.

The Bank has invested Rs. 250,000,000 in its merchant banking Capital planning is an integral part of the bank’s medium term subsidiary 'Sanima Capital', Rs. 280,000,000 in 'Sanima Life strategic planning and annual budget formulation process. Total Insurance', Rs. 50,000,000 in Swet Ganga Hydropower and risk weighted exposures for the projected level of business Construction Ltd (Lower Likhu Hydro Power Project), Rs 50,000,000 operations is calculated, the required capital level is projected, in Sanima Middle Tamor Hydro Power Limited, Rs 37,500,000 and a plan is formulated to retain the required capital. The bank in Mathillo Mailun Khola Jalvidhyut Ltd. and Rs 100,000,000 in is well capitalized and able to maintain the required capital Sanima Insurance Co. Ltd. Accordingly, Rs. 767,500,000 has been through internal generation, and equally through capital markets deducted from Core Capital. if needed.

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• Summary of terms, conditions and main feature of all Categories Amount (Rs.) capital instrument, especially in case of subordinated High Risk claims 12,306,267,399 term debts including hybrid capital instrument: Other Assets 3,907,471,540 Off Balance Sheet Items 8,761,570,540 The Bank has issued “7% Sanima Debenture 2079” of face value NRs.1,000 per unit for Rs 370,000,000 on 20th Shrawan Total 90,990,897,408 2072 and “10% Sanima Debenture 2085” of face value NRs 1000 per unit on 30th Poush 2075 for 1,354,712,000. The • Total Risk Weight Exposures calculation Table: main features of these capital instruments are as follows: RISK WEIGHTED EXPOSURES Amount (Rs.) Instrument: 7% Sanima Debenture 2079 Risk Weighted Exposure for Credit Risk 90,990,897,408 Interest Rate: 7% Risk Weighted Exposure for Operational Risk 4,586,571,577 Maturity period: 7 Years Risk Weighted Exposure for Market Risk 1,595,034,631 Interest Payment Frequency: Half yearly Add: RWE equivalent to reciprocal of capital 1,198,600,000 charge of 3% of Gross Income Add: 3% of the total RWE added by Supervi- 2,915,175,108 Instrument: 10% Sanima Debenture 2085 sory Review Interest Rate: 10% Total Risk Weighted Exposures (After 101,286,278,724 Maturity period: 10 Years Bank's adjustment of Pillar II) Interest Payment Frequency: Half yearly Total Core Capital 10,770,216,689 Total Capital 13,364,414,256 2 Risk exposures • Amount of Non-Performing Assets (both Gross and Net): • Risk weighted exposures for credit Risk, Market Risk and Operational Risk: Gross Loan Loss Particulars Net NPL (Rs) Amount (Rs) Provision (Rs) RISK WEIGHTED EXPOSURES Amount (Rs.) Restructured - - - Risk Weighted Exposure for Credit Risk 90,990,897,408 Sub-Standard 46,458,810 11,614,702 34,844,108 Risk Weighted Exposure for Operational Risk 4,586,571,577 Doubtful 1,961,228 980,614 980,614 Risk Weighted Exposure for Market Risk 1,595,034,631 Loss 19,926,405 19,926,405 - Total Risk Weighted Exposures (Before 97,172,503,616 Total 68,346,443 32,521,722 35,824,721 Bank's adjustment of Pillar II) 5.2.3. Compliance with external requirement • Risk Weighted exposures under each 11 categories of Credit Risk: The bank, at all times, has complied the externally imposed capital rqeuirements. In the capital adequacy calculation of 16th Categories Amount (Rs.) July 2019 (presented above), the bank has added 3% of total Claims on Government and Central Bank - risk weighted exposures to its risk weighted exposures as per the Claims on Other Financial Entities - direction from Nepal Rastra Bank as part of supervisory review. Claims on Banks 1,184,248,337 Claims on Domestic Corporate and 5.3. Classification of financial assets and financial liabilities 43,069,907,168 Securities Firms Analysis of financial instruments by measurement basis- as at Claims on Regulatory Retail Portfolio & 15,374,648,443 16 July 2019 Other Retail Portfolio Claims secured by residential properties 3,755,589,657 Financial instruments are measured on an ongoing basis either Claims secured by Commercial real 2,304,219,874 at fair value or at amortized cost. The summary of significant estate accounting policies describes how the classes of financial Past due claims 326,974,450 instruments are measured, and how income and expenses,

www.sanimabank.com 79 Annual Report 2018/19 including fair value gains and losses, are recognized. The following table shows the analysis of the carrying amounts of the financial financial assets and liabilities by category as defined in NAS 39 : Current Year in Rs. Fair Value Fair Value Amortized Cost Total through PL through OCI Financial Assets Cash & Cash Equivalents - 4,636,422,437 - 4,636,422,437 Due from Nepal Rastra Bank - 2,781,194,462 - 2,781,194,462 Placement with Bank and Financial Institutions - 827,701,829 - 827,701,829 Derivative Financial Assets 85,066,888 - - 85,066,888 Loan and Advances to B/FIs - 2,020,420,376 - 2,020,420,376 Loans & Advances to Customers - 81,418,860,580 - 81,418,860,580 Other Trading Assets 484,421,811 - - 484,421,811 Investment Securities - 12,933,242,288 677,947,730 13,611,190,018 Investment in susidiaries - 250,000,000 - 250,000,000 Other Financial Assets - - - - Total Financial Assets 569,488,700 104,867,841,972 677,947,730 106,115,278,401

Financial Liabilities Due to Bank and Financial Instituions - 3,694,458,442 - 3,694,458,442 Due to Nepal Rastra Bank - 1,018,919,629 - 1,018,919,629 Derivative financial instruments - - - - Deposits from customers - 89,373,729,162 - 89,373,729,162 Borrowing - - - - Debt securities issued 1,724,712,000 1,724,712,000 Other Financial Liabilities - 228,537,368 - 228,537,368 Total Financial Liabilities - 96,040,356,600 - 96,040,356,600 Previous Year in Rs. Fair Valuet Fair Value Amortized Cost Total hrough PL through OCI Financial Assets Cash & Cash Equivalents 4,530,152,334 4,530,152,334 Due from Nepal Rastra Bank 5,608,171,848 5,608,171,848 Placement with Bank and Financial Institutions 649,156,510 649,156,510 Derivative Financial Assets - - Loan and Advances to B/FIs 1,645,223,405 1,645,223,405 Loans & Advances to Customers 67,598,133,761 67,598,133,761 Other Trading Assets 478,048,147 478,048,147 Investment Securities 9,047,804,213 615,639,562 9,663,443,775 Other Financial Assets - - - - Total Financial Assets 478,048,147 89,078,642,070 615,639,562 90,172,329,779

Financial Liabilities Due to Bank and Financial Instituions - 1,346,959,039 - 1,346,959,039 Due to Nepal Rastra Bank - 358,950,008 - 358,950,008 Derivative financial instruments - 18,851,134 - 18,851,134 Deposits from customers - 77,849,380,056 - 77,849,380,056 Borrowing - - - - Debt securities issued - 370,000,000 - 370,000,000 Other Financial Liabilities - 593,981,616 - 593,981,616 Total Financial Liabilities - 80,538,121,853 - 80,538,121,853

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5.4. Segment wise information

1 The bank has identified its four segments (treasury, card, remittance and banking) based on the business activities that each unit is engaged for the purpose of reviewing the operating result as well as to intervene business strategies. Management monitors the operating results of its business units independently for the purpose of making decisions about resource allocations and performance assessment. Segment performance is evaluated based on operating profits or losses which, in certain respects, are measured differently as presented in financial statements.

2 The segmental information about profit or loss, assets and liabilities is presented below: Rs in ‘000’ Particular Banking Treasury Card Remittance Total a Revenues from external customers 10,828,806 1,006,767 128,248 16,336 11,980,157 b Intersegment revenues 211,093 (208,901) (1,878) (314) 0 c Net Revenue 11,039,900 797,866 126,370 16,022 11,980,157 d Interest Revenue 10,175,300 576,970 5,710 - 10,757,981 e Interest Expense 6,469,516 79,768 - - 6,549,284 f Net interest revenue (b) 3,705,785 497,202 5,710 - 4,208,697 g Depreciation and amortisation 123,858 2,783 11,133 1,392 139,166 h Segment profit/(loss) 1,774,105 444,554 34,555 4,854 2,258,068 Entity's interest in the profit or loss of i associates accounted for using equity method - - - - -

j Other material non-cash items - - - - - k Impairment of assets 1,036,110 - - - 1,036,110 l Segment assets 88,522,921 20,364,742 161,595 15,230 109,064,488 m Segment liabilities 95,185,044 1,803,020 84,536 2,341 97,074,940

3 Measurement of operating segment profit or loss, (b) Profit or Loss assets and liabilities Total profit or loss for reportable seg- 2,469,161 (a) The bank has used Fund Transfer Pricing (FTP) method ments to recognise income/expense for any transactions Other Profit or loss - between reportable segments. (b) Reportable segment's profit or loss and the entity's Elimination of intersegment Profit (211,093) profit or loss before income tax has been computed on Unallocated amounts: - similar basis. Entity's revenue 2,258,068 (c ) Reportable segment's assets and the entity's assets (c ) Assets has been measured on similar basis. Total Assets for reportable segments 109,064,488 4 Reconciliation of reportable segment revenues, profit Other assets - or loss, assets and liabilities: Unallocated amounts: - Entity's Assets 109,064,488 (a) Revenue (d) Liabilities Total revenues for reportable segments 11,980,157 Total Liabilities for reportable segments 97,074,940 Other revenues - Other Liabilities - Elimination of intersegment revenues - Unallocated amounts: - Entity's revenue 11,980,157 Entity's Liabilities 97,074,940

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5 Information about products and services 5.7. Related Party Disclosures

Revenue from each type of product and services: The Bank has carried out transactions in the ordinary course of business on an arm's length basis at commercial rates with a Treasury 1,006,767 parties who are defined as related parties as per the Nepal b Card 128,248 Accounting Standard - NAS 24 - ‘Related Party Disclosures’, except for the transactions that Key Management Personnel c Remittance 16,336 (KMPs) have availed under schemes uniformly applicable to d Banking 10,828,806 all staff at concessionary rates. Those transactions include Total Revenue 11,980,157 lending activities, acceptance of deposits, Off-Balance Sheet transactions and provision of other banking and finance services. 6 Information about geographical areas 5.7.1. Parent and Ultimate Controlling Party Revenue from following geographical areas The Bank does not have an identifiable parent of its own. a Domestic 11,980,157 Province -1 994,003 5.7.2. Transactions with Key Managerial Personnel (KMPs) Province -2 499,062 Province -3 9,549,695 As per NAS 24 – Related Party Disclosures’, Key Management Province -4 257,704 Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities Province -5 384,554 of the entity. According to the definition a person cannot be Province -6 78,378 considered as a KMP unless such person have both the authority Province -7 216,762 and responsibility to carry out all the three activities mentioned in the above definition, (i.e. planning, directing and controlling b Foreign the activities of the entity).

Total 11,980,157 Accordingly the Board of Directors of the Bank and Management Committee are considered as KMP of the Bank. 7 Information about major customers 5.7.3. Compensations of KMP Revenue from any customers does not amounts to 10 percent or more of the entity's revenue. Rs in' 000 Current Year Previous Year 5.5. Share options and share based payments To Directors: Sitting fees & expenses 3,544 3,825 The bank has no any share options and share based payments. Total 3,544 3,825 To CEO: 5.6. Contingent liabilities and commitment Short term employee benefits 11,836 9,672 Litigation is a common occurrence in the banking industry Employee Bonus 6,155 5,857 due to the nature of the business undertaken. The Bank has Festival Allowance and formal controls and policies for managing legal claims. Once payment against annual professional advice has been obtained and the amount of loss leave 1,622 1,263 reasonably estimated, the Bank makes adjustments to account Post-employment benefits 712 605 for adverse effects which the caims may have on its financial Other Allowances 514 - standing. There were no pending litigation against the Bank as Share Based Payment - - at 16th July 2019 which would have a material impact on the Financial Statements. Total 20,839 17,398

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Current Year Previous Year 5.7.7. Transactions, Arrangements and Agreements involving Related Party Entities To Other Senior Rs in' 000 Management Personnel: Nature of Nature of Current Previous Short term employee Related Party benefits 26,247 21,870 Relation Transaction Year Year SLA Income 1,493 1,349 Employee Bonus 13,657 11,981 Festival Allowance and Sanima Capital RTS Expense 350 350 Ltd. (100% Subsidiary Investment in payment against annual 250,000 250,000 leave 3,460 3,356 holding) Shares Post-employment benefits 6,697 3,994 Deposit 144,013 44,062 Other Allowances 2,874 234 The Bank has entered into Service Level Agreement with its Share Based Payment - - subsidiary (Sanima Capital Ltd.) to provide operational and Total 52,935 41,434 technical assistance for a fee of Rs. 1.2 million for base year Grand Total 77,318 62,657 and annual increment of 10% on base year fee.

In addition to the above, the Bank has also provided non-cash 5.7.8. Interest Expense to KMP and their CFMs and Entities benefits such as fuel, medical benefits to KMP who are employees which are controlled and / or jointly controlled by the of the Bank in line with the approved benefit plans of the Bank. KMPs or their CFMs Rs in' 000 5.7.4. Transactions, Arrangements and Agreements Current Year Previous Year involving KMPs and Close Family Members (CFM) Interest Income 5,253 - CFMs of the KMP are those family members who may be Interest Expenses 590 1,305 expected to influence, or to be influenced by, that individual 5.7.9 Investment in mutual fund in their dealings with the entity. They may include individual’s domestic partner and children, children of the individual’s Bank has sponsored sanima equity fund by initial investment domestic partner and dependents of the individual or the of Rs. 169 million (13%) with its subsidiary (Sanima Capital) individual’s domestic partner. has total investment of Rs. 202.93 million (15.61%). Similarly, Sanima equity fund has appointed Sanima Capital as a fund 5.7.5. Loans & receivables to KMPS and their CFMs: manager with an annual fee 1.75% of net assets value (NAV) managed and depository with an annual fee 0.5% of NAV. Rs in' 000 5.8. Events after the reporting date Current Year Previous Year Closing Closing No circumstances have arisen since the reporting date which would Limit Limit Balance Balance require adjustments to, or disclosure in the financial statements. Loans and Receivables 113,342 108,095 94,064 94,546 5.9. Merger & Accquisition Credit Cards 1,851 176 1,651 64 No any mergers and acquisitions have taken place during the year. Total 115,193 108,271 95,716 94,610 5.10. Additional disclosures of non consolidated entities 5.7.6. Deposits and Investments from KMPs and their CFMs: Results of a subsidiary (Sanima Securities Ltd.) which was incorporated lately during the year has not been consolidation Rs in' 000 by the Bank considering the transactions as immaterial and the Current Year Previous Year capital injection was also not done till year end. Till the date Deposits & Investments 4,646 13,663 of authorization of financial statements, the subsidiary has not come into operation. The Bank has no substantial interest in Total 4,646 13,663 other entities.

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5.11. Earnings Per Ordinary Share

Earnings Per Share- Basic (Rs.)

Basic earnings per share is calculated by dividing the net profit for the year attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the year, as per the NAS 33 - Earnings per Share.

Current Year Previous Year Profit Attributable to ordinary Shareholders 2,258,067,506 1,697,503,224 Weighted average number of Ordinary Shares 80,012,554 80,012,554 Basic Earnings per Ordinary Share (Rs) 28.22 21.22

Current Year Previous Year Weighted average number of Ordinary Shares Weighted Weighted Outstanding Outstanding Average Average Weighted average number of ordinary shares for Basic EPS Number of Shares held at the beginning of the year 80,012,554 80,012,554 80,012,554 80,012,554 Add: Number of bonus shares issued during the year - - - - Add: Number of right shares issued during the year - - - - Add: Due to Business Combination during the year - - - - Number of Shares held as at the end of the year 80,012,554 80,012,554 80,012,554 80,012,554

Earnings Per Share- Diluted (Rs.)

The calculation of Diluted Earnings Per Share as at reporting date is based on sum of profit attributable to equity holders of the Bank plus notional earninings from the possible dilution divided by the weighted average number of ordinary shares outstanding during the year, after adjustment for the effects of all potentially dilutive weighted average number of ordinary shares.

Current Year Previous Year Profit Attributable to ordinary Shareholders 2,258,067,506 1,697,503,224 Notional Earnings - - Total Earnings Attributable to ordinary Shareholders 2,258,067,506 1,697,503,224

Weighted average number of Ordinary Shares used for Basic EPS 80,012,554 80,012,554 Weighted average number of potential ordinary shares outstanding - - Weighted average number of ordinary shares used for Diluted EPS 80,012,554 80,012,554 Diluted Earnings per Ordinary Share (Rs) 28.22 21.22

5.12 Dividend

The Board of Directors of the Bank, vide board resolution dated 2nd September, 2019, has recommended the distribution of 10% of Paid up capital as Stock dividend amounting to Rs. 800,125,544.00 and 11.05263% of Paid of Capital as Cash dividend (including tax on dividend) amounting to Rs. 884,349,285.47 from the retained earnings at the end of the year 2018/19 which equates to a distribution of 21.05263% dividend amounting to Rs 1,684,474,829.47. During the year, Bank has paid 14% cash dividend amounting Rs 1,120,175,761.60 from the retained earnings at the end of the year 2017/18.

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Principal Indicators Particulars Indicators FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18* FY 2018/19* 1 Percent of Net Profit/Gross Income Percent 26.63 26.63 22.84 18.55 18.86 2 Earning Per Share Rs. 24.47 32.55 26.31 21.22 28.22 3 Market Value Per Share Rs. 555 750 431 324 348 4 Price Earning Ratio Times 22.68 23.04 16.38 15.27 12.33 5 Dividend (Including Bonus) Percent 21.05 15.79 16.00 14.00 21.05 6 Cash Dividend Percent 1.05 0.79 - 14.00 11.05 7 Interest Income/Loan & Advances Percent 8.92 7.98 9.76 11.71 12.89 8 Staff Expenses/Total Operating Expenses Percent 39.83 44.09 44.55 61.61 63.38 9 Interest Expenses / Total Deposit and Borrowing Percent 3.94 3.10 4.79 6.40 6.96 10 Exchange Gain/Total Income Percent 6.14 4.11 3.40 3.09 3.12 11 Staff Bonus/Total Staff Expenses Percent 48.58 54.72 54.94 31.01 28.40 12 Net Profit/Loan and Advances Percent 2.18 2.44 2.52 2.45 2.71 13 Net Profit/Total Assets Percent 1.55 1.78 1.86 1.85 2.07 14 Total Credit/Deposit Percent 83.97 88.10 89.03 87.45 90.42 15 Total Operating Expenses/Total Assets Percent 1.14 1.05 1.09 1.53 1.82 16 Adequacy of Capital Fund on Risk Weighted Assets a) Core Capital Percent 10.13 10.69 14.07 11.14 10.63 b) Supplementary Captial Percent 0.97 1.67 1.50 1.27 2.56 c) Total Capital Fund Percent 11.08 12.36 15.57 12.41 13.19 17 Liquidity Percent 22.32 24.24 26.08 24.72 22.87 18 Non-Performing Loan/Total Credit Percent 0.070 0.019 0.010 0.03 0.08 19 Weighted Average Interest Rate Spread Percent 3.83 4.63 4.26 4.66 4.35 20 Book Net-Worth Rs. 3,430,693,691 5,352,251,266 9,060,833,497 10,787,885,501 11,989,548,059 21 Total Number of Shares Nos. 25,502,400 30,602,880 68,976,340 80,012,554 80,012,554 22 Total Staff Nos. 415 470 601 862 962 23 No. of Branches (including Head Office) Nos. 38 40 46 74 78 24 Base Rate Percent 7.50 6.07 10.20 9.91 9.45 25 Return on Equity Percent 18.19 22.69 14.39 18.67 23.20 26 Return on Assets Percent 1.55 1.78 1.86 1.85 2.07 27 Total Assets to Shareholders Fund Times 11.66 14.97 7.73 8.51 9.10

* Based on NFRS

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Comparision-Unaudited and Audited Financial Statements of FY 2018/19 NPR in '000 Statement of Financial Position As per As per Audited Variance unaudited Financial Reasons for Variance Assets Financial In amount In % Statement Statement Cash and cash equivalent 4,636,422 4,636,422 - - Due from Nepal Rastra Bank 2,781,194 2,781,194 - - Placement with Bank and Financial Institutions 827,702 827,702 - - Derivative financial instruments 85,067 85,067 - - Other trading assets 484,422 484,422 - - Loan and advances to B/FIs 2,020,420 2,020,420 - - Loans and advances to customers 81,249,739 81,418,861 169,121 0.21 Change in fair value of staff loan Investment securities 13,611,190 13,611,190 - - Current tax assets - - - - Investment in susidiaries 250,000 250,000 - - Investment in associates - - - - Investment property - - - - Property and equipment 1,150,547 1,150,521 (26) (0.00) Goodwill and Intangible assets 71,238 70,319 (918) (1.29) Additional amortization Deferred tax assets 50,959 14,775 (36,184) (71.01) Deferred tax computation

Other assets 1,818,171 1,713,595 (104,576) (5.75) Change in fair value of staff loan and recognition of unpaid dividend as receivable from RTS

Total Assets 109,037,071 109,064,488 27,417 0.03 Liabilities Due to Bank and Financial Instituions 3,694,458 3,694,458 - - Due to Nepal Rastra Bank 1,018,920 1,018,920 - - Derivative financial instruments - - - - Deposits from customers 89,373,729 89,373,729 - - Borrowing - - - - Current Tax Liabilities 24,826 24,772 (54) (0.22) Due to change in profit Provisions 27,224 27,174 (50) (0.18) Deferred tax liabilities - - - - Other liabilities 1,272,793 1,211,174 (61,618) (4.84) Due to actuarial valuation of employee benefits Debt securities issued 1,724,712 1,724,712 - - Subordinated Liabilities - - - - Total liabilities 97,136,662 97,074,940 (61,722) (0.06) Equity Share capital 8,001,255 8,001,255 - - Share premium - - - - Retained earnings 1,642,199 1,751,507 109,308 6.66 Due to change in profit and regulatory adjustment Reserves 2,256,955 2,236,786 (20,169) (0.89) Total equity attributable to equity holders 11,900,409 11,989,548 89,139 0.75 Non-controlling interest - - - - Total equity 11,900,409 11,989,548 89,139 0.75 Total liabilities and equity 109,037,071 109,064,488 27,417 0.03 Interest income 10,649,421 10,757,981 108,560 1.02 Change in fair value measurement of staff loans Interest expense 6,549,284 6,549,284 - - Net interest income 4,100,138 4,208,697 108,560 2.65 Fee and commission income 785,558 785,120 (438) (0.06) Fee and commission expense 73,254 73,254 - - Net fee and commission income 712,304 711,865 (438) (0.06) Net interest, fee and commission income 4,812,441 4,920,563 108,121 2.25 Net trading income 396,769 392,825 (3,944) (0.99) Income heads reclassification Other operating income 41,087 44,232 3,145 7.65 Income heads reclassification Total operaing income 5,250,297 5,357,619 107,322 2.04 Impairment charge/(reversal) for loans and other losses 213,811 218,238 4,427 2.07 Additional provision Net operating income 5,036,486 5,139,381 102,895 2.04 Operating expense

Personnel expenses 1,179,843 1,259,768 (79,925) (6.77) Change in fair value measurement of staff loans and actuarial valuation of employee benefits

Other operating expenses 512,108 515,552 (3,444) (0.67) Depreciation & Amortisation 138,226 139,166 (939) (0.68) Operating profit 3,206,308 3,224,895 18,587 0.58 Non operating income 1,288 2,087 799 62.04 Income heads reclassification Non operating expense 6,337 6,826 489 7.72 Transfer of write off expenses of fixed & current assets to operating expenses Profit before income tax 3,201,260 3,220,157 18,897 0.59 Income tax expense Current Tax 957,871 957,817 (54) (0.01) Due to change in profit Deferred Tax - 4,272 4,272 ∞ Deferred tax computation Profit /(loss) for the period 2,243,389 2,258,068 14,679 0.65 Other comprehensive income (1,884) 72,576 74,461 (3,952) Due to actuarial valuation of employee benefits Total comprehensive income 2,241,505 2,330,644 89,139 3.98 Distributable Profit Net profit/(loss) as per profit or loss 2,243,389 2,258,068 14,679 0.65 Appropriations: Profit required to be appropriated to statutory reserves (528,337) (531,563) (3,226) 0.61 Profit required to be (transferred to)/reversed from Regulatory Reserve (89,359) 8,497 97,855 (109.51) Due to actuarial valuation of employee benefits Profit/(loss) after regulatory adjustments 1,625,693 1,735,001 109,308 6.72

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Capital Adequacy Table At 16th July 2019 Form No. 1 (NPR. In Million) Particulars Current Year Previous Year a Common Equity Tier 1 Capital 10,770.22 9,775.93 b Tier 1 Capital 10,770.22 9,775.93 c Tier 2 Capital 2,594.20 1,113.16 d Total Capital 13,364.41 10,889.09 e Risk Weighted Exposures 101,286.28 87,740.16

Regulatory Ratio a Leverage Ratio (Regulatory Requirement >= 4%) 8.56% 8.58% b Common Equity Tier 1 to Risk Weighted Exposure Ratios 10.63% 11.14% c Tier 1 to Risk Weighted Exposure Ratios 10.63% 11.14% d Total Capital to Risk Weighted Exposure Ratio 13.19% 12.41%

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Capital Adequacy Table At 16th July 2019 Form No. 1A (NPR. In Million) 1. 1 RISK WEIGHTED EXPOSURES Current Year Previous Year a Risk Weighted Exposure for Credit Risk 90,990.90 79,548.36 b Risk Weighted Exposure for Operational Risk 4,586.57 3,350.73 c Risk Weighted Exposure for Market Risk 1,595.03 1,425.43 Total Risk Weighted Exposures (Before adjustments of Pillar II) 97,172.50 84,324.52 Adjustments under Pillar II SRP 6.4a (5) ALM policies & practices are not satisfactory, add 1% of net interest income to RWE - SRP 6.4a (6) Add .....% of the total deposit due to insufficient Liquid Assets - SRP 6.4a (7) Add RWE equvalent to reciprocal of capital charge of 3 % of gross income. 1,198.60 885.90 SRP 6.4a (9) Overall risk management policies and precedures are not satisfactory. Add 3% of RWE 2,915.18 2,529.74 SRP 6.4a (10) If desired level of disclosure requirement has not been achieved, Add .....% of RWE - Total Risk Weighted Exposures (After Bank's adjustments of Pillar II) 101,286.28 87,740.16

1.2 CAPITAL Current Year Previous Year (A) Tier 1 Capital [Core Capital (CET 1 + AT 1)] 10,770.22 9,775.93 Common Equity Tier 1 (CET 1) 10,770.22 9,775.93 a Paid up Equity Share Capital 8,001.26 8,001.26 b Irredeemable Non-cumulative preference shares - - c Equity Share Premium d Proposed Bonus Equity Shares e Statutory General Reserves 1,623.66 1,172 .04 f Retained Earnings 1,751.51 1,136.68 g Unaudited current year cumulative profit/(loss) - h Capital Redemption Reserve 211.43 158.57 i Capital Adjustment Reserve 20.19 20 .19 j Dividend Equalization Reserves k Other Free Reserve l Less: Goodwill m Less: Intangible Assets 70.32 10.31 n Less: Deferred Tax Assets o Less: Fictitious Assets p Less: Investment in equity in licensed Financial Institutions q Less: Investment in equity of institutions with financial interests 767.50 702.50 r Less: Investment in equity of institutions in excess of limits - s Less: Investments arising out of underwriting commitments t Less: Reciprocal crossholdings u Less: Purchase of land & building in excess of limit and unutilized v Less: Cash Flow Hedge w Less: Defined Benefits Pension Assets x Less: Unrecognized Defined Benefit Pension Liabilities y Less: Other Deductions

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Adjustments under Pillar II - - SRP 6.4a(1) Less: Shortfall in Provision - - SRP 6.4a(2) Less: Loans & Facilities extended to related parties and restricted lending - - Additional Tier 1 (AT 1) - - a Perpetual Non Cumulative Preference Share Capital - - b Perpetual Debt Instruments - - c Stock Premium - -

(B) Supplementary Capital (Tier 2) 2,594.20 1,113.16 a Cumulative and/or Redeemable Preference Share b Subordinated Term Debt 1,576.71 296.00 c Hybrid Capital Instruments d Stock Premium e General Loan Loss Provision 1,003.26 807.30 f Exchange Equalization Reserve 13.88 9.51 g Investment Adjustment Reserve 0.35 0.35 h Assets Revaluation Reserve i Other Reserves Total Capital Fund (Tier I and Tier II) 13,364.41 10,889.09

1.3 CAPITAL ADEQUACY RATIOS Current Year Previous Year Common Equity Tier 1 Capital to Total Risk Weighted Exposures (After Bank's adjustments of Pillar II) 10.63% 11.14% Tier 1 Capital to Total Risk Weighted Exposures(After Bank's adjustments of Pillar II) 10.63% 11.14% Tier 1 and Tier 2 Capital to Total Risk Weighted Exposures(After Bank's adjustments of Pillar II) 13.19% 12.41%

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Risk Weighted Exposure for Credit Risk At 16th July 2019 Form No. 2 (NPR. In Million) Risk Specific Eligible Risk Book Value Net Value Weighted Provision CRM Weight A. Balance Sheet Exposures Exposures a b c d=a-b-c e f=d*e Cash Balance 1,435.47 1,435.47 0% - Balance With Nepal Rastra Bank 2,777.27 2,777.27 0% - Gold - 0% - Investment in Nepalese Government Securities 13,170.38 13,170.38 0% - All Claims on Government of Nepal 26.91 26.91 0% - Investment in Nepal Rastra Bank securities - 0% - All claims on Nepal Rastra Bank - 0% - Claims on Foreign Government and Central Bank (ECA 0-1) - 0% - Claims on Foreign Government and Central Bank (ECA -2) - - 20% - Claims on Foreign Government and Central Bank (ECA -3) - - 50% - Claims on Foreign Government and Central Bank (ECA-4-6) - - 100% - Claims on Foreign Government and Central Bank (ECA -7) - - 150% - Claims On BIS, IMF, ECB, EC and MDB's recognized by the framework - 0% - Claims on Other Multilateral Development Banks - - 100% - Claims on Public Sector Entity (ECA 0-1) - - 20% - Claims on Public Sector Entity (ECA 2) - - 50% - Claims on Public Sector Entity (ECA 3-6) - - 100% - Claims on Public Sector Entity (ECA 7) - - 150% - Claims on domestic banks that meet capital adequacy requirements 2,009.79 - 2,009.79 20% 401.96 Claims on domestic banks that do not meet capital adequacy requirements - - - 100% - Claims on foreign bank (ECA Rating 0-1) 3,646.17 - 3,646.17 20% 729.23 Claims on foreign bank (ECA Rating 2) 1.24 - 1.24 50% 0.62 Claims on foreign bank (ECA Rating 3-6) - - - 100% - Claims on foreign bank (ECA Rating 7) - - - 150% - Claims on foreign bank incorporated in SAARC region operating with a buffer of 1% above their 262.17 - 262.17 20% 52.43 respective regulatory capital requirement Claims on Domestic Corporates 43,101.02 31.11 43,069.91 100% 43,069.91 Claims on Foreign Corporates (ECA 0-1) - - 20% - Claims on Foreign Corporates (ECA 2) - - 50% - Claims on Foreign Corporates (ECA 3-6) - - 100% - Claims on Foreign Corporates (ECA 7) - - 150% - Regulatory Retail Portfolio (Not Overdue) 20,961.94 462.41 20,499.53 75% 15,374.65 Claims fulfilling all criterion of regularity retail except granularity - - 100% - Claims secured by residential properties 6,259.32 - 6,259.32 60% 3,755.59 Claims not fully secured by residential properties - - 150% - Claims secured by residential properties (Overdue) - - 100% - Claims secured by Commercial real estate 2,304.22 - 2,304.22 100% 2,304.22 Past due claims (except for claims secured by residential properties) 249.76 30.96 0.82 217.98 150% 326.97 High Risk claims 8,319.34 0.33 114.83 8,204.18 150% 12,306.27 Lending against securities (bonds & shares) 298.59 - 298.59 100% 298.59 Investments in equity and other capital instruments of institutions listed in stock exchange 233.19 - 233.19 100% 233.19 Investments in equity and other capital instruments of institutions not listed in the stock 7.30 - 7.30 150% 10.95 exchange Staff loan secured by residential property 1,069.53 1,069.53 60% 641.72 Interest Receivable/claim on government securities 173.85 173.85 0% - Cash in transit and other cash items in the process of collection - - - 20% - Other Assets (as per attachment) 5,703.99 2,980.98 - 2,723.01 100% 2,723.01 TOTAL (A) 112,011.45 3,012.26 609.16 108,390.02 82,229.33

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Risk Specific Eligible Risk B. Off Balance Sheet Exposures Book Value Net Value Weighted Provision CRM Weight Exposures Revocable Commitments - 0% - Bills Under Collection 47.63 47.63 0% - Forward Exchange Contract Liabilities - - 10% - LC Commitments With Original Maturity Upto 6 months domestic counterparty 1,410.75 91.98 1,318.77 20% 263.75 Foreign counterparty (ECA Rating 0-1) - - 20% - Foreign counterparty (ECA Rating 2) - - 50% - Foreign counterparty (ECA Rating 3-6) - - 100% - Foreign counterparty (ECA Rating 7) - - 150% - LC Commitments With Original Maturity Over 6 months domestic counterparty 2,061.85 130.09 1,931.76 50% 965.88 Foreign counterparty (ECA Rating 0-1) - - 20% - Foreign counterparty (ECA Rating 2) - - 50% - Foreign counterparty (ECA Rating 3-6) - - 100% - Foreign counterparty (ECA Rating 7) - - 150% - Bid Bond, Performance Bond and Counter guarantee domestic counterparty 7,793.35 278.25 360.07 7,155.03 50% 3,577.52 Foreign counterparty (ECA Rating 0-1) - - 20% - Foreign counterparty (ECA Rating 2) - - 50% - Foreign counterparty (ECA Rating 3-6) - - 100% - Foreign counterparty (ECA Rating 7) - - 150% - Underwriting commitments - - 50% - Lending of Bank's Securities or Posting of Securities as collateral - - 100% - Repurchase Agreements, Assets sale with recourse - - 100% - Advance Payment Guarantee 2,626.25 52.35 2,573.90 100% 2,573.90 Financial Guarantee - - 100% - Acceptances and Endorsements 620.59 - 620.59 100% 620.59 Unpaid portion of Partly paid shares and Securities - - 100% - Irrevocable Credit commitments (short term) 2,967.53 - 2,967.53 20% 593.51 Irrevocable Credit commitments (long term) - - 50% - Claims on foreign bank incorporated in SAARC region operating with a buffer of 1% above - 20% - their respective regulatory capital requirement Other Contingent Liabilities 63.33 - 63.33 100% 63.33 Unpaid Guarantee Claims 51.54 - 51.54 200% 103.08 TOTAL (B) 17,642.84 278.25 634.49 16,730.10 8,761.57 Total RWE for credit Risk Before Adjustment (A) +(B) 129,654.29 3,290.51 1,243.66 125,120.12 90,990.90 Adjustments under Pillar II SRP 6.4a(3) - Add 10% of the loans & facilities in excess of Single Obligor Limits to RWE - SRP 6.4a(4) - Add 1% of the contract (sale) value in case of the sale of credit with recourse to RWE - Total RWE for Credit Risk after Bank's adjustments under Pillar II 129,654.29 3,290.51 1,243.66 125,120.12 90,990.90

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Eligible Credit Risk Mitigants At 16th July 2019 Form No. 3 (NPR. In Million)

Deposits Govt.& G'tee of Sec/G'tee G'tee of G'tee Sec/G'tee Deposits with other Gold NRB Govt. of of Other domestic of of Total with Credit exposures banks/FI Securities Nepal Sovereigns banks MDBs Foreign Bank Banks (a) (b) (c) (d) (e) (f) (g) (h) (i) Balance Sheet Exposures Claims on Foreign government and Central Bank (ECA -2) - Claims on Foreign government and Central Bank (ECA -3) - Claims on Foreign government and Central Bank (ECA-4-6) - Claims on Foreign government and Central Bank (ECA -7) - Claims on Other Multilateral Development Banks - Claims on Public Sector Entity (ECA 0-1) - Claims on Public Sector Entity (ECA 2) - Claims on Public Sector Entity (ECA 3-6) - Claims on Public Sector Entity (ECA 7) - Claims on domestic banks that meet capital adequacy requirements - Claims on domestic banks that do not meet capital adequacy requirements - Claims on foreign bank (ECA Rating 0-1) - Claims on foreign bank (ECA Rating 2) - Claims on foreign bank (ECA Rating 3-6) - Claims on foreign bank (ECA Rating 7) - Claims on foreign bank incorporated in SAARC region operating with a buffer of 1% above their respective - regulatory capital requirement Claims on Domestic Corporates 31.11 31.11 Claims on Foreign Corporates (ECA 0-1) - Claims on Foreign Corporates (ECA 2) - Claims on Foreign Corporates (ECA 3-6) - Claims on Foreign Corporates (ECA 7) - Regulatory Retail Portfolio (Not Overdue) 385.09 77.31 462.41 Claims fulfilling all criterion of regularity retail except granularity - Claims secured by residential properties - Claims not fully secured by residential properties - Claims secured by residential properties (Overdue) - Claims secured by Commercial Real Estate - Past due claims (except for claims secured by residential properties) 0.82 0.82 High Risk claims 113.72 1.11 114.83 Lending against securities (bonds & shares) Investments in equity and other capital instruments of institutions listed in stock exchange - Investments in equity and other capital instruments of institutions not listed in the stock exchange - Other Assets (as per attachment) - Total 529.92 - 79.24 ------609.16 Off Balance Sheet Exposures Forward Exchange Contract Liabilities - LC Commitments With Original Maturity Upto 6 months domestic counterparty 91.98 91.98 Foreign counterparty (ECA Rating 0-1) - Foreign counterparty (ECA Rating 2) - Foreign counterparty (ECA Rating 3-6) - Foreign counterparty (ECA Rating 7) - LC Commitments With Original Maturity Over 6 months domestic counterparty 130.09 130.09 Foreign counterparty (ECA Rating 0-1) - Foreign counterparty (ECA Rating 2) - Foreign counterparty (ECA Rating 3-6) - Foreign counterparty (ECA Rating 7) - Bid Bond, Performance Bond and Counter guarantee domestic counterparty 360.07 360.07 Foreign counterparty (ECA Rating 0-1) - Foreign counterparty (ECA Rating 2) - Foreign counterparty (ECA Rating 3-6) - Foreign counterparty (ECA Rating 7) - Underwriting commitments - Lending of Bank's Securities or Posting of Securities as collateral - Repurchase Agreements, Assets sale with recourse - Advance Payment Guarantee 34.08 18.26 52.35 Financial Guarantee - Acceptances and Endorsements - Unpaid portion of Partly paid shares and Securities - Irrevocable Credit commitments (short term) - Irrevocable Credit commitments (long term) - Other Contingent Liabilities - Unpaid Guarantee Claims - Total 616.23 18.26 ------634.49 Grand Total 1,146.15 18.26 79.24 ------1,243.66

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Risk Weighted Exposure for Operational Risk At 16th July 2019 Form No. 6 (NPR. In Million) Fiscal Year Previous S.N. Particulars 2015/16 2016/17 2017/18 Year 1 Net Interest Income 1,722.30 2,242.12 2,939.05 2 Commission and Discount Income 88.54 155.19 185.96 3 Other Operating Income 234.76 300.55 519.16 4 Exchange Fluctuation Income 153.62 194.26 282.48 5 Addition/Deduction in Interest Suspense during the period 25.43 60.97 68.73 6 Gross income (a) 2,224.65 2,953.10 3,995.39 7 Alfa (b) 15% 15% 15% 8 Fixed Percentage of Gross Income [c=(a×b)] 333.70 442.96 599.31 9 Capital Requirement for operational risk (d) (average of c) 458.66 335.07 Risk Weight (reciprocal of capital requirement of 10%) in times 10 10 10 (e) 11 Equivalent Risk Weight Exposure [f=(d×e)] 4,586.57 3,350.73

SRP 6.4a (8) Adjustments under Pillar II (If Gross Income for the last three years is negative) 1 Total Credit and Investment (net of Specific Provision) of releted month - - Capital Requirement for Operational Risk (5% of net credit and invest- 2 - - ment) 3 Risk Weight (reciprocal of capital requirement of 10%) in times 10 10 4 Equivalent Risk Weight Exposure (g) - - 5 Equivalent Risk Weight Exposure [h=f+g] 4,586.57 3,350.73

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Risk Weighted Exposure for Market Risk At 16th July 2019 Form No. 7 Amount In NPR. Exchange Relevant Open S.No. Currency Open Position (FCY) Open Position (NPR) Previous Year Rate Position 1 INR 1,931,449,144 1.60 3,091,767,217 3,091,767,217 2,783,428,375 2 USD (550,131) 109.95 (60,486,872) 60,486,872 12,645,031 3 GBP (4,749) 136.44 (647,945) 647,945 3,229,975 4 EUR (3,537) 122.93 (434,818) 434,818 37,174,007 5 THB 33,850 3.53 119,321 119,321 36,591 6 CHF 6,250 111.34 695,844 695,844 103,287 7 AUD (15,890) 77.59 (1,232,861) 1,232,861 270,093 8 CAD 13,743 84.30 1,158,521 1,158,521 507,848 9 SGD 112,248 81.02 9,094,333 9,094,333 74,265 10 JPY 12,721,509 1.02 12,950,496 12,950,496 6,910,939 11 HKD 12,580 14.08 177,126 177,126 156,548 12 DKK 6,900 16.60 114,506 114,506 595,980 13 SEK 10,140 11.67 118,334 118,334 - 14 SAR 119,073 29.25 3,482,885 3,482,885 2,103,936 15 QAR 35,731 30.16 1,077,468 1,077,468 695,114 16 AED 52,111 29.78 1,551,606 1,551,606 811,931 17 MYR 42,426 26.89 1,140,835 1,140,835 481,688 18 KRW 925,000 0.09 85,886 85,886 69,876 19 CNY 161,473 15.92 2,569,843 2,569,843 1,375,403 20 KWD 1,978 361.36 714,770 714,770 117,160 21 BHD 1,534 291.90 447,775 447,775 76,310 (a) Total Open Position 3,064,464,272 3,190,069,262 2,850,864,357 (b) Fixed Percentage 5% 5% (c) Capital Charge for Market Risk (=a×b) 159,503,463 142,543,218 (d) Risk Weight (reciprocal of capital requirement of 10%) in times 10 10 (e) Equivalent Risk Weight Exposure (=c×d) 1,595,034,631 1,425,432,178

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Sanima Capital Limited Statement of Financial Position th As on 16 July 2019 Amount In NPR. Current Year Previous Year Assets Cash and cash equivalent 287,585,801 45,810,161 Due from Nepal Rastra Bank - - Placement with Bank and Financial Institutions - 170,000,000 Derivative financial instruments Other trading assets 88,229,204 16,811,305 Loan and advances to B/FIs Loans and advances to customers 45,348 88,646 Investment securities 31,747,682 32,288,068 Current tax assets 2,234,297 10,890,580 Investment in susidiaries Investment in associates Investment property Property and equipment 6,527,100 7,655,465 Goodwill and Intangible assets 1,170,399 1,589,770 Deferred tax assets 820,696 453,805 Other assets 15,113,192 14,610,952 Total Assets 433,473,719 300,198,752 Liabilities Due to Bank and Financial Instituions Due to Nepal Rastra Bank Derivative financial instruments Deposits from customers - - Borrowing Current Tax Liabilities Provisions 226,561 191,509 Deferred tax liabilities - - Other liabilities 148,598,270 29,066,339 Debt securities issued Subordinated Liabilities Total liabilities 148,824,831 29,257,848 Equity Share capital 250,000,000 250,000,000 Share premium - - Retained earnings 36,587,339 22,088,017 Reserves (1,938,451) (1,147,113) Total equity attributable to equity holders 284,648,888 270,940,904 Non-controlling interest - - Total equity 284,648,888 270,940,904 Total liabilities and equity 433,473,719 300,198,752

As per our report on even date Manish N. Joshi Tej Bahadur Chand Sunir K. Dhungel CEO Chairman Managing Partner SAR Associates Director Chartered Accountants Nischal Raj Pandey Pawan Kumar Acharya Saroj Guragain Bala Ram Parajuli Date: September 02, 2019 Shree Prasad Poudel Place: Naxal, Kathmandu

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Sanima Capital Limited Statement of Profit or Loss th For the year ended 16 July 2019 Amount In NPR. Previous Year Current Year Corresponding Interest income 15,752,809 23,953,100 Interest expense 1,285,803 - Net interest income 14,467,006 23,953,100 Fee and commission income 39,947,345 23,251,731 Fee and commission expense 1,733,549 1,127,586 Net fee and commission income 38,213,796 22,124,145 Net interest, fee and commission income 52,680,802 46,077,246 Net trading income 22,808,880 (3,309,705) Other operating income 356,941 22,022 Total operating income 75,846,624 42,789,563 Impairment charge/(reversal) for loans and other losses - - Net operating income 75,846,624 42,789,563 Operating expense Personnel expenses 15,490,612 13,508,782 Other operating expenses 8,037,647 7,410,188 Depreciation & Amortisation 1,879,283 2,078,161 Operating Profit 50,439,082 19,792,432 Non operating income 1,273,856 304,641 Non operating expense 173,195 179,508 Profit before income tax 51,539,742 19,917,565 Income tax expense Current Tax 17,068,166 3,275,995 Deferred Tax (27,746) (74,600) Profit for the period 34,499,322 16,716,170 Earnings per share Basic earnings per share 13.80 6.69 Diluted earnings per share 13.80 6.69

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Sanima Capital Limited Statement of Other Comprehensive Income th For the year ended 16 July 2019 Amount In NPR. Current Year Previous Year Profit for the year 34,499,322 16,716,170 Other comprehensive income, net of income tax a) Items that will not be reclassified to profit or loss Gains/(losses) from investments in equity instruments measured at fair value (540,386) (1,638,732) Gain/(losses) on revalution Actuarial gains/(losses) on defined benefit plans (590,097) Income tax relating to above items 339,145 491,620 Net other comrehensive income that will not be reclassified to profit or loss (791,338) (1,147,113) b) Items that are or may be reclassified to profit or loss Gains/(losses) on cash flow hedge - - Exchange gains/(losses) (arising from translating financial assets of foreign operation) - - Income tax relating to above items - - Reclassify to profit or loss Net other comrehensive income that are or may be reclassified to profit or loss - - c) Share of other comprehensive income of associate accounted as per equity - - method Other comprehensive income for the year, net of income tax (791,338) (1,147,113) Total comprehensive income for the year 33,707,984 15,569,057

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Sanima Capital Limited Statement of Cash Flows th For the year ended 16 July 2019 Amount In NPR. Current Year Previous Year CASH FLOWS FROM OPERATING ACTIVITIES Interest received 15,752,809 2,173,650 Fees and other income received 41,523,955 24,023,619 Dividend received 319,619 1,496,006 Receipts from other operating activities - - Interest paid (1,285,803) - Commission and fees paid (1,733,549) - Cash payment to employees (9,064,700) (11,295,174) Other expense paid (9,300,992) (8,648,070) Operating cash flows before changes in operating assets and liabilities 36,211,340 7,750,031 (Increase)/Decrease in operating assets Due from Nepal Rastra Bank - - Placement with bank and financial institutions 170,000,000 Other trading assets (48,928,638) 6,239,977 Loan and advances to bank and financial institutions Loans and advances to customers 48,857 Other assets (507,798) (12,448,897) Increase/(Decrease) in operating liabilities Due to bank and financial institutions Due to Nepal Rastra Bank Deposit from customers Borrowings Other liabilities 113,688,661 (372,747,951) Net cash flow from operating activities before tax paid 270,512,421 (371,206,840) Income taxes paid (8,411,884) Net cash flow from operating activities 262,100,537 (371,206,840) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities - (158,926,800) Receipts from sale of investment securities - Purchase of property and equipment (324,897) (207,912) Receipt from the sale of property and equipment - - Purchase of intangible assets - (881,400) Receipt from the sale of intangible assets - - Purchase of investment properties - - Receipt from the sale of investment properties - - Interest received - 16,400,181 Dividend received - - Net cash used in investing activities (324,897) (143,615,931) CASH FLOWS FROM FINANCING ACTIVITIES Receipt from issue of debt securities - - Repayment of debt securities - - Receipt from issue of subordinated liabilities - - Repayment of subordinated liabilities - - Receipt from issue of shares - 140,000,000 Dividends paid (20,000,000) (27,500,000) Interest paid - - Other receipt/payment - - Net cash from financing activities (20,000,000) 112,500,000 Net increase (decrease) in cash and cash equivalents 241,775,640 (402,322,771) Cash and cash equivalents at 17th July 2018 45,810,161 448,132,932 Effect of exchange rate fluctuations on cash and cash equivalents held - - Cash and cash equivalents at 16th July 2019 287,585,801 45,810,161 As per our report on even date Manish N. Joshi Tej Bahadur Chand Sunir K. Dhungel CEO Chairman Managing Partner SAR Associates Director Chartered Accountants Nischal Raj Pandey Pawan Kumar Acharya Saroj Guragain Bala Ram Parajuli Date: September 02, 2019 Shree Prasad Poudel Place: Naxal, Kathmandu

100 www.sanimabank.com Annual Report 2018/19

Sanima Capital Limited Statement of Changes in Equity th For the year ended 16 July 2019 Amount In NPR. Attributable to equity holders of the Capital Non - Share General Exchange Regulatory Fair Value Revaluation Retained Other Controlling Total Equity Share Capital Equalisation Total Interest Premium Reserve Reserve Reserve Reserve Reserve Earning Reserve Balance at 16th July 2017 110,000,000 ------32,871,847 - 142,871,847 142,871,847 Profit for the year ------16,716,170 - 16,716,170 - 16,716,170

Other comprehensive ------(1,147,113) (1,147,113) - (1,147,113) income, net of tax

Total comprehensive income ------16,716,170 (1,147,113) 15,569,057 - 15,569,057 for the year Transfer to reserve during the period ------Transfer from reserve during the year period ------

Contributions from and - - - distributions to owners Share issued 140,000,000 ------140,000,000 - 140,000,000 Share based payments ------Dividends to equity holders - - - Bonus shares issued ------Cash dividend paid ------(27,500,000) (27,500,000) - (27,500,000) Other ------

Total contributions by and 140,000,000 ------(10,783,830) (1,147,113) 128,069,057 - 128,069,057 distributions Balance at 16th July 2018 250,000,000 ------22,088,017 (1,147,113) 270,940,904 - 270,940,904

Balance at 17th July 2018 250,000,000 ------22,088,017 (1,147,113) 270,940,904 - 270,940,904 Profit for the year ------34,499,322 - 34,499,322 - 34,499,322

Other comprehensive - - - - - (378,270) - - (413,068) (791,338) - (791,338) income, net of tax

Total comprehensive income - - - - - (378,270) - 34,499,322 (413,068) 33,707,984 - 33,707,984 for the year Transfer to reserve during the period - - - - - (1,147,113) - - - (1,147,113) - (1,147,113) Transfer from reserve during the year period ------1,147,113 1,147,113 - 1,147,113

Contributions from and - - - distributions to owners Share issued ------Share based payments ------Dividends to equity holders - - - Bonus shares issued ------Cash dividend paid ------(20,000,000) - (20,000,000) - (20,000,000) Other ------

Total contributions by - - - - - (1,525,383) - 14,499,322 734,045 13,707,984 - 13,707,984 and distributions Balance at 16th July 2019 250,000,000 - - - - (1,525,383) - 36,587,339 (413,068) 284,648,888 - 284,648,888