16Th Annual Report 2019/20

16th Annual Report 16 th 2019/20 Annual Report 2019/20 Report Annual

‘Alkapuri’ Naxal, Kathmandu, Nepal Phone: +977-1-5970033, Fax: +977-1-4428969 Email: [email protected] www.sanimabank.com

Financial Highlights

Deposit (NPR. In Billion) Loans and Advances (NPR. In Billion) 93.69 110.10 92.28 83.44 79.18 69.24 58.23 51.84 46.42 40.90

2016 2017 2018 2019 2020 2016 2017 2018 2019 2020

As at Mid July As at Mid July

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

18.71 126.31 16.96 109.06 13.17 91.82 10.73 9.16 70.00 55.96

2016 2017 2018 2019 2020 2016 2017 2018 2019 2020

As at Mid July As at Mid July

Shareholders Fund (NPR. In Billion) Net Interest Income (NPR. In Million) 12.82 11.99 4,208.70 4,189.69 10.79 3,015.52 9.06 2,242.12 5.35 1,722.30

2016 2017 2018 2019 2020 2015/16 2016/17 2017/18 2018/19 2019/20

As at Mid July Fiscal Year

Operating Profit (NPR. In Million) Net Profit (NPR. In Million) 3,224.90 2,285.10 2,415.20 2,529.85 1,697.50 1,776.26 1,998.10 1,304.10 1,478.50 996.05

2015/16 2016/17 2017/18 2018/19 2019/20 2015/16 2016/17 2017/18 2018/19 2019/20

Fiscal Year Fiscal Year Financial Highlights

Non Performing Loans (%) CAR (%)

15.57 13.00 0.450 12.36 12.41 13.19

0.080 0.019 0.010 0.030

2016 2017 2018 2019 2020 2016 2017 2018 2019 2020

As at Mid July As at Mid July

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

78 81 22.69 23.20 16.09 74 16.00 18.67 79 74 21.05 47 53 69 15.79 14.39 14.00 13.60 40 46

2015/16 2016/17 2017/18 2018/19 2019/20 2016 2017 2018 2019 2020 Fiscal Year As at Mid July

Composition of Income Composition of Expenses Interest Interest Forex Personnel 11% Others Income Tax Others 3% 7%

91% 6% 67% 15% 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 11 5 Disclosure Related to Sub Rule (2) of Rule 26 as per annexure 15 of Securities Registration and Issuance Regulation, 2073 13 6 Independent Auditor's Report 15 7 Consolidated Statement of Financial Position 19 8 Consolidated Statement of Profit or Loss 20 9 Consolidated Statement of Other Comprehensive Income 21 10 Consolidated Statement of Cash Flows 22 11 Consolidated Statement of Changes in Equity 23 12 Notes to the Financial Statements and Significant Accounting Policies 25 13 Disclosures and Additional Information 80 14 Comparision-Unaudited and Audited Financial Statements of FY 2018/19 95 15 Capital Adequacy 96 16 Sanima Capital's Financial Statements 105 in thecomingdays. channels and also expects to add alternative more branches ofNepal.across thegeography exploring The bankisactively 83 full-fledgedbranchesand 16 extensioncountersspread andretailcustomersthrough tocorporate financial services awiderangeofbankingproducts and Sanima Bankoffers all areasofitsbusinessthroughcontinuousimprovement. in beencommittedtomeetcustomerexpectations always in the banking industry. player and reliable Sanima has compliance. Consequently, Sanimaisperceivedasastrong professional integrity, governanceandregulatory corporate towards maintainingthehighestlevelofethicalstandards, bank's riskappetite. dedication The Bankhasdisplayed inprofitability,healthy levelofgrowth consistentwiththe solutions to various customer segments and to achieve a Sanima is committed to provide one window financial Naxal, Kathmandu, Nepal. at 'Alakapuri', office Commercial Bankwithitsregistered 2012,Since February toan"A"Class Sanimahasupgraded LevelDevelopmentBank. in2004asaNational operations prominent Non-Resident Nepali’s commenced (NRNs) that Sanima isaleadingcommercialbankinNepal, promotedby Profile replicable, CSRprogrammes. andscalable sustainable whole. societalimpactthrough Sanimabelievesincreating tocontributesocietyasa the bankhascertainobligations body.a corporate Therefore, fromitscoreobjectives, apart inadditiontobeing The bankisatrusteeofpublicmoney functioning. today day onsocietalresourcesfor and itdraws bank, partofthesociety’s itisaninevitable economicorgan ofacommercial inthecapacity Sanima recognizesthat Paid UpCapital Issued Capital Authorized Capital Capital Structure 8,801,380,984 8,801,380,984 9,000,000,000 NPR Annual Report 2019/20

Chairman's Speech

Respected Shareholders, It gives me immense pleasure to welcome our shareholders and the lives of individuals, we remain committed in Nepal’s economic guests joining us in person as well as virtually to the 16th Annual growth by supporting our clients and customers in various ways. General Meeting of Sanima Bank Limited. The outspread of On the corporate social responsibility front, Sanima Bank has been COVID-19 around the world has affected the Nepalese economy. contributing to deprived communities through activities in the areas This has resulted in unfavorable variances on the performances of of health & education and is also aiming to extend continuity to the our bank as well in the Fiscal Year 2019/20. same. The bank shall continuously focus on Technology, Human Resource Management, Risk Management, Enhanced Customer Government of Nepal imposed a nation-wide lock down to combat Satisfaction etc. to grow in a strong and sustainable manner. the Corona Virus pandemic starting from Chaitra 11, 2076. Although the lockdown has been lifted, there are signs of sluggishness in Achievement and activities of the bank till date have been the economy. Banking sector is one of the highly affected sectors disclosed in detail in the ‘Annual Report of Board of Directors’. due to pandemic. The pandemic has adversely affected the Bank's We remain focused on improving our service to our clients, performance due to reduced fee and commission income as well generating strong returns for our investors and contributing as minimal realization of accrued interest. There has been a spike even more to the communities in which we operate. However, in risk level in the Bank with the deterioration in the asset quality. we are not in a position to assess the impact of COVID-19 on In addition to this, interest income has shrank due to the interest national economy yet. Despite of the fact that pandemic has rebate of NPR 400 million provided to the borrowers in line with the hindered the economic prosperity and development activities in directives issued by Central Bank. Besides this, bank has set aside the country, we are hopeful that soon after the impact of the around NPR 800 million for Loan Loss Provisioning. pandemic is over, industries, business, trade, agriculture and overall economy will prosper. Despite huge competition in the banking industry, Sanima Bank has been able to maintain successful identity in financial sector while I express my sincere gratitude to all our shareholders and guests efficiently managing both cost and capital. For this achievement, for your continued support and cooperation. I would like to extend I would like to thank all shareholders, customers, well-wishers, my heartfelt gratitude to all the stakeholders, Government Entities, employees, other stakeholders and all associated organizations for Nepal Rastra Bank, Securities Board, Office of Company Registrar, their valuable contribution. Nepal Stock Exchange Limited, External Auditors, Media and all well- wishers for their valuable suggestions, feedbacks and continued The Bank (inclusive of Sanima Capital) has generated net profit support. I look forward to continuous guidance from the Board of of NPR One Billion Seven Hundred Sixty Six Million Nine Hundred Directors, dedication and hard work from our staff members, and Eighty Six Thousand in fiscal year 2019/20, a decline by 22.28% on valuable advice, trust & support from all our shareholders and y-o-y basis. It has been proposed to distribute 10% stock dividend stakeholders. and 3.60% cash dividend from the retained earnings. Once again, I welcome you all to this 16th Annual General Meeting As banking plays a crucial role at the heart of the economy and in and wish you prosperity and progress. Thank you! Binaya Kumar Shrestha Chairman November 13, 2020

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Director’s Report

Respected Shareholders, B. Country's Macroeconomic Situation

Sanima is performing well under proper guidance aligned with Initially, Central Bureau of Statistics had estimated GDP appropriate strategy and has continued to provide reasonable growth of 2.28 percent in FY 2019/20 due to the impact of returns to the shareholders. The Bank’s position has been COVID-19 in overall economy. With the end of Fiscal Year, upgrading in terms of financial indicators and we are making it is estimated to be around zero percent as compared to efforts to be in the frontline. The Bank has been able to generate 7% in the previous year. In order to control and prevent the profit since its inception and despite of various adversities in outspread of COVID-19 around the country, production and the banking sector, it has been able to strengthen its business. distribution process has been obstructed which has shrunk The outspread of COVID-19 around the world has affected the the economy as a whole. Share of agriculture, industry and Nepalese banking industry as well. As a result, the Bank could service sectors in GDP stands 27.65 percent, 14.27 percent not achieve targeted profit in FY 2019-20. The Bank has been and 58.08 percent respectively in 2019/20. During review expanding its business as well as delivering services to its year, Gross Domestic Saving to Gross Domestic Product customers in a convenient way amidst the unfavorable situation stands 18.1 percent. created in the country. Credit and Deposit A. Synopsis of Financial Performance In the review year, credit from Banks and Financial NPR In Million Institutions increased by 12 percent compared to a growth Mid July Mid July of 19.4 percent in the previous year. Similarly, deposit Details Change (%) 2020 2019 collection increased by 18.7 percent compared to a growth Net Loans and Advances 93,695 83,439 12.29 of 18 percent in the previous year. Investments 18,708 16,959 10.31 Share of Institutional deposit in total deposit of Banks and Deposit 110,096 92,284 19.30 Financial Institutions stood at 44.3 percent as compared to Profit/ Loss FY 2019/20 FY 2018/19 Change (%) 45.3 percent in previous year. Share of demand, saving, and Net Interest Income 4,190 4,209 (0.45) fixed deposits in total deposits stood at 10 percent, 31.9 Operating Profit 2,530 3,225 (21.55) percent and 48.6 percent respectively in mid-July 2020. Such shares were 9.7 percent, 32.8 percent, and 46.3 Net Profit 1,776 2,258 (21.34) percent respectively a year ago. Other Details FY 2019/20 FY 2018/19 Change (%) Stock and Cash Dividend 1,197 1,684 (28.94) In the mid July 2020, 65.7 percent against the collateral CAR (%) 13.00 13.19 (0.19) of land and building and 13 percent against the collateral of current assets (such as agricultural and nonagricultural Non-Performing Loan (%) 0.45 0.08 0.37 products of the total outstanding credit of the Banks and Financial Institutions. Such ratios were 64.4 percent and During the review year, loans and advances of the bank 13.5 percent respectively a year ago. increased by 12.29 percent whereas deposit mobilization increased by 19.30 percent, operating profit decreased by During the review year, loans to agriculture sector increased 21.55 percent and net profit decreased by 21.34 percent. by 16.7 percent, industrial production sector increased Demand of loan went gradually down after outspread by 11.5 percent, construction sector increased by 12.3 of COVID-19 around the country. The bank has provided percent, wholesale and retail sector increased by 7.7 interest rebate of around NPR 400 million to the customers percent, service industry sector increased by 22.1 percent as per the direction of Central Bank. Similarly, there has and transportation, communication and public sector been adverse impact in non-interest income due to very increased by 18.6 percent. low economic activities. Bank has set aside additional loan loss provision of around NPR 800 million due to the impact Term loan extended by Banks and Financial Institutions in asset quality. increased by 27.7 percent, overdraft increased by 7.2

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percent, trust receipt (import) loan increased by 8.7 percent, In the review year, decrease in number of Nepalese workers demand and working capital loan increased by 14 percent, migrated for foreign employment by 20.5 percent as real estate loan (including residential personal home loan) compared to decrease by 32.6 percent in the previous year. increased by 8.1 percent, margin nature loan increased Remittance is decreased by 0.5 percent to NPR 875.03 by 11 percent and hire purchase loan decreased by 3.8 billion in the review period which was increased by 16.5 percent in the review year. percent in the previous year.

Import Export Current Account and BOP Position

In the review period, merchandise imports decreased Current account marked a deficit by 87.9 percent to NPR by 15.6 percent to NPR 1,196.8 billion compared to an 32.06 billion in the review year which was NPR 265.36 increase of 13.9 percent in the previous year. billion in previous year. Capital transfer amounted to NPR 14.21 billion in the review year which was NPR 15.46 billion Commodity-wise, import of palm oil, Crude soyabean oil, in the previous year. Similarly, Balance of Payments (BOP) chemical fertilizers, edible oil, computer & parts and related remained at a surplus of NPR 282.41 billion in the review products has increased. However, imports of petroleum year compared to deficit of NPR 67.4 billion in the previous products, transportation equipment and parts, M.S. Billet, year. gold, other machineries and parts, and related products has decreased. Inflation

In the review period, merchandise exports increased by 0.6 In the FY 2019/20, the average consumer price inflation percent to NPR 97.71 billion compared to an increase of stood at 6.15 percent compared to 4.64 percent a year ago. 19.4 percent in the previous year. In the review year, wholesale price inflation stood at 4.78 percent as compared to 6.02 percent in the previous year. Commodity-wise, export of palm oil, Ayurveda Medicine, herbs, plastic utensils, fruits and related products has Interest Rate increased. However, zinc sheet, wire, polyester yarn and threads, ready-made garments, woolen carpet, and related The weighted average 91-day Treasury bills rate decreased products has decreased. to 1.27 percent in mid-July 2020 from 4.97 percent a year ago. The weighted average inter-bank transaction rate Total trade deficit compressed by 16.8 percent to NPR among commercial banks decreased to 0.35 percent in 1,099.09 billion in review year compared to an increase mid-July 2020 from 4.52 percent a year ago. of 13.5 percent in the previous year. Trade deficit to Gross Domestic Production (GDP) ratio is 29.2 percent. The The weighted average deposit rate and lending rate of export-import ratio increased marginally to 8.2 percent commercial banks stood at 6.01 percent and 10.11 percent in the review year from 6.8 percent in the corresponding respectively in mid-July 2020. Such rates were 6.60 percent period of the previous year. and 12.13 percent respectively in previous year. Similarly, average base rate of commercial banks decreased to 8.50 Foreign Exchange Reserve percent in mid-July 2020 from 9.57 percent a year ago.

Based on the imports of current fiscal year, the foreign Capital Market exchange holdings of the banking sector is sufficient to cover the prospective merchandise imports for 14.4 months The NEPSE index increased by 8.21 percent and stood and merchandise and services imports for 12.7 months. at 1,362.4 points in mid-July 2020 which had increased Gross foreign exchange reserves as on mid-July 2020 was by 3.8 percent and remained at 1,259.0 points in the NPR 1,401.84 billion which stood at NPR 1,038.92 billion corresponding period of the previous year. Securities in the previous year. market capitalization increased by 14.37 percent on y-o-y basis and reached NPR 1,792.76 billion in mid July 2020 Remittance against an increase of 9.2 percent to NPR 1,567.5 billion a year ago. The ratio of market capitalization to GDP stood at

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47.6 percent in mid-July 2020 compared to 45.3 percent a increased from NPR 55.89 billion to NPR 126.24 billion. year ago. Of the total 212 companies listed in Nepal Stock Similarly, net worth of the bank has increased from NPR Exchange Limited in mid July 2020, the number of banks 5.40 billion to NPR 12.84 billion during the said period. and financial institutions (including insurance companies) stood at 147 followed by 19 manufacturing and processing b. Profit/Loss Statement of Previous Five Years industries, 33 hydropower companies, and 4 hotels, trading institutions and other sectors each and 5 of other divisions. NPR In Million The number of listed companies as at mid July 2019 was Fiscal Year Particulars 215. 2015/16 2016/17 2017/18 2018/19 2019/20 Interest Income 3,263 5,044 8,129 10,770 11,484 (Source: Nepal Rastra Bank) Interest Expenses 1,540 2,795 5,090 6,547 7,275 Net Interest 1,723 2,250 3,039 4,223 4,208 C. Financial Summary Income Commission and 89 155 678 748 653 a. Financial Position of Previous Five Years: Discounts Other Operating NPR In Million 235 348 26 67 48 Income Mid July Capital and Exchange 154 194 282 374 400 Liabilities 2016 2017 2018 2019 2020 Fluctuation Income Total Operating Share Capital 4,711 8,001 8,001 8,001 8,801 2,200 2,947 4,025 5,413 5,310 Income Reserves and 682 1,093 2,808 4,023 4,043 Funds Employee Expenses 259 345 608 912 964 Debenture and Other Operating 370 370 370 1,725 1,725 330 429 498 663 736 Bonds Expenses Exchange Borrowings 3,282 611 359 1,319 86 - - - - - Fluctuation Loss Deposits 46,344 57,754 79,139 92,140 109,922 Operating Profit Bills Payables - - - - - before Provision 1,611 2,173 2,919 3,838 3,610 for Possible Loss Income Tax - - 70 23 - Provision for Liabilities 135 133 247 227 797 Possible Losses Other Liabilities 502 2,126 1,085 1,799 1,667 Operating Profit 1,477 2,041 2,672 3,611 2,813 Total Capital 55,891 69,955 91,831 109,030 126,244 Non-Operating and Liabilities 71 45 0.2 (4) (0.4) Income/Expense Assets Provision Written 16 3 8 9 - Cash Balance 688 908 1,082 1,435 1,757 Back Balance with Profit from 2,575 5,265 5,610 2,781 5,326 NRB Regular 1,564 2,089 2,680 3,616 2,813 Operations Balances with Bank Profit/Loss from 150 741 465 637 3,277 and Financial Extra ordinary - (0) - - - Institutions activities Money at Call Net Profit after and Short - - 600 770 - considering all 1,564 2,089 2,680 3,616 2,813 Notice activities Provision for Staff Investments 10,652 9,097 13,142 16,981 18,702 142 186 271 364 284 Bonus Loans Provision for Advances and 40,455 51,265 69,243 83,439 93,695 421 569 721 979 762 Income Tax Bill Purchase Fixed Assets 655 727 948 1,229 1,243 Net Profit/(Loss) 1,000 1,333 1,688 2,274 1,767 Non-Banking - - - - - Assets (Figures includes Sanima Capital and figures after FY Other Assets 716 1,952 741 1,757 2,244 2017/18 are presented as per Nepal Financial Reporting Total Assets 55,891 69,955 91,831 109,030 126,244 Standards (NFRS).)

During the previous four years, total assets of the bank have During the last four years, net profit has increased from NPR

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1 Billion to NPR 1 Billion 767 Million. i. The Bank has adopted “Work from Home” culture to reduce the outspread of COVID wherever possible. D. Infrastructure E. Human Resource Development 1. Branch expansion As on mid July 2020, 1,072 staff's are working in Sanima The Bank has been continuously expanding its branch Bank. The Bank has been adopting a policy for managing staff network from east to west. The Bank has been operating appropriately as per its requirement. In order to develop and from 83 branches & 16 extension counters till the date upgrade skills of its human resource, the Bank has marked of preparation of this report. In FY 2019/20 the bank has participation of all employees in various seminars, in-house established five new branches outside valley at Bauniya, and external trainings. Staff have already participated in Bhalwari, Taplejung, Kohalpur and Chandrapur and two various skill based training, seminar and conference within extension counters. Further, bank has established 13 and outside the country. On headcount basis, 3,406 staff's extension counters inside valley. The Bank has planned to were provided in-house training and 885 staff's were continue its network expansion on a selective basis inside provided external training in various topics. During the and outside valley during the fiscal year 2020/21. review year, 66 staff's have participated in international trainings and seminars in person where 357 staffs have 2. Information Technology participated international trainings via webinar. Employee remuneration has been hiked in line with the increment in The bank has a policy to automate and digitize all its business the profit and market scenario, a part from this; staff’s perk processes. IT risk in banking industry is identified as a major has been increased by considering inflation as well. risk; to mitigate which, the bank has been implementing various security measures. Apart from this, the bank has F. Remittance planned to adopt new technologies in E-Banking sector while optimally utilizing its resources. In order to provide better and more reliable remittance services and to serve a wide array of customers living in Furthermore, the Bank has implemented the following measures Nepal and abroad, the Bank has started its own remittance to enhance Information Technology during FY 2019/20; 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 81 ATM booths and has has entered into an agreement with “Galaxia International planned to extend the service in various business Services Inc” of America and “Hana Ez Service” of KEB locations and new branches. Hana Bank situated in Korea in the review year to facilitate b. The Bank has implemented E-Payment solution through customers through remittance service. With this, Nepalese NCHL Connect IPS and planned to implement corporate staying in America and Korea can remit money easily payment system as well. Additionally, customers can and safely via Sanima Xpress. Bank has been providing now perform “NCHL self-registration” service. remittance service in collaboration with 6 companies from c. The Bank has planned to implement Bank XP Solution Dubai, 2 from South Korea, 2 from UK, 2 from America, 1 in order to upgrade Mobile Banking service. each from Malaysia, Australia, Singapore, 1 bank from India d. The Bank is focusing on digitization of documents. and Xpress Money services around the globe. The bank e. The Bank has redesigned its website to make it aims to broaden its reach by building additional relations in handicapped-friendly and displayed in both English and remittance sector. Nepali language. f. The Bank has automated internal approval system in G. Industrial and Business Relationship order to perform paperless banking transactions. g. The Bank has implemented Automated Reporting Bank has been maintaining an excellent industrial and System in Internal Audit Department for fast and speedy business relationship, nationally and internationally. The reporting. Bank is committed towards putting continuous efforts h. The Bank has implemented MIS for generating real to strengthen the relationship with its experienced and time reports at a click. skillful staff and customers at all levels. We are pleased

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to announce that a wide range of business customers of blood donation program with partnership to Red Cross Nepalese market are banking with us. The Bank has also Society. been successful in maintaining excellent international trade 10. Myanglung Branch, Tehrathum, has distributed relationship with Banks in India, China, Japan, America, stationery items in Shree Himalaya Ma. Bi., Shree Europe, Australia, Dubai, Korea and so on. Janata Adharbhut Bidhyalaya, Shree Sharada Aadharbhut Bidhyalaya and Shree Kalika Adharbhut H. Corporate Social Responsibility Bidhyalaya of Myanglung Municipality ward no. 4. More than 160 students were directly benefited through this Corporate Social Responsibility has been prioritized as a program. long-standing commitment at Sanima Bank. The Bank’s 11. Tulsipur Branch has successfully conducted “Sanitary contribution to the social sector with special focus on and Dust Bin Distribution Program" at Tulsipur airport. education and health sectors has benefited the deprived 12. Tikapur branch, Kailali, has distributed 50 sets of category. Continuing the trend, in the review year deserving school uniform to the underprivileged students of Shree students with low income source studying in grade XI & XII Karnali Madhyamik Vidhyalaya, Tikapur Kailali. are benefiting with our scholarship program through outside 13. Sanima Bank has supported Bird Conservation Nepal valley branches. (BCN) to place Bird Feeders at various places of Kanthmandu Valley. Details of Corporate Social Responsibility activities 14. Sanima bank has supported Help Nepal Network to conducted via Head Office and various branches of the reconstruct a Rajkuleshwor Lower Secondary School Bank during the review year are as follows: in Dolakha which came down crumbling due to devastating earthquake back in April 2015. 1. Sanima Bank has contributed NPR 18.8 million to Nepal 15. Damak branch has provided financial support to Government for treatment and control of corona virus construct Shivagunj Bahumukhi Campus at Jhapa. (COVID-19) which also contains contributions from the 16. Sanima Bank has supported Karuna Foundation Nepal Bank employees amounting to NPR 3.3 million. to provide assistive support device to the needy disabled 2. In collaboration with local bodies, Sanima bank has persons residing in Province 1. donated ration to COVID-19 impacted from different 17. Sanima Bank in partnership with Women Entrepreneurs places of Kathmandu. Association of Nepal’s (WEAN) had conducted training 3. Sanima Bank has provided financial support of NPR program to make hand sanitizer. 1 million to “Teach For Nepal” to support 2 fellows of "Teach For Nepal". I. Corporate Governance 4. Amarsingh Branch, Pokhara, has supported mid-day lunch for the students of Kalika Madhyamik Vidhyalaya At Sanima, Corporate Governance has been considered in order to provide nutrition to the needy students at integral to sustainable growth of the Bank. Various school. committees and sub-committees are actively functioning 5. Naxal Branch has donated books (literature, G.K, in the Bank as prescribed by Nepal Rastra Bank. The Novels) to the students of Grade 4 to 10 of Shree committees are highly committed and focused to mitigate Tangaal Madhyamik Vidhyalaya. and manage various risks through the implementation of 6. Hetauda Branch conducted water distribution program Corporate Governance. The Bank is committed through time for pilgrims of Pashupati temple at Hetauda during the to deepen long-term relationship with regulatory authorities, month of Shrawan. customers and all stakeholders through Corporate 7. Himali Branch, Bajura, conducted Financial Literacy Governance. program at Dhim Basti, Bajura. More than 300 local people had participated on the program. J. Grievance Handling 8. Kalaiya Branch conducted "Health Camp" during Gadhimai festival to provide basis health checkup The Bank has handled all 11 grievances received from facilities to the pilgrims. customers during fiscal year 2019/20, as per the 9. On the occasion of 15th Anniversary of Sanima Bank, provisions under Clause 9 of Directive 20 of Unified Head office along with 16 branches had organized Directive 2077 issued by the central bank.

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K. Internal Control System Bank has been issuing various directives for risk identification, assessment, review, control & effective risk The Bank has adequate internal control framework and management. The committee has implemented Board processes in place in managing risks and in controlling approved risk management strategy after identifying Bank’s its business and financial activities while reducing risks Risk Appetite and Tolerance Limit to cope with Inherent which can cause loss, ensure compliance with prevailing Material Risk associated with the bank. Such policy and laws and regulations. Both the Audit committee and Risk procedure has been reviewed & updated from time to time, Management sub-committee have been taking appropriate reported associated risk to senior management, discussed actions to control and mitigate overall risks after reviewing with Risk Management committee and the Board on the relevant reports on a regular basis. Similarly, Board of issued report every quarter. The committee has also been Directors have been analyzing the effectiveness of internal complying all the obligations defined under NRB Directives. control system by reviewing the reports issued by external auditor and regulators (on inspection) and implementing b. Anti-Money Laundering committee appropriate actions for effective internal control. Apart from this, several committees of the Bank such as Management Composition of Anti-Money Laundering committee, committee, Assets- Liabilities Management committee, remuneration, allowances and facilities received by them Risk Management committee, Internal Audit department, and details of the functions performed; Compliance department and Integrated Risk Management Department are also actively involved for the effectiveness Members of the committee: of Internal Control System. Director L. Board Committees Mr. Bharat Kumar Pokhrel Coordinator

a. Risk Management Committee Director Mr. Mahesh Ghimire Member Composition of Risk Management Committee, remuneration, allowances and facilities received by them and details of the Head Risk Management Department functions performed; Mr. Bobby Singh Gadtaula Member

Members of the committee: Head Compliance Department Mr. Buddhi Sagar Subedi Member Secretary Director Mr. Balaram Parajuli Coordinator No remuneration has been provided to coordinator and director members of the committee except sitting fees of Director NPR 12,000 per meeting. Risk Management Committee Mr. Tuk Prasad Poudel Member had met four times during the financial year 2019/20 and payment of NPR 84,000 in total has been made as sitting Representative fees. Mr. Raju Krishna Shrestha Member Operation Department The Committee has been reporting to the Board regarding adequacy and effectiveness of existing risks identification Chief, Risk Management Department and risk management system associated with Money Mr. Bobby Singh Gadtaula Member Secretary Laundering and also recommending for developing robust system, after comprehensive study and discussion. Further, No remuneration has been provided to coordinator and the committee has been complying all the obligations director member of the committee except sitting fees of defined under NRB Directives. NPR 12,000 per meeting. Risk Management Committee had met eight times during the financial year 2019/20 and c. Employee Service Facility Committee payment of NPR 172,000 in total has been made as sitting fees. Composition of Employee Service Facility Committee,

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remuneration, allowances and facilities received by them No remuneration has been provided to coordinator and and details of the functions performed; director members of the committee except sitting fees of NPR 12,000 per meeting. Audit Committee had met Members of the committee: seventeen times during the financial year 2019/20 and Director payment of NPR 409,000 in total has been made as sitting Mr. Mahesh Ghimire Coordinator fees. The committee is performing its responsibility in compliance with directive no. 6 issued by the Central Bank. Chief Executive Ofiicer The committee has performed the following functions in the Mr. Bhuvan Kumar Dahal Member review year.

Head Treasury & Finance • The committee has reviewed overall financial Mr. Bibhor Jha Member position, internal control system, audit plans and procedures and internal audit observations of Head Human Resource the Bank periodically and also issued necessary Mr. Narayan Prasad Khatiwada Member Secretary directions to management and also provide suggestions to Board of Directors. No remuneration has been provided to coordinator and • The committee has reviewed whether the bank has director members of the committee except sitting fees complied with all prevailing laws, directives issued of NPR 12,000 per meeting. Employee Service Facility by the Central Bank and disclosed in the report Committee had met seven times during the financial year issued. 2019/20 and payment of NPR 96,000 in total has been • The committee has developed comprehensive audit made as sitting fees. The committee has been performing plan and conducted internal audit accordingly. its responsibility in compliance with directive no. 6 issued • The committee has reviewed adherence on regularity, by the Central Bank. parsimony and effectiveness of the bank and recommended to the Board accordingly. In the review year, the committee discussed and • The committee has reviewed quarterly financial recommended management and Board of Directors for performances of the bank and presented to the Board developing necessary policies & guidelines regarding of Directors. Employee appraisal and promotion, Employee retention, • The committee has reviewed the audit calender & audit Anti-Bribery and Corruption and Whistle Blowing, plan prepared by Internal Audit Department. Employees salary and bonus, Employee loan service and other employee services. M. Achievement of Current Fiscal Year and Future Prediction d. Audit Committee Sanima Bank has been able to generate operating profit Composition of Audit Committee, remuneration, allowances & net profit of NPR 589 million and NPR 371 million and facilities received by them, details of the functions respectively in the first two months of current fiscal year. performed; Similarly, in the coming years, our efforts will be focused on a balanced growth guided by the core principles of liquidity Members of the committee are as follows: & capital and managing risks in a disciplined way. The Bank shall continuously focus to solicit individual & other deposits, Director retail banking and providing a complete financial solution Mr. Tuk Prasad Poudel Coordinator in current year as well. However, we are not in a position to assess the impact of COVID-19 on national economy Director yet. Despite that the pandemic has hindered the economic Ms. Gayatri Thapa Member prosperity and development activities in the country, we are hopeful that soon after the impact of the pandemic is over, Head Internal Audit industries, business, trade, agriculture and overall economy Mr. Niraj Dhakal Member Secretary will prosper..

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N. Changes in Board of Directors P. Appointment of Auditor

Mr. Uttam Kumar Bhattarai has resigned after his M/s S.R. Pandey & Co., Chartered Accountants has been appointment as chairman in Public Service Commission of appointed as statutory auditor for FY 2019/20. Province 1 and the vacant position has been fulfilled with an appointment of Mr. Balaram Parajuli for next four years by Lastly, on behalf of the Board of Directors, I would like to extend Board of Directors. my heartfelt gratitude to all the stakeholders, Government Entities, Nepal Rastra Bank, Securities Board, Office of Company O. Issuance of Debenture Registrar, Nepal Stock Exchange Limited, External Auditors, Media and all well-wishers for their valuable suggestions, The bank has plans to issue additional debentures in this feedbacks and continued support. We expect similar support, fiscal year for business enhancement. suggestions and cooperation in the coming days ahead.

Thank you! On behalf of Board of Directors Binaya Kumar Shrestha Chairman November 13, 2020

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Additional Disclosures as per section 109 of the Companies Act, 2063 a) Impacts caused on the transactions of the Company, Bank and its subsidiary have operated banking business if any, from National and International Situation: and merchant banking business as defined by prevailing acts, rules and regulations. No major changes in business Banking business is influenced by country's political and activities have been observed in the review period. economic situation, Government and regulator policies, rules and regulations, business competition, country's diplomatic g) Information furnished to the company by its principal and economic relationship with international market, overall shareholders during the previous year economic indicators, etc. Banking business is impressed by the factors as disclosed in 'country's macroeconomic During the previous year, no such information provided. situation' section of Board of Directors report. h) Details of the shareholding taken by the Directors b) Response of Board of Directors on remarks made, if and officials of the company in the previous financial any, in the Audit Report year and, in the event of their involvement in share transaction of the company, details of information The Board has directed management to improve/implement received by the company from them in that respect the general observations stated in the preliminary audit report. The Bank is committed to improve the same. During the previous year, no such information provided. c) Dividend i) Details of disclosure made about the personal interest of any Director and his/her close relative in It is proposed for the distribution of 10% of Paid up capital any agreements related with the company during the as Stock dividend amounting to NPR 880,138,098.40 and previous financial year 3.60% of Paid of Capital as Cash dividend (including tax on dividend) amounting to NPR 316,849,715.42 from the During the fiscal year, no such information has been made retained earnings at the end of the year 2019/20. available to the Bank. d) Details of shares forfeited (number of shares, face j) Buyback of shares of the company, reasons thereof value, amount received by the Company prior to for buy back, number of shares bought back, face forfeiture, amount received by the Company after value of the shares and the amount paid during the putting such forfeited shares into subscription and buy back the amount refunded on account of refunded shares The Bank has not bought back any share. The Bank has not forfeited any shares till date. k) Whether or not there is an internal control system, e) Progress of transactions of the company and its and if there is any such system, details there of : subsidiary company in the previous financial year and review of the situation existing at the end of that Disclosed in the 'Board of Director Report'. financial year l) Details of Operating Expenses of the previous year Progress of business transactions of the company during current year was disclosed in the Directors Report and Operating expenses of the previous year is depicted below: attached financial statements. i) Staff Expenses NPR 1,234,689,274 f) Main transactions carried out by the company and (Including Staff Bonus) its subsidiary company during the financial year and ii) Other Operating Expenses NPR 728,240,360 any important change in the business of the company during the period: m) Composition of Audit Committee, remuneration, allowances and facilities received by them, details

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of the functions performed by that committee and of NPR In '000 suggestions, if any, made by that committee. Chief Executive Other Chief Particulars Officer Officials Salary, allowances and other Disclosed in the 'Board of Director Report'. 14,615 38,242 benefits Detailed report on salary have been included in Annual n) Amount, if any, outstanding and payable to the financial statements. company by any Director, managing Director, Chief Executive, substantial shareholder or his/her close • Facilities have been provided as per Employees Bylaws relative, or by any firm company, corporate body, in and Bonus as per the Bonus Act. which he/she is involved p) Amount of dividends remaining unclaimed by No such information has been made available to the Bank. shareholders o) Amount of remuneration, allowances and facilities Amount of unclaimed dividend amounts to NPR 94,227,474. paid to the Directors, Managing Director, Chief Executive and Officials q) Details of sale and purchase of properties pursuant to Section 141 Board of Directors has been benefitted by fees, allowances and other facilities as depicted below: The Bank has not purchased any properties pursuant to this section. Sitting fees of NPR 13,000 and NPR 12,000 per Board meeting is being provided to Chairman and other Board r) Details of transactions carried on between the members respectively. Apart from this, maximum of NPR associated companies pursuant to Section 175 12,000 is being provided to board members for newspaper, magazine, periodicals, telephone, internet and other Such information has been disclosed in point number 7 services on monthly basis. No any other facility has been “Related Party Disclosures” of annexure 5 "Disclosures and provided except as mentioned. Additional Information" of this Annual Report. During fiscal year 2019/20, NPR 2,618,000 has been paid s) Any other matter to be mentioned in the Board of to board of directors, after deduction of applicable tax as per Directors’ report under Companies Act, 2063 and prevailing laws. other prevailing laws: Salary, allowances and benefits paid to Chief Executive and Nil Officials

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

Annual Report 2019/20

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 against “Director’s Report” part of this report. 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 stock of the body corporate: a. No mentionable law suits have been filed by the Bank or against the Bank, except for regular law suit in normal The Bank’s share price is guided by the market 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 Quarter Max. Price Min. Price Last Price Days Transactions Shares Traded First 361 300 305 63 4,370 1,229,710 Second 350 300 343 59 3,073 866,645 Third 437 303 324 47 9,856 3,055,779 Fourth 344 287 330 14 1,106 317,560 (Source: Nepal Stock Exchange)

6. Problems and Challenges  Challenge to maintain the defined interest spread.

a. Internal Problems and Challenges c. Strategy  Diversification of Income sources  Implementation of appropriate strategy to manage risk  Increase in Non-Performing Loan arising due to COVID-19.  Continuation of regular operating expenses despite  Diversification of deposits and risk assets. decline in Income  Exploration of new avenues for revenue generation and deposits mobilization. b. External Problems and Challenges  Development of advance technological services.  Non recovery of principal and interest of loans, lower  Capital Increment. remittance, lower Non Interest Income and unfavorable  Development of more robust system for overall risk economic condition due to outspread of COVID-19 management. around the world.  Rigorous competition between Banks and Financial 7. Corporate Governance Institutions.  Imbalance between increasing demand for loans and Bank fully adheres to all the relevant policies and provisions deposits collection. of the Banks and Financial Institutions Act, 2073, directives,  Challenges observed in the domain of Information circulars and notification circulated by the Central Bank. Technology. Corporate Governance has been always prioritized and all  Demand of loan not increased as expected. the relevant policies, provisions and directives have been

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compiled with no compromise. Management Committee (MANCOM), Assets- Liabilities Management Committee (ALCO), Risk Management Audit committee has been formed for the effective Committee and Credit Review Committee are also actively implementation of internal control system. The said involved for making banking business effective, reliable and committee has been analyzing the effectiveness of internal scientific and also for intervening strategies on need basis. control system by reviewing the reports issued by external auditor and regulators (on inspection) and implementing The Bank is continuously adhering all directions of Nepal appropriate actions and advising management for effective Rastra Bank, directions and recommendations stated in NRB internal control. inspection report and independent auditor's report. Board of Directors and management of the Bank are committed Apart from this, several committees of the Bank such as to improve further by adhering corporate governance fully.

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Consolidated Statement of Financial Position As on 15th July 2020 Amount In NPR Group Bank Note Current Year Previous Year Current Year Previous Year Assets Cash and cash equivalent 4.1 5,255,810,829 4,779,994,808 5,190,299,845 4,636,422,437 Due from Nepal Rastra Bank 4.2 5,325,683,135 2,781,194,462 5,325,683,135 2,781,194,462 Placement with Bank and Financial Institutions 4.3 2,896,086,670 827,701,829 2,827,086,670 827,701,829 Derivative financial instruments 4.4 40,221,461 85,066,888 40,221,461 85,066,888 Other trading assets 4.5 531,492,829 572,651,015 443,453,005 484,421,811 Loan and advances to B/FIs 4.6 2,844,211,678 2,020,420,376 2,844,211,678 2,020,420,376 Loans and advances to customers 4.7 90,850,351,390 81,418,905,928 90,850,351,390 81,418,860,580 Investment securities 4.8 15,051,957,196 13,642,937,700 15,018,419,486 13,611,190,018 Current tax assets 4.9 5,741,277 - 4,201,081 - 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 1,182,156,083 1,157,047,779 1,177,211,496 1,150,520,679 Goodwill and Intangible assets 4.14 61,286,608 71,489,746 60,545,750 70,319,347 Deferred tax assets 4.15 24,629,090 15,595,267 25,565,110 14,774,571 Other assets 4.16 2,174,412,368 1,656,746,810 2,253,731,045 1,713,594,966 Total Assets 126,244,040,615 109,029,752,608 126,310,981,152 109,064,487,965 Liabilities Due to Bank and Financial Instituions 4.17 3,275,974,837 3,694,458,442 3,275,974,837 3,694,458,442 Due to Nepal Rastra Bank 4.18 86,292,488 1,018,919,629 86,292,488 1,018,919,629 Derivative financial instruments 4.19 - - - - Deposits from customers 4.20 107,076,174,929 89,229,715,732 107,250,202,687 89,373,729,162 Borrowing 4.21 - - - - Current Tax Liabilities 4.9 - 22,537,584 - 24,771,881 Provisions 4.22 32,478,077 27,401,007 32,428,917 27,174,446 Deferred tax liabilities 4.15 - - - - Other liabilities 4.23 1,204,391,821 1,287,811,266 1,122,765,289 1,211,174,346 Debt securities issued 4.24 1,724,712,000 1,724,712,000 1,724,712,000 1,724,712,000 Subordinated Liabilities 4.25 - - - - Total liabilities 113,400,024,152 97,005,555,660 113,492,376,218 97,074,939,905 Equity Share capital 4.26 8,801,380,984 8,001,255,440 8,801,380,984 8,001,255,440 Share premium - - - - Retained earnings 1,218,215,653 1,785,963,624 1,197,037,733 1,751,506,637 Reserves 4.27 2,824,419,826 2,236,977,884 2,820,186,217 2,236,785,982 Total equity attributable to equity holders 12,844,016,463 12,024,196,948 12,818,604,934 11,989,548,059 Non-controlling interest Total Equity 12,844,016,463 12,024,196,948 12,818,604,934 11,989,548,059 Total Liabilities and Equity 126,244,040,615 109,029,752,608 126,310,981,152 109,064,487,965 Contingent liabilities and commitment 4.28 27,316,773,904 21,935,734,478 27,316,773,904 21,935,734,478 Net assets value per share 145.93 150.28 145.64 149.85

As Per our report of even date Bhuvan Dahal Binaya Kumar Shrestha Directors Sudarshan Raj Pandey, FCA Chief Executive Officer Chairman Tuk Prasad Poudel Senior Partner Gayatri Thapa S.R. PANDEY & Co. Chartered Accountants Bibhor Jha Bharat Kumar Pokhrel Head-Finance & Treasury Mahesh Ghimire Balaram Parajuli Date: October 13, 2020 Place: Naxal, Kathmandu

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Consolidated Statement of Profit or Loss For the year ended 15th July 2020 Amount In NPR Group Bank Note Current Year Current Year Previous Year Interest income 4.29 11,483,569,745 10,769,806,579 11,469,725,229 10,757,980,831 Interest expense 4.30 7,275,228,305 6,546,642,459 7,280,030,928 6,549,283,717 Net interest income 4,208,341,440 4,223,164,120 4,189,694,300 4,208,697,114 Fee and commission income 4.31 732,367,210 823,224,244 698,255,710 785,119,601 Fee and commission expense 4.32 79,809,476 74,987,742 78,530,474 73,254,193 Net fee and commission income 652,557,734 748,236,502 619,725,237 711,865,408 Net interest, fee and commission income 4,860,899,174 4,971,400,622 4,809,419,537 4,920,562,522 Net trading income 4.33 419,886,042 415,633,736 420,657,825 392,824,856 Other operating income 4.34 28,854,789 25,588,656 59,729,789 44,231,715 Total operating income 5,309,640,005 5,412,623,014 5,289,807,151 5,357,619,093 Impairment charge/(reversal) for loans and other losses 4.35 797,024,603 218,238,049 797,024,603 218,238,049 Net operating income 4,512,615,402 5,194,384,965 4,492,782,548 5,139,381,043 Operating expense Personnel expenses 4.36 1,247,906,254 1,275,258,347 1,234,689,274 1,259,767,735 Other operating expenses 4.37 578,349,731 521,747,039 572,705,791 515,552,094 Depreciation & Amortisation 4.38 157,333,449 141,045,082 155,534,569 139,165,799 Operating Profit 2,529,025,968 3,256,334,497 2,529,852,914 3,224,895,415 Non operating income 4.39 1,409,962 3,361,023 1,409,962 2,087,168 Non operating expense 4.40 1,766,238 6,999,259 1,520,491 6,826,064 Profit before income tax 2,528,669,692 3,252,696,261 2,529,742,385 3,220,156,519 Income tax expense 4.41 Current Tax 758,890,029 974,884,742 751,726,953 957,816,576 Deferred Tax 2,793,586 4,244,691 1,750,908 4,272,437 Profit for the year 1,766,986,077 2,273,566,828 1,776,264,524 2,258,067,506 Profit attributable to: Equity holders of the Bank 1,766,986,077 2,273,566,828 1,776,264,524 2,258,067,506 Non-controlling interest - - - - Profit for the year 1,766,986,077 2,273,566,828 1,776,264,524 2,258,067,506 Earnings per share Basic earnings per share 20.08 28.42 20.18 28.22 Diluted earnings per share 20.08 28.42 20.18 28.22 As Per our report of even date Bhuvan Dahal Binaya Kumar Shrestha Directors Sudarshan Raj Pandey, FCA Chief Executive Officer Chairman Tuk Prasad Poudel Senior Partner Gayatri Thapa S.R. PANDEY & Co. Chartered Accountants Bibhor Jha Bharat Kumar Pokhrel Head-Finance & Treasury Mahesh Ghimire Balaram Parajuli Date: October 13, 2020 Place: Naxal, Kathmandu

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Consolidated Statement of Other Comprehensive Income For the year ended 15th July 2020 Amount In NPR Group Bank Note Current Year Previous Year Current Year Previous Year Profit for the year 1,766,986,077 2,273,566,828 1,776,264,524 2,258,067,506 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 10,706,722 (3,232,218) 8,916,694 (2,691,832)

Gain/(losses) on revalution Actuarial gains/(losses) on defined benefit plans (50,131,419) 105,782,417 (50,721,516) 106,372,514 Income tax relating to above items 11,827,409 (30,765,060) 12,541,447 (31,104,205)

Net other comrehensive income that will not be reclassified to (27,597,288) 71,785,139 (29,263,376) 72,576,477 profit or loss 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 (27,597,288) 71,785,139 (29,263,376) 72,576,477 Total comprehensive income for the year 1,739,388,789 2,345,351,967 1,747,001,149 2,330,643,983 Total comprehensive income attributable to: Equity holders of the Bank 1,739,388,789 2,345,351,967 1,747,001,149 2,330,643,983 Non-controlling interest - - - - Total comprehensive income for the year 1,739,388,789 2,345,351,967 1,747,001,149 2,330,643,983

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Consolidated Statement of Cash Flows For the year ended 15th July 2020 Amount In NPR Group Bank Current Year Previous Year Current Year Previous Year CASH FLOWS FROM OPERATING ACTIVITIES Interest received 10,892,589,020 10,497,673,151 10,880,956,054 10,481,920,342 Fees and other income received 730,708,952 830,800,086 695,298,092 789,276,131 Dividend received 2,308,438 319,619 - - Receipts from other operating activities 423,544,758 415,482,631 423,536,083 415,482,631 Interest paid (7,281,196,956) (6,351,480,965) (7,285,999,579) (6,350,195,161) Commission and fees paid (81,001,852) (74,987,742) (78,530,474) (73,254,193) Cash payment to employees (1,198,160,676) (1,297,991,116) (1,184,176,256) (1,288,926,416) Other expense paid (566,241,905) (516,100,343) (560,732,861) (506,799,351) Operating cash flows before changes in operating assets and liabilities 2,922,549,780 3,503,715,322 2,890,351,060 3,467,503,983 (Increase)/Decrease in operating assets Due from Nepal Rastra Bank (2,544,488,673) 2,826,977,386 (2,544,488,673) 2,826,977,386 Placement with bank and financial institutions (2,068,384,842) (8,545,318) (1,999,384,842) (178,545,318) Other trading assets 40,877,100 (53,635,213) 47,169,477 (4,706,575) Loan and advances to bank and financial institutions (823,791,302) (375,196,972) (823,791,302) (375,196,972) Loans and advances to customers (10,228,468,429) (14,038,916,012) (10,228,515,413) (14,038,964,869) Other assets 78,625,759 (826,657,744) 78,486,903 (826,149,945) Increase/(Decrease) in operating liabilities Due to bank and financial institutions (418,483,605) 2,347,499,402 (418,483,605) 2,347,499,402 Due to Nepal Rastra Bank (932,627,141) 659,969,622 (932,627,141) 659,969,622 Deposit from customers 17,846,459,197 11,380,335,676 17,876,473,526 11,524,349,106 Borrowings - - - - Other liabilities (75,452,348) 267,986,219 (134,033,674) 111,235,705 Net cash flow from operating activities before tax paid 3,796,815,497 5,683,532,369 3,811,156,316 5,513,971,524 Income taxes paid (788,912,511) (924,705,484) (782,450,823) (916,293,600) Net cash flow from operating activities 3,007,902,985 4,758,826,884 3,028,705,493 4,597,677,924 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities (1,407,229,468) (4,197,746,243) (1,407,229,468) (4,197,746,243) Receipts from sale of investment securities - - - - Purchase of property and equipment (188,238,260) (416,155,545) (187,834,785) (415,830,648) Receipt from the sale of property and equipment 6,094,836 16,189,423 5,609,399 16,189,423 Purchase of intangible assets - (21,967,769) - (21,967,769) Receipt from the sale of intangible assets 9,773,597 - 9,773,597 - Purchase of investment properties - - - - Receipt from the sale of investment properties - - - - Interest received 2,641,479 - - - Dividend received 24,578,501 2,994,020 52,060,821 21,994,020 Net cash used in investing activities (1,552,379,315) (4,616,686,114) (1,527,620,436) (4,597,361,217) 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 - - - - Dividends paid (916,849,285) - (884,349,285) (1,120,175,762) Interest paid - (192,353,655) - (192,353,655) Other receipt/payment (62,858,364) (1,056,404,948) (62,858,364) 63,770,813 Net cash from financing activities (979,707,650) 105,953,397 (947,207,650) 105,953,397 Net increase (decrease) in cash and cash equivalents 475,816,020 248,094,167 553,877,407 106,270,104 Cash and cash equivalents at Sawan 1, 2076 4,779,994,808 4,531,900,641 4,636,422,437 4,530,152,334 Effect of exchange rate fluctuations on cash and cash equivalents held - - - - Cash and cash equivalents at period end 5,255,810,829 4,779,994,808 5,190,299,845 4,636,422,437

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Consolidated Statement of changes in equity For the year ended 15th July 2020 Amount In NPR Group Attributable to equity holders of the Bank Non- Exchange Share General Regulatory Fair value Revaluation Retained Other controlling Total equity Share Capital equalisation Total premium reserve reserve reserve reserve earning reserve interest reserve 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 Restatement (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 income 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 investments in equity (2,262,553) (2,262,553) (2,262,553) instruments measured at fair value Gains/(losses) on revalution - - Atuarial gains/(losses) on defined benefit 74,047,692 74,047,692 74,047,692 plans Gains/(losses) on cash flow hedge - Exchange gains/(losses) (arising from translating 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 - - - (531,563,258) 75,581,184 (0) (0) Transfer from reserve during the year period - - - (8,496,613) - - 8,496,613 (8,805,664) (8,805,664) (8,805,664) Transactions with owners, directly - - recognised in equity 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 (1,000,000) (1,000,000) (1,000,000) 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 Balance at 17th 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 Restatement - - Restated Opening Balance 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 Comprehensive income for the year Profit for the year 1,766,986,077 1,766,986,077 - 1,766,986,077 Other comprehensive income, net of tax 7,494,705 - (35,091,993) (27,597,288) - (27,597,288.46) Gains/(losses) from investments in equity 7,494,705 7,494,705 7,494,705 instruments measured at fair value Gains/(losses) on revalution Atuarial gains/(losses) on defined benefit (35,091,993) (35,091,993) (35,091,993) plans Gains/(losses) on cash flow hedge Exchange gains/(losses) (arising from translating financial assets of foreign operation) Total comprehensive income for the year - - - - - 7,494,705 - 1,766,986,077 (35,091,993) 1,739,388,789 - 1,739,388,789 Transfer to reserve during the period - - 357,413,154 2,420,002 218,108,675 - - (648,777,585) 70,835,754 - - Transfer from reserve during the year period ------143,366 (33,738,354) (33,594,989) (33,594,989) Transactions with owners, directly - - recognised in equity Share issued - - Share based payments - - Dividends to equity holders - - Bonus shares issued 800,125,544 (800,125,544) - - Cash dividend paid (884,349,285) (884,349,285) (884,349,285) Other (1,625,000) (1,625,000) (1,625,000) Total contributions by and distributions 800,125,544 - 357,413,154 2,420,002 218,108,675 7,494,705 - (567,747,972) 2,005,407 819,819,515 - 819,819,515 Balance at 15th July 2020 8,801,380,984 - 1,981,070,655 16,295,674 547,387,253 (1,629,087) - 1,218,215,653 281,295,332 12,844,016,463 - 12,844,016,463

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Bank Attributable to equity holders of the Bank Non- Exchange Share General Regulatory Fair value Revaluation Retained Other controlling Total equity Share Capital equalisation Total premium reserve reserve reserve Reserve earning reserve interest reserve 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 Restatement Restated Opening Balance 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 income 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 investments in equity (1,884,282) (1,884,282) (1,884,282) instruments measured at fair value Gains/(losses) on revalution Atuarial gains/(losses) on defined benefit 74,460,760 74,460,760 74,460,760 plans Gains/(losses) on cash flow hedge Exchange gains/(losses) (arising 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 - (523,066,646) 75,581,184 8,496,613 8,496,613 Transfer from reserve during the year period (8,496,613) - (8,805,664) (17,302,276) (17,302,276) Transactions with owners, directly - - recognised in equity 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 Balance at 17th 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 Restatement Restated Opening Balance 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 Comprehensive income for the year Profit for the year 1,776,264,524 1,776,264,524 - 1,776,264,524 Other comprehensive income, net of tax - - - - - 6,241,685 - (35,505,061) (29,263,376) - (29,263,376) Gains/(losses) from investments in equity 6,241,685 6,241,685 6,241,685 instruments measured at fair value Gains/(losses) on revalution Atuarial gains/(losses) on defined benefit (35,505,061) (35,505,061) (35,505,061) plans Gains/(losses) on cash flow hedge Exchange gains/(losses) (arising from translating financial assets of foreign operation) Total comprehensive income for the year - - - - - 6,241,685 - 1,776,264,524 (35,505,061) 1,747,001,149 - 1,747,001,149 Transfer to reserve during the period 355,253,499 2,420,002 218,108,675 (646,401,964) 70,619,788 - - Transfer from reserve during the year period 143,366 (33,738,354) (33,594,988) (33,594,988) Transactions with owners, directly - - recognised in equity Share issued - - Share based payments - - Dividends to equity holders - - Bonus shares issued 800,125,544 (800,125,544) - - Cash dividend paid (884,349,285) (884,349,285) (884,349,285) Other - - Total contributions by and distributions 800,125,544 - 355,253,499 2,420,002 218,108,675 6,241,685 - (554,468,904) 1,376,373 829,056,875 - 829,056,875 Balance at 15th July 2020 8,801,380,984 - 1,978,911,000 16,295,674 545,256,901 (1,356,724) - 1,197,037,733 281,079,366 12,818,604,934 - 12,818,604,934 As Per our report of even date Bhuvan Dahal Binaya Kumar Shrestha Directors Sudarshan Raj Pandey, FCA Chief Executive Officer Chairman Tuk Prasad Poudel Senior Partner Gayatri Thapa S.R. PANDEY & Co. Chartered Accountants Bibhor Jha Bharat Kumar Pokhrel Head-Finance & Treasury Mahesh Ghimire Balaram Parajuli Date: October 13, 2020 Place: Naxal, Kathmandu

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Sanima Bank Ltd Notes to the Financial Statements Year ended 15th July 2020

1. BANK As on 15th July 2020 and comparative period, bank has not identified any associates. 1.1 General 2. BASIS OF PREPARATION Sanima Bank Limited (hereinafter referred to as “The Bank”) is a public limited company, incorporated on 30th June 2004 2.1. Statement of Compliance as per the then Companies Act 1964 of Nepal, and domiciled in Nepal. The Bank obtained license from Nepal Rastra Bank The Financial Statements of Bank for the year ended 15th on 26th November 2004 and operated the banking business July, 2020 comprising Statement of Financial Position, from 6th December 2004. The Bank obtained license to Statement of Comprehensive Income, Statement of Changes operate as “A” class financial institution under the Bank and in Equity, Statement of Cash Flows and Notes to the Financial Financial Institutions Act, 2006 on 13th February 2012. The Statements (including Significant Accounting Policies), have registered office of the Bank is located at Alakapuri Building, been prepared in accordance with Nepal Financial Reporting Naxal, Kathmandu, Nepal. The Bank is listed in Nepal Stock Standards (hereafter referred as NFRS), laid down by the Exchange Limited for public trading of stocks. Institute of Chartered Accountants of Nepal and in compliance with the requirements of all applicable laws and regulations. 1.2 Principal Activities and Operations 2.2. Reporting Period and Approval of Financial Bank Statements The Bank has prepared the financial statements in The principal activities of the Bank are to provide full-fledged accordance with NFRS depicting financial performance for commercial banking services including, agency services, FY 2019/20 and financial position of 15th July 2020 and the trade finance services, card services, e-commerce products comparatives of FY 2018/19. and services, remittance and bullion trading services to its customers through its strategic business units, branches, The accompanied Financial Statements have been extension counters, ATMs and network of agents. authorized by the Board of Directors vide its resolution dated 13th October 2020 and recommended for its approval Subsidiary and Associates by the Annual General Meeting of the shareholders.

Ownership as on: 2.3. Functional and Presentation Currency Subsidiary Principal Activities 15th July 16th July 2020 2019 The Financial Statements of Bank and Group are presented Provides merchant/investment in Nepalese Rupees (Rs.), which is the currency of the banking services such as Management of primary economic environment in which the Bank operates. public offerings, portfolio There was no change in Bank’s presentation and functional management, underwriting currency during the period under review. Sanima of securities, management Capital of mutual fund schemes, 100% 100% Limited depository participant's 2.4. Use of Estimates, Assumptions and Judgments service under Central Depository Service (CDS) and The preparation of Financial Statements in conformity with administration and record keeping of securities of its Nepal Accounting Standards requires the management to clients make judgments, estimates and assumptions that affect the Sanima application of accounting policies and the reported amounts Share brokerage and dealership Securities 100% 100% services of assets, liabilities, income and expenses. Actual results Limited may differ due to these estimates.

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Estimates and underlying assumptions are reviewed on Loans and advances of top 50 customers have been an ongoing basis. Revisions to accounting estimates are assessed individually and found to be not impaired and recognized in the period in which the estimate is revised all individually insignificant loans and advances are then and in any future periods affected. assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be The most significant areas of estimation, uncertainty and made due to incurred loss events for which there is objective critical judgments in applying accounting policies that have evidence, but the effects of which are not yet evident. The most significant effect in the Financial Statements are as bank has segregated risk assets into five groups with similar follows: risk characteristics i.e. home loan, auto loan, personal loan, short term loan and long term loan for collective impairment 2.4.1 Going Concern assessment. The collective assessment takes in to account data from the loan portfolio such as levels of arrears, credit The Directors have made an assessment of Bank’s ability quality, portfolio size etc. and judgments based on current to continue as a going concern and satisfied that it has economic conditions as per Para 63 of NAS 39. Also the the resources to continue in business for the foreseeable collective assessment takes into account the past sixty future. Furthermore, Board is not aware of any material months data for PD computation and five years data for uncertainties that may cast significant doubt upon Bank’s loss given default (LGD) computation. Collective impairment ability to continue as a going concern and they do not intend assessment on loans and advances is derived from product either to liquidate or to cease operations of it. Therefore, the of PD and LGD. Financial Statements are continued to be prepared on the going concern basis. The impairment loss on loans and advances as per NAS 39 is NPR 927.44 Million (NPR 135.67 Million in previous year) 2.4.2 Fair Value of Financial Instruments and as per the norms prescribed by Nepal Rastra Bank for loan loss provision is NPR 1,833.13 Million (NPR 1,036.11 Where the fair values of financial assets and financial Million in previous year) in total. The impairment loss on liabilities recorded in the statement of financial position loans and advances to BFIs as per paragraph 63 of NAS can be derived from active markets, they are derived from 39 is NPR 27.87 Million (NPR 3.14 Million in previous year) observable market data. However, if this is not available, and as per the norms prescribed by Nepal Rastra Bank for judgment is required to establish fair values. The valuation loan loss provision is NPR 28.50 Million (NPR 20.20 Million of financial instruments is described in more detail in Notes. in previous year).

2.4.3 Impairment of Financial Assets – Loans and Loans and advances have been impaired as the higher of Advances amount derived as per the norms prescribed by Nepal Rastra Bank for loan loss provision and amount determined as per The Bank review their individually significant loans and paragraph 63 of NAS 39, as per Carve-out pronounced on advances at each statement of financial position date to 20th September 2018. assess whether an impairment loss should be recorded in the income statement. The bank has conducted objective The impairment loss on loans and advances is disclosed in evidence test for individual impairment through different Note 4.6 and 4.7 to the financial statements. parameters like inability to meet loan agreements, substantial drop in profits/ turnover, significant adverse cash 2.4.4 Impairment of Investments measured through OCI flows, significant adverse net worth situation, problematic borrower financial position, etc. In particular, Judgment Bank reviews its investments classified as available for sale, of the management is required in the estimation of the at each reporting date to assess whether they are impaired. amount and timing of future cash flows while determining Objective evidence that an available for sale debt security is the impairment loss. impaired includes among other things significant financial difficulty of the issuer, a breach of contract such as a default These estimates are based on assumptions about a number or delinquency in interest or principal payments etc. Bank of factors and actual results may differ, resulting in future also records impairment charges on available for sale equity changes to the impairment allowance. investments where there is significant or prolonged decline

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in fair value below their cost. The determination of what is 2.4.8 Useful Life-time of the Property, Plant and Equipment ‘significant’ or ‘prolonged’ requires judgment. Bank generally treats ‘significant’ as 20% and ‘prolonged’ as greater than Bank reviews the residual values, useful lives and methods six months. In addition, Bank evaluates, among other factors, of depreciation of property, plant and equipment at each historical share price movements, duration and extent up to reporting date. Judgment of the management is exercised which the fair value of an investment is less than its cost. in the estimation of these values, rates, methods and hence they are subject to uncertainty. 2.4.5 Taxation a) Fixed Assets Bank is subject to income tax and judgment is required to determine the total provision for current, deferred and Fixed assets except land are stated at acquisition cost other taxes due to the uncertainties that exist with respect less accumulated depreciation. Acquisition cost includes to the interpretation of the applicable tax laws, at the time expenditures that are directly attributable to the acquisition of preparation of these Financial Statements. of the assets.

Deferred tax assets are recognized in respect of impairment Assets with a value less than Rs. 10,000 are charged off as allowances which will be recovered in the foreseeable a revenue expense irrespective of its useful life in the year future tax losses to the extent that it is probable that future of purchase. taxable profit will be available against which the losses can be utilized. Judgment is required to determine the amount Leasehold improvements are capitalized at cost and of deferred tax assets that can be recognized, based upon amortized over the lease period or ten years whichever is the likely timing and level of future taxable profits, together earlier. The amount of amortization is charged as revenue with future tax planning strategies. expenses.

Details on deferred tax assets/liability are disclosed in Note b) Computer Software 4.15 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 All assumptions are reviewed at each reporting date. possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the In determining the appropriate discount rate, management transfer of economic benefit is not probable or cannot be considers the average interest rates of Nepal government bonds reliably measured. Contingent liabilities are not recognized with maturities of five years or more. The mortality rate is based in the Statement of Financial Position but are disclosed on publicly available mortality tables. Future salary increases unless they are remote. are based on expected future salary increase rates of Bank and attrition rate are based on the past period’s attrition rates. 2.4.10 Provisions for Liabilities and Contingencies

2.4.7 Fair Value of Property, Plant and Equipment The Bank faces legal claims against it in the normal course of business. Management has made judgments as to the The freehold land and buildings of the bank are not reflected likelihood of any claim succeeding in making provisions. at fair value and no revaluation has been carried at the The time of concluding legal claims is uncertain, as is the reporting date. amount of possible outflow of economic benefits.

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2.5. Changes in Accounting Policies of similar items is presented separately in the Financial Statements. Items of dissimilar nature or functions too are The bank has changed its accounting policies, wherever presented separately unless they are immaterial. Financial required, to ensure compliance with NFRS. Detailed Assets and Financial Liabilities are offset and the net accounting policies are mentioned in Note 3. The effect amount reported in the Statement of Financial Position of change in accounting policy at the date of transition only when there is a legally enforceable right to offset the has been given to the retained earnings (and reserves, if recognized amounts and there is an intention to settle on applicable). a net basis, or to realize the assets and settle the liability simultaneously. Income and expenses are not offset in the 2.6. New Standards in issue but not yet effective Statement of Profit or Loss unless required or permitted by an Accounting Standard. There are no standards which have been issued but not yet effective up to the date of issuance of the financial 2.12. Comparative Information statements. The Financial Statement of the Bank provides comparative 2.7. New standards and interpretation not adapted information in respect of previous periods. The accounting policies have been consistently applied by Bank with those All the standards and interpretation which have been issued of the previous financial year in accordance with NAS 01 for implementation have been adopted. Presentation of Financial Statements, except those which had to be changed as a result of application of the new 2.8. Discounting NFRS. Further, comparative information is reclassified wherever necessary to comply with the current presentation. The fair value of debt securities shall be determined by discounting by the future cash flows by the coupon interest 3. SIGNIFICANT ACCOUNTING POLICIES rate. The Bank has a policy to treat share/debenture issue expenses up to 1% of share/debentures issue price as The accounting policies set out below have been applied immaterial. Considering those expenses as immaterial and consistently to all periods presented in these Financial impracticable to determine reliably, same has not been Statements, and deviations if any have been disclosed considered in computation of effective interest rate as per accordingly. Carve-out (optional) pronounced on 20th September 2018. 3.1. Basis of Measurement Employee benefits has been determined by considering discount rate as the average yield on corporate bonds The Financial Statements of Bank have been prepared on issued during the period. the historical cost basis, except for the following material items in the Statement of Financial Position: 2.9. Responsibility for Financial Statements Liabilities for defined benefit obligations are The Board of Directors is responsible for the preparation recognized at the present value of the defined benefit and presentation of Financial Statements of Sanima Bank obligation less the fair value of the plan assets. Limited as per the provisions of the Companies Act, 2006. Unquoted investments available for sale are measured 2.10. Presentation of Financial Statements through OCI.

The financial statements have been presented as per NAS 3.2. Basis of consolidation 01 (Presentation of Financial Statements). a. Business Combinations and Goodwill 2.11. Materiality and Aggregation Business combinations are accounted for using the In compliance with Nepal Accounting Standard - NAS 01 acquisition method as per the requirements of Nepal (Presentation of Financial Statements), each material class Accounting Standard - NFRS 3 (Business Combinations). The

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Bank measures goodwill as the fair value of the consideration which control is transferred to the Bank and continue to transferred including the recognised amount of any non- be consolidated until the date when such control ceases. controlling interest in the acquiree, less the net recognised The Financial Statements of the Bank’s Subsidiaries are amount (generally fair value) of the identifiable assets acquired prepared for the same reporting period as per the Bank, and liabilities assumed, all measured as of the acquisition using consistent accounting policies. date. When the excess is negative, a bargain purchase gain is immediately recognised in the profit or loss. The cost of acquisition of a Subsidiary is measured as the fair value of the consideration, including contingent The Bank elects on a transaction-by transaction basis consideration, given on the date of transfer of title. The whether to measure non-controlling interest at its fair value, acquired identifiable assets, liabilities are measured at their or at its proportionate share of the recognised amount of fair values at the date of acquisition. Subsequent to the the identifiable net assets, at the acquisition date. The initial measurement, the Bank continues to recognize the consideration transferred does not include amounts related investments in Subsidiaries at cost. to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transactions When a Subsidiary is acquired or sold during the year, costs, other than those associated with the issue of debt or operating results of such Subsidiary is included from the equity securities, that the Bank incurs in connection with a date of acquisition or to the date of disposal. business combination are expensed as incurred. All Subsidiaries of the Bank have been incorporated in b. Non-controlling interest (NCI) Nepal.

Non-controlling interest (NCI), also known as minority d. Loss of Control interest, is an ownership position whereby a shareholder owns less than 50% of outstanding shares and has no Upon the loss of control, the Bank derecognizes the assets control over decisions. Non-controlling interests are and liabilities of the Subsidiary, any non-controlling interests measured at the net asset value of entities and do not and other components of equity related to the subsidiary. account for potential voting rights. Any surplus or deficit arising on the loss of control is recognized in the Statement of Profit or loss. For each business combination, the Group elects to measure any non-controlling interest in the acquiree at fair value. If the Bank retains any interest in the previous Subsidiary, then such interest is measured at fair value at the date Changes in group interest in subsidiary that do not result in that control is lost. Subsequently it is accounted for as the loss of control are accounted for transactions of owners equity-accounted investee or in accordance with the Bank’s in the capacity of owners. Adjustments to non-controlling accounting policy for financial instruments depending on interest are based on proportionate amount of net assets the level of influence retained. of subsidiary. e. Special Purpose Entity (SPE) c. Subsidiaries A special purpose vehicle/entity is a "bankruptcy-remote Subsidiaries are entities that are controlled by the Bank. The entity" that a parent company uses to isolate or securitize Bank is presumed to control an investee when it is exposed assets and it often holds this off-balance sheet. Some also or has rights to variable returns from its involvement with call this a "bankruptcy-remote entity" or "variable interest the investee and has the ability to affect those returns entities" since its operations are limited to the acquisition through its power over the investee. At each reporting date and financing of specific assets as a method of isolating risk. the Bank reassesses whether it controls an investee if facts A special purpose vehicle/entity is a subsidiary company and circumstances indicate that there are changes to one with an asset/liability structure and legal status that makes or more elements of control mentioned above. its obligations secure, even if the parent company goes bankrupt. The Financial Statements of Subsidiaries are fully consolidated (except stated otherwise) from the date on Group does not have any SPE.

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f. Transaction elimination on consolidation At the inception, a financial asset is classified into one of the following: Intra group balances and transactions, any unrealized income and expenses arising from intra group transactions, are a. Financial assets at fair value through profit or loss eliminating in preparing the consolidated financial statements. i. Financial assets held for trading Unrealized gains/losses arising from transactions with equity ii. Financial assets designated at fair value through profit accounted investees are eliminated against the investments or loss to the extent of group interest of investee. b. Financial Assets at amortized cost c. Financial assets at fair value through OCI 3.3. Cash and cash equivalent The subsequent measurement of financial assets depends Cash and Cash Equivalents include cash in hand, balances on their classification. with banks, placements with banks and money at call and at short notice with maturity less than three months. Financial Assets at Fair Value through Profit or Loss

Details of the Cash and Cash Equivalents are given in Note A financial asset is classified as fair value through profit 4.1 to the Financial Statements. or loss if it is held for trading or is designated at fair value through profit or loss. 3.4. Financial Assets and financial liabilities i. Financial Assets Held for Trading a. Recognition Financial assets are classified as held for trading if they All financial assets and liabilities are initially recognized on are acquired principally for the purpose of selling or the trade date, i.e. the date that Bank becomes a party to repurchasing in the near term or holds as a part of a portfolio the contractual provisions of the instrument. This includes that is managed together for short-term profit or position ‘regular way trades’. Regular way trade means purchases taking. This category also includes derivative financial or sales of financial assets that required delivery of assets instruments entered into by Bank that are not designated as within the time frame generally established by regulation or hedging instruments in hedge relationships as defined by convention in the market place. Nepal Accounting Standards NAS 39 (Financial Instruments: Recognition and Measurement). The classification of financial instruments at the initial recognition depends on their purpose and characteristics Financial assets held for trading are recorded in the and the management’s intention in acquiring them. Statement of Financial Position at fair value. Changes in fair value are recognized in ‘Net trading income’. Dividend b. Classification and Measurement income is recorded in ‘Net trading income’ when the right to receive the payment has been established. Financial Assets Bank evaluates its held for trading asset portfolio, other than All financial instruments are measured initially at their fair derivatives, to determine whether the intention to sell them value plus transaction costs that are directly attributable to in the near future is still appropriate. When Bank is unable acquisition or issue of such financial instruments except to trade these financial assets due to inactive markets and in the case of such financial assets and liabilities at fair management’s intention to sell them in the foreseeable value through profit or loss, as per the Nepal Accounting future significantly changes, Bank may elect to reclassify Standard - NAS 39 (Financial Instruments: Recognition these financial assets. and Measurement). Transaction cost in relation to financial assets and financial liabilities at fair value through profit or Financial assets held for trading include instruments such loss are dealt with the Statement of Profit or Loss. as government securities and equity instruments that have

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been acquired principally for the purpose of selling or The Amortized cost of a financial asset or liability is the repurchasing in the near term. amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or ii. Financial Assets Designated at Fair Value minus the cumulative amortization using the effective through Profit or Loss interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction Bank designates financial assets at fair value through profit for impairment. or loss in the following circumstances: Loans and Receivables from Customers Such designation eliminates or significantly reduces measurement or recognition inconsistency that would Loans and receivables include non-derivative financial otherwise arise from measuring the assets assets with fixed or determinable payments that are not quoted in an active market, other than: The assets are part of a group of Financial assets, financial liabilities or both, which are managed and Those that the Bank intends to sell immediately or in their performance evaluated on a fair value basis, in the near term and those that the Bank, upon initial accordance with a documented risk management or recognition, designates as fair value through profit or investment strategy loss Those that the Bank, upon initial recognition, The asset contains one or more embedded derivatives designates as available for sale that significantly modify the cash flows that would Those for which the Bank may not recover substantially otherwise have been required under the contract. all of its initial investment through contractual cash flows, other than because of credit deterioration. Financial assets designated at fair value through profit or loss are recorded in the Statement of Financial Position After initial measurement, loans and receivables shall at fair value. Changes in fair value are recorded in ‘Net be subsequently measured at amortized cost using the gain or loss on financial instruments designated at effective interest rate, less allowance for impairment. fair value through profit or losses’ in the Statement of The amortization shall be included in ‘Interest Income’ in Profit or Loss. Interest earned is accrued under ‘Interest the Statement of Profit or Loss. The losses arising from income’, using the effective interest rate method, while impairment are recognized in ‘Impairment charge / reversal dividend income is recorded under ‘Other operating for loans and other losses’ in the Statement of Profit or Loss. 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 The Bank has not designated any financial assets upon fees as immaterial and impracticable to determine reliably, initial recognition as designated at fair value through profit same has not been considered in computation of effective or loss. interest rate as per Carve-out (optional) pronounced on 19th August 2020. 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 The bank has a policy to provide home loan, hire purchase fixed maturities which the Bank has the intention and ability loan and home loan tied up with insurance to employees at to hold to maturity. After the initial measurement, held to subsidized interest rate. The Bank has measured the staff maturity financial investments are subsequently measured loans at fair value. The bank is considering average cost of at amortized cost using the effective interest rate, less fund (7.15%) as fair market interest rate for deriving fair impairment. The amortization is included in ‘Interest income’ value of staff loans though the loans are provided to staffs in the Statement of Profit or Loss. The losses arising from at interest rate of 4% (Hire Purchase) and 5% (Home loan). impairment of such investments are recognized in the Difference of book value with fair value of loans has been Statement of Profit or Loss. shown as prepaid employee benefits.

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Financial Assets measured at fair value through OCI at fair value and changes therein are recognized in profit or loss. Financial assets measured through OCI include equity and debt securities. Equity Investments classified as ‘Fair value (i) Financial Liabilities Held for Trading through OCI’ are those which are neither classified as ‘Held for neither Trading ’nor ‘Designated. Debt securities in this Financial liabilities are classified as held for trading if category are intended to be held for an indefinite period of they are acquired principally for the purpose of selling time and may be sold in response to needs for liquidity or in or repurchasing in the near term or holds as a part of a response to changes in the market conditions. portfolio that is managed together for short-term profit or position taking. This category includes derivative financial After initial measurement, available for sale financial instrument entered into by Bank that are not designated as investments are subsequently measured at fair value. hedging instruments in hedge relationships as defined by Unrealized gains and losses are recognized directly in Nepal Accounting Standard - NAS 39 (Financial Instruments: equity through ‘Other comprehensive income / expense’ in Recognition and Measurement). the ‘Fair value reserve’. When the investment is disposed of the cumulative gain or loss previously recognized in (ii) Financial Liabilities Designated at Fair Value equity is recognized in the Statement of Profit or Loss under through Profit or Loss ‘Other operating income’. Where Bank holds more than one investment in the same security, they are deemed to Bank designates financial liabilities at fair value through be disposed off on a first-in-first-out basis. Interest earned profit or loss at following circumstances: whilst holding ‘Financial investments at fair value through OCI’ is reported as ‘Interest income’ using the effective Such designation eliminates or significantly reduces interest rate. Dividend earned whilst holding ‘Financial measurement or recognition inconsistency that would investments at fair value through OCI’ are recognized otherwise arise from measuring the liabilities. in the Statement of Profit or Loss as ‘other operating The liabilities are part of a group of Financial assets, income’ when the right to receive the payment has been financial liabilities or both, which are managed and established. The losses arising from impairment of such their performance evaluated on a fair value basis, in investments are recognized in the Statement of Profit or accordance with a documented risk management or Loss under ‘Impairment charge for loans and other losses’ investment strategy and removed from the ‘Available for sale reserve’. The liability contains one or more embedded derivatives that significantly modify the cash flows Financial Liabilities that would otherwise have been required under the contract. At the inception, Bank determines the classification of its financial liabilities. Accordingly financial liabilities are Financial Liabilities At Amortized Cost classified as: Financial instruments issued by Bank that are not classified a. Financial liabilities at fair value through profit or loss as fair value through profit or loss are classified as i. Financial liabilities held for trading financial liabilities at amortized cost, where the substance ii. Financial liabilities designated at fair value through of the contractual arrangement results in Bank having profit or loss an obligation either to deliver cash or another financial b. Financial liabilities at amortized cost asset to another Bank, or to exchange financial assets or financial liabilities with another Bank under conditions Financial Liabilities at Fair Value through Profit or Loss that are potentially unfavorable to the Bank or settling the obligation by delivering variable number of Bank’s own Financial Liabilities at fair value through profit or loss include equity instruments. financial liabilities held for trading and financial liabilities designated upon initial recognition as fair value through After initial recognition, such financial liabilities are profit or loss. Subsequent to initial recognition, financial subsequently measured at amortized cost using the liabilities at fair value through profit or loss are measured effective interest rate method. Amortization is included in

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‘Interest Expenses’ in the Statement of Profit or Loss. Gains rare circumstances that a reliable measure of fair value is and losses are recognized in the Statement of Profit or Loss no longer available. when the liabilities are derecognized. The fair value of financial instruments at the date of Reclassification reclassification is treated as the new cost or amortized cost of the financial instrument after reclassification. Difference (i) Reclassification of Financial Instruments ‘At fair between the new amortized cost and the maturity value value through profit or loss’, is amortized over the remaining life of the asset using the effective interest rate. Any gain or loss already recognized in Bank does not reclassify derivative financial instruments out Other Comprehensive Income in respect of the reclassified of the fair value through profit or loss category when it is financial instrument is accounted as follows: held or issued. 1. Financial assets with fixed maturity : Non-derivative financial instruments designated at fair value through profit or loss upon initial recognition is not reclassified Gain or loss recognized up to the date of reclassification subsequently out of fair value through profit or loss category. is amortized to profit or loss over the remaining life of the investment using the effective interest rate. If the financial Bank may, in rare circumstances reclassify financial asset is subsequently impaired, any previous gain or loss instruments out of fair value through profit or loss category that has been recognized in other comprehensive income is if such instruments are no longer held for the purpose of reclassified from equity to profit or loss. selling or repurchasing in the near term notwithstanding that such financial instruments may have been acquired 2. Financial assets without fixed maturity : principally for the purpose of selling or repurchasing in the near term. Financial assets classified as fair value through Gain or loss recognized up to the date of reclassification profit or loss at the initial recognition which would have also is recognized in profit or loss only when the financial asset met the definition of ‘Loans and Receivables’ as at that date is sold or otherwise disposed of. If the financial asset is is reclassified out of the fair value through profit or loss subsequently impaired, any previous gain or loss that category only if Bank has the intention and ability to hold has been recognized in other comprehensive income is such asset for the foreseeable future or until maturity. reclassified from equity to profit or loss.

The fair value of financial instruments at the date of If a financial asset is reclassified, and if Bank subsequently reclassification is treated as the new cost or amortized cost increases its estimates of future cash receipts as a result of of the financial instrument after reclassification. Any gain increased recoverability of those cash receipts, the effect of or loss already recognized in respect of the reclassified that increase is recognized as an adjustment to the effective financial instrument until the date of reclassification is not interest rate from the date of the change in estimate rather reversed to the Statement of Profit or Loss. than an adjustment to the carrying amount of the asset at the date of change in estimate. If a financial asset is reclassified, and if Bank subsequently increases its estimates of the future cash receipts as a (iii) Reclassification of ‘Financial Instruments amortized at cost’ result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to As a result of a change in intention or ability, if it is no the effective interest rate from the date of the change in longer appropriate to classify an investment as amortized estimate rather than an adjustment to the carrying amount at cost, Bank may reclassify such financial assets as at of the asset at the date of change in estimate. fair value through OCI and re- measured at fair value. Any difference between the carrying value of the financial asset (ii) Reclassification of ‘Financial Assets measured at before reclassification and fair value is recognized in equity fair value through OCI’ through other comprehensive income.

Bank may reclassify financial assets out of available for sale However, if Bank were to sell or reclassify more than an category as a result of change in intention or ability or in insignificant amount of held to maturity investments before

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maturity [other than in certain specific circumstances of guaranteeing the transferred asset, the extent of the permitted in Nepal Accounting Standard - NAS 39 continuing involvement is measured at the lower of the (Financial Instruments: Recognition and Measurement)], original carrying amount of the asset and the maximum the entire category would be tainted and would have to amount of consideration received by Bank that Bank could be reclassified as ‘Investment measured at fair value be required to repay. through OCI’. Furthermore, Bank would be prohibited from classifying any financial assets as ‘Held to Maturity’ during Derecognition of Financial Liabilities the following two years. These reclassifications are at the election of management and determined on an instrument A financial liability is derecognized when the obligation by instrument basis. under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another c. Derecognition from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such Derecognition of Financial Assets an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability. Bank derecognizes a financial asset (or where applicable a part of financial asset or part of a group of similar financial The difference between the carrying value of the original assets) when: financial liability and the consideration paid is recognized in profit or loss. The rights to receive cash flows from the asset have expired; or Offsetting of Financial Instruments Bank has transferred its rights to receive cash flows from the asset or Financial assets and financial liabilities are offset and Bank has assumed an obligation to pay the received the net amount presented in the Statement of Financial cash flows in full without material delay to a third party Position when and only when Bank has a legal right to set under a ‘pass-through’ arrangement and either Bank off the recognized amounts and it intends either to settle has transferred substantially all the risks and rewards on a net basis or to realize the asset and settle the liability of the asset or it has neither transferred nor retained simultaneously. Income and expenses are presented on a substantially all the risks and rewards of the asset, but net basis only when permitted under NFRSs or for gains has transferred control of the asset. and losses arising from a group of similar transaction such as in trading activity. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying d. Determination of fair value amount allocated to the portion of the asset derecognized) and the sum of the consideration received (including any ‘Fair value’ is the price that would be received to sell new asset obtained less any new liability assumed) and any an asset or paid to transfer a liability (exit price) in an cumulative gain or loss that had been recognized in other orderly transaction between market participants at the comprehensive income is recognized in profit or loss. measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or When Bank has transferred its rights to receive cash flows transfer the liability takes place either: from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all of In the principal market for the asset or liability or the risks and rewards of the asset nor transferred control of In the absence of principal market, in the most the asset, the asset is recognized to the extent of the Bank’s advantageous market for asset or liability. continuing involvement in the asset. In that case, Bank also recognizes an associated liability. The transferred asset and All assets and liabilities for which fair value is measured the associated liability are measured on a basis that reflects or disclosed in the financial statements are categorized the rights and obligations that Bank has retained. within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value When Bank’s continuing involvement that takes the form measurement as a whole:

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Level 1 - Valuation technique using quoted The best evidence of the fair value of a financial instrument market price: financial instruments with quoted at initial recognition is the transaction price, i.e. the fair prices for identical instruments in active markets. value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison Level 2 - Valuation technique using observable with other observable current market transactions in the inputs: financial instruments with quoted prices for same instrument, i.e. without modification or repackaging, similar instruments in active markets or quoted prices or based on a valuation technique whose variables include for identical or similar instruments in inactive markets only data from observable markets. When transaction and financial instruments valued using models where price provides the best evidence of fair value at initial all significant inputs are observable. recognition, the financial instrument is initially measured at the transaction price and any difference between this price Level 3 – Valuation technique with significant and the value initially obtained from a valuation model is unobservable inputs: financial instruments valued subsequently recognised in profit or loss on an appropriate using valuation techniques where one or more basis over the life of the instrument but not later than when significant inputs are unobservable. the valuation is supported wholly by observable market data or the transaction is closed out. Level 1 Level 3 When available, the Bank measures the fair value of an instrument using quoted prices in an active market for Certain financial instruments are recorded at fair value using that instrument or dealer price quotations (assets and long valuation techniques in which current market transactions positions are measured at a bid price, liabilities and short or observable market data are not available. Their fair value positions are measured at an asking price), without any is determined using a valuation model that has been tested deduction for transaction costs. against prices or inputs to actual market transactions and using the Bank’s best estimate of the most appropriate model A market is regarded as active if quoted prices are readily assumptions. Models are adjusted to reflect the spread for and regularly available and represent actual and regularly bid and ask prices to reflect costs to close out positions, occurring market transactions on an arm’s length basis. credit and debit valuation adjustments, liquidity spread and limitations in the models. Also, profit or loss calculated when Level 2 such financial instruments are first recorded (day 1 profit or loss) is deferred and recognised only when the inputs If a market for a financial instrument is not active, then the Bank become observable or on derecognition of the instrument. establishes fair value using a valuation technique. Valuation techniques include using recent arm’s length transactions Fair values reflect the credit risk of the instrument and between knowledgeable, willing parties (if available), include adjustments to take account of the credit risk of the reference to the current fair value of other instruments that Bank entity and the counterparty where appropriate. Fair are substantially the same, discounted cash flow analysis and value estimates obtained from models are adjusted for any option pricing models. The chosen valuation technique makes other factors, such as liquidity risk or model uncertainties; maximum use of market inputs, relies as little as possible to the extent that the Group believes a third-party market on estimates specific to the Group, incorporates all factors participant would take them into account in pricing a that market participants would consider in setting a price, transaction. and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques Assets and Liabilities Recorded at Fair Value reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. A description of how fair values are determined for assets The Bank calibrates valuation techniques and tests them and liabilities that are recorded at fair value using valuation for validity using prices from observable current market techniques is summarized below which incorporates the transactions in the same instrument or based on other bank’s estimate of assumptions that a market participant available observable market data. would make when valuing the instruments.

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Derivative financial Instruments changes in arrears or economic conditions that correlate with defaults. Derivative financial instruments such as forward foreign exchange contracts are valued using a valuation technique Impairment of Financial Assets carried at Amortized with market observable inputs (Level 2). The most frequently Cost applied valuation technique is forward pricing model which incorporates various inputs including foreign exchange spot For financial assets carried at amortized cost, such as and forward premiums. amounts due from banks, held to maturity investments etc., Bank first assesses individually whether objective evidence Financial Investments measured at fair value of impairment exists for financial assets that are individually through OCI significant or collectively for financial assets that are not individually significant. In the event Bank determines that no Quoted equities, Quoted Mutual Funds classified as financial objective evidence of impairment exists for an individually investments measured at fair value through OCI are valued assessed financial asset, financial assets in a group with using quoted market prices in the active markets as at the similar credit risk characteristics are collectively assesses reporting date (Level 1). for impairment. However, assets that are individually assessed for impairment and for which an impairment Foreign Quoted Debt Securities classified as financial loss is or continues to be recognized are not included in a investments measured at fair value through OCI are valued collective assessment of impairment. using market rate published by the Stock exchange in which the Securities is listed (Level 1). Impairment of loans and advances (financial assets measured at amortized cost) has been determined as per Unquoted equities, classified as financial investments the directive of Nepal Rastra Bank. measured at fair value through OCI are valued using a valuation technique with market observable inputs (Level Reversal of Impairment 2). The most frequently applied valuation technique is proxy pricing which incorporates the inputs of market price of If the amount of an impairment loss decreases in a similar market instruments. subsequent period and the decrease can be related objectively to an event occurring after the impairment was e. Impairment recognised, the excess is written back by reducing the financial asset impairment allowance account accordingly. At each reporting date, Bank assesses whether there is The write-back is recognized in the Statement of Profit or any objective evidence that a financial asset or group of Loss. financial assets not carried at fair value through profit or loss is impaired. A financial asset or group of financial Write-off of Financial Assets measured at Amortized assets is deemed to be impaired if and only if there is Cost objective evidence of impairment as a result of one or more events, that have occurred after the initial recognition of Financial assets (and the related impairment allowance the asset (an ‘incurred loss event’) and that loss event (or accounts) are normally written off either partially or in full, events) has an impact on the estimated future cash flows of when there is no realistic prospect of recovery. Where the financial asset or group of financial assets that can be financial assets are secured, this is generally after receipt reliably estimated. of any proceeds from the realization of security.

Objective evidence of impairment may include: indications Impairment of Rescheduled Loans and Advances that the borrower or a group of borrowers is experiencing significant financial difficulty; the probability that they will Where possible, the Bank seeks to restructure loans enter bankruptcy or other financial reorganization; default rather than to take possession of collateral. This may or delinquency in interest or principal payments; and involve extending the payment arrangements and the where observable data indicates that there is a measurable agreement of new loan conditions. Once the terms have decrease in the estimated future cash flows, such as been renegotiated, any impairment is measured using the

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original EIR as calculated before the modification of terms In the case of debt instruments, Bank assesses individually and the loan is no longer considered past due. Management whether there is objective evidence of impairment based on continually reviews renegotiated loans to ensure that all the same criteria as financial assets carried at amortized criteria are met and that future payments are likely to occur. cost. However, the amount recorded for impairment is The loans continue to be subject to an individual impairment the cumulative loss measured as the difference between assessment, calculated as per the central bank’s directive. the amortized cost and the current fair value, less any impairment loss on that investment previously recognised Collateral Valuation in the Income Statement. Future interest income is based on the reduced carrying amount and is accrued using The Bank seeks to use collateral, where possible, to the rate of interest used to discount the future cash flows mitigate its risks on financial assets. The collateral for the purpose of measuring the impairment loss. If, in comes in various forms such as cash, securities, letters a subsequent period, the fair value of a debt instrument of credit/guarantees, real estate, receivables, inventories, increases and the increase can be objectively related to other non-financial assets and credit enhancements a credit event occurring after the impairment loss was such as netting agreements. The fair value of collateral is recognised, the impairment loss is reversed through the generally assessed, at a minimum, at inception and based Income Statement. on the guidelines issued by the central bank (Nepal Rastra Bank). Non-financial collateral, such as real estate, is valued In the case of equity investments classified as fair value based on data provided by third parties such as independent through OCI, objective evidence would also include a valuator and audited financial statements. ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Where there is evidence of Collateral Repossessed or Where Properties have impairment, the cumulative loss measured as the difference Devolved to the Bank between the acquisition cost and the current fair value, less any impairment loss on that investment previously The Bank’s policy is to determine whether a repossessed recognised in profit or loss is removed from equity and asset is best used for its internal operations or should be recognized in the Statement of profit or loss. However, sold. The immovable property acquired by foreclosure of any subsequent increase in the fair value of an impaired collateral from defaulting customers, or which has devolved available for sale equity security is recognised in other on the Bank as part settlement of debt, has not been comprehensive income. accounted for as an investment property or as part of the assets of the Bank in accordance with directions issued by Bank writes-off certain financial investments measured the Nepal Rastra Bank. at fair value through OCI when they are determined to be uncollectible. Collateral repossessed are considered as Non-Banking Assets, are the assets obtained as security for loans & Impairment of Non-Financial Assets advances subsequently taken over by the Bank in the course of loan recovery. Such assets are valued at fair market value The Bank assesses at each reporting date whether there is or total amount due from the borrower, whichever is lower an indication that an asset may be impaired. If any indication and the balance loan remaining is charged to profit and loss exists, or when annual impairment testing for an asset account in the same year. Provision for possible losses on is required, the Bank estimates the asset’s recoverable non-banking assets equal to the takeover value is made in amount. An asset’s recoverable amount is the higher of an the year of takeover by a charge to the Income Statement. asset’s or the fair value of the Cash Generating Units (CGU) fair value less costs to sell and its value in use. Where the Impairment of Financial Assets measured at fair carrying amount of an asset or CGU exceeds its recoverable value through OCI amount, the asset is considered impaired and is written down to its recoverable amount. For financial investments measured at fair value through OCI, Bank assesses at each reporting date whether there is In assessing value in use, the estimated future cash flows objective evidence that an investment is impaired. are discounted to their present value using a pre–tax discount rate that reflects current market assessments of

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the time value of money and the risks specific to the asset. the related equipment is capitalized as part of computer In determining fair value less costs to sell, an appropriate equipment. When parts of an item of property or equipment valuation model is used. have different useful lives, they are accounted for as separate items (major components) of property, plant and 3.5. Trading Assets equipment.

Financial assets such as government securities, equity etc. Cost Model held for short term with an intention to trade have been classified as trading assets. Trading assets are measured at Property and equipment is stated at cost excluding the costs fair value with any changes in fair value being recognised of day–to–day servicing, less accumulated depreciation in Profit or Loss. and accumulated impairment in value. Such cost includes the cost of replacing part of the equipment when that cost 3.6. Derivative assets and derivative liabilities is incurred, if the recognition criteria are met.

Derivative financial instruments such as forward foreign Revaluation Model exchange contracts are valued using a valuation technique with market observable inputs. The most frequently The Bank has not applied the revaluation model to the any applied valuation technique is forward pricing model which class of freehold land and buildings or other assets. Such incorporates various inputs including foreign exchange spot properties are carried at a previously recognised GAAP and forward premiums. Amount.

3.7. Property and Equipment On revaluation of an asset, any increase in the carrying amount is recognised in ‘Other comprehensive income’ Recognition and accumulated in equity, under capital reserve or used to reverse a previous revaluation decrease relating to the Property, plant and equipment are tangible items that are same asset, which was charged to the Statement of Profit held for use in the production or supply of services, for rental or Loss. In this circumstance, the increase is recognised to others or for administrative purposes and are expected as income to the extent of previous write down. Any to be used during more than one period. The Bank applies decrease in the carrying amount is recognised as an the requirements of the Nepal Accounting Standard - NAS expense in the Statement of Profit or Loss or debited to 16 (Property, Plant and Equipment) in accounting for these the Other Comprehensive income to the extent of any assets. Property, plant and equipment are recognised if it is credit balance existing in the capital reserve in respect probable that future economic benefits associated with the of that asset. asset will flow to the entity and the cost of the asset can be measured reliably measured. The decrease recognised in other comprehensive income reduces the amount accumulated in equity under capital Measurement reserves. Any balance remaining in the revaluation reserve in respect of an asset is transferred directly to retained An item of property, plant and equipment that qualifies for earnings on retirement or disposal of the asset. recognition as an asset is initially measured at its cost. Cost includes expenditure that is directly attributable to Subsequent Cost the acquisition of the asset and cost incurred subsequently to add to, replace part of an item of property, plant & The subsequent cost of replacing a component of an item of equipment. The cost of self-constructed assets includes the property, plant and equipment is recognised in the carrying cost of materials and direct labor, any other costs directly amount of the item, if it is probable that the future economic attributable to bringing the asset to a working condition for benefits embodied within that part will flow to the Bank its intended use and the costs of dismantling and removing and it can be reliably measured. The cost of day to day the items and restoring the site on which they are located. servicing of property, plant and equipment are charged to Purchased software that is integral to the functionality of the Statement of Profit or Loss as incurred.

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Derecognition depreciation are reviewed, and adjusted if appropriate, at each financial year end. The carrying amount of an item of property, plant and equipment is derecognized on disposal or when no future Capital Work in Progress economic benefits are expected from its use. The gain or loss arising from de-recognition of an item of property, plant These are expenses of capital nature directly incurred in and equipment is included in the Statement of Profit or Loss the construction of buildings, major plant and machinery when the item is derecognized. When replacement costs and system development, awaiting capitalization. Capital are recognized in the carrying amount of an item of property, work-in-progress would be transferred to the relevant asset plant and equipment, the remaining carrying amount of when it is available for use, i.e. when it is in the location the replaced part is derecognized. Major inspection costs and condition necessary for it to be capable of operating are capitalized. At each such capitalization, the remaining in the manner intended by management. Capital work-in- carrying amount of the previous cost of inspections is progress is stated at cost less any accumulated impairment derecognized. The gain or losses arising from derecognition losses. of an item of property, plant and equipment is included in profit or loss when the item is derecognized. 3.8. Intangible Assets

Depreciation Recognition

Depreciation is calculated by using the straight line method An intangible asset is an identifiable non-monetary asset on cost or the reducing balance method on carrying value of without physical substance, held for use in the production property, plant & equipment other than freehold land. or supply of goods or services, for rental to others or for administrative purposes. An intangible asset is recognised The depreciable amount of an item of property, plant and if it is probable that the future economic benefits that are equipment is allocated on systematic basis over its useful attributable to the asset will flow to the entity and the cost life and is depreciated as follows: of the asset can be measured reliably. An intangible asset is initially measured at cost. Expenditure incurred on an intangible item that was initially recognised as an expense Useful Life Depreciation Nature of Asset by the Bank in previous annual Financial Statements or (in Years) Rate interim Financial Statements are not recognised as part of Building 50 5 the cost of an intangible asset at a later date.

Furniture 10 25 Computer Software Office Equipment 10 25 Cost of purchased licenses and all computer software Vehicles 7 20 costs incurred, licensed for use by the Bank, which are Computers 7 25 not integrally related to associated hardware, which can be clearly identified, reliably measured, and it’s probable Plant and Machinery 10 15 that they will lead to future economic benefits, are included in the Statement of Financial Position under the category 10 Years or Lease period Leasehold Assets ‘Intangible assets’ and carried at cost less accumulated whichever is less amortization and any accumulated impairment losses. Depreciation on assets acquired during the year is computed on a proportionate basis from date of purchase or put to Goodwill use, whichever is earlier. Goodwill, if any that arises upon the acquisition of Subsidiaries Changes in Estimates is included in intangible assets. Goodwill is measured at initial recognition in accordance with Note. Goodwill is measured at The asset’s residual values, useful lives and methods of cost less accumulated impairment losses.

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Subsequent Expenditure other comprehensive income in which case it is recognised in equity or in other comprehensive income. Expenditure incurred on software is capitalized only when it is probable that this expenditure will enable the asset to Current Tax generate future economic benefits in excess of its originally assessed standard of performance and this expenditure can Current tax assets and liabilities consist of amounts expected be measured and attributed to the asset reliably. All other to be recovered from or paid to Inland Revenue Department expenditure is expensed as incurred. in respect of the current year, using the tax rates and tax laws enacted or substantively enacted on the reporting date Amortization of Intangible Assets and any adjustment to tax payable in respect of prior years.

Intangible Assets, except for goodwill, are amortized on a Deferred Tax straight–line basis in the Statement of Profit or Loss from the date when the asset is available for use, over the best of its Deferred tax is provided on temporary differences at useful economic life based on a pattern in which the asset’s the reporting date between the tax bases of assets and economic benefits are consumed by the bank. Amortization liabilities and their carrying amounts for financial reporting methods, useful lives, residual values are reviewed at each purposes. Deferred tax liabilities are recognised for all financial year end and adjusted if appropriate. The Bank taxable temporary differences except: assumes that there is no residual value for its intangible assets. Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a Acquired computer software licenses are capitalized on transaction that is not a business combination, and at the basis of cost incurred to acquire and bring to use the the time of transaction, affects neither the accounting specific software and are amortized over their useful life profit nor taxable profit or loss. estimated as 5 years from the date of acquisition or over the period of the license, whichever is less. In respect of taxable temporary differences associated with investments in subsidiaries, where the timing Derecognition of Intangible Assets of the reversal of the temporary differences can be controlled and is probable that the temporary The carrying amount of an item of intangible asset is differences will not reverse in the foreseeable future. derecognized on disposal or when no future economic benefits are expected from its use. The gain or loss Deferred tax assets are recognised for all deductible arising on de recognition of an item of intangible assets is temporary differences, carried forward unused tax included in the Statement of Profit or Loss when the item is credits and unused tax losses (if any), to the extent that derecognized. it is probable that the taxable profit will be available against which the deductible temporary differences, 3.9. Investment Property carried forward unused tax credits and unused tax losses can be utilized except: Properties held to earn rental and or capital appropriation are recognised as investment property. Such properties are Where the deferred tax asset relating to the deductible measured at cost. temporary differences arising from the initial recognition of an asset or liability in a transaction 3.10. Income Tax that is not a business combination, and at the time of transaction, affects neither the accounting profit nor As per Nepal Accounting Standard- NAS 12 (Income taxable profit or loss. Taxes) tax expense is the aggregate amount included in determination of profit or loss for the period in respect In respect of deductible temporary differences of current and deferred taxation. Income Tax expense is associated with investments in Subsidiaries, deferred recognised in the statement of Profit or Loss, except to the tax assets are recognised only to the extent that it is extent it relates to items recognised directly in equity or probable that the temporary differences will reverse

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in the foreseeable future and taxable profit will be the lower of the expected cost of terminating the contract available against which the temporary difference will and the expected net cost of continuing with the contract. be utilized. Before a provision is established, the Bank recognizes any The carrying amount of deferred tax assets is reviewed impairment loss on the assets associated with that contract. at each reporting date and reduced to the extent that it is The expense relating to any provision is presented in the probable that sufficient profit will be available to allow the Statement of Profit or Loss net off any reimbursement. deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are 3.13. Revenue Recognition recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be Revenue is recognised to the extent that it is probable that recovered. the economic benefits will flow to Bank and the revenue can be reliably measured. The following specific recognition Deferred tax assets and liabilities are measured at the tax criteria must also be met before revenue is recognised. rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and Interest Income tax laws) that have been enacted or substantively enacted at the reporting date. For all financial instruments measured at amortized cost, interest bearing financial assets classified as measured at Current and deferred tax assets and liabilities are offset only fair value through OCI and financial instruments designated to the extent that they relate to income taxes imposed by at fair value through profit or loss, interest income or the same taxation authority. expense is recorded using the EIR. EIR is the rate that exactly discounts estimated future cash payments or 3.11. Deposits, debt securities issued and subordinated receipts through the expected life of the financial instrument liabilities or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. Deposits, debt securities issued and subordinated liabilities have been measured at amortized cost. Bank has a policy The calculation takes into account all contractual terms of to treat debt securities issue expenses up to 1% of debt the financial instrument (for example, prepayment options) securities issue price as immaterial thus the same has and includes any fees or incremental costs that are directly not been considered in computation of fair value of debt attributable to the instrument and are an integral part of securities. the EIR, but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if 3.12. Provisions the bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the A provision is recognised if, as a result of a past event, the original EIR and the change in carrying amount is recorded Bank has a present legal or constructive obligation that can as ’Interest income’ for financial assets and ’Interest and be estimated reliably, and it is probable that an outflow of similar expense’ for financial liabilities. However, for a economic benefits will be required to settle the obligation. The reclassified financial asset for which the bank subsequently amount recognised is the best estimate of the consideration increases its estimates of future cash receipts as a result of required to settle the present obligation at the reporting increased recoverability of those cash receipts, the effect of date, taking in to account the risks and uncertainties that increase is recognised as an adjustment to the EIR from surrounding the obligation at that date. Where a provision the date of the change in estimate. is measured using the cash flows estimated to settle the present obligation, its carrying amount is determined based Bank has a policy to treat loan administration fees on the present value of those cash flows. A provision for up to 1% of loan amount as immaterial. Considering onerous contracts is recognized when the expected benefits loan administration and other fees as immaterial and to be derived by the Bank from a contract are lower than impracticable to determine reliably, same has not been the unavoidable cost of meeting its obligations under the included in computation of effective interest rate as per contract. The provision is measured as the present value of Carve-out (optional) pronounced on 19th August 2020.

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Accrued interest income of 15th July 2020 of NPR 440.98 amount of the financial liability. million, realized till 16th September 2020 has been factored in computation in Regulatory Reserve in line with regulator’s 3.15. Employee Benefits guidelines. Defined Contribution Plans 10% rebate amounting to NPR 25.98 million and 2% discount amounting to NPR 374.81 million on interest A defined contribution plan is a post-employment benefit income has been provided to the eligible borrowers for plan under which the Bank makes fixed contribution into prescribed period amidst the COVID 19 pandemic as per a separate Bank account (a fund) and will have no legal or the NRB guidelines. constructive obligation to pay further contributions even if the fund does not hold sufficient assets to pay all employee Accrued interest income of non-performing loans has been benefits relating to employee services in the current and recognised as per Guideline on Recognition of Interest prior periods as defined in Nepal Accounting Standards – Income 2019. NAS 19 (Employee Benefits).

Fee and Commission Income The contribution payable by the employer to a defined contribution plan in proportion to the services rendered Fees earned for the provision of services over a period of to Bank by the employees and is recorded as an expense time are accrued over the period, which include service fees under ‘Personnel Expense’ as and when they become due. and commission income. Loan commitment fees for loans Unpaid contribution are recorded as a liability under ‘Other that are likely to be drawn down and other credit related Liabilities’ in Notes 4.23. fees are deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the loan. Bank contributed 10% of the salary of each employee to the Employees’ Provident Fund. The above expenses are Dividend Income identified as contributions to ‘Defined Contribution Plans’ as defined in Nepal Accounting Standards – NAS 19 (Employee Dividend income is recognized when the right to receive Benefits). payment is established. Defined Benefit Plans Net Trading Income A defined benefit plan is a post-employment benefit plan Net Trading Income includes all gains and losses from other than a defined contribution plan. Accordingly, staff changes in fair value and related capital gain/loss and gratuity and leave encashment has been considered as dividend from financial assets ‘Held for Trading’. defined benefit plans as per Nepal Accounting Standards – NAS 19 (Employee Benefits). Net income from other financial instrument measured at fair value through Profit or Loss (a) Gratuity

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

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on the future contributions to the plan. In order to calculate right to use the asset. the present value of economic benefits, consideration is given to any minimum funding requirement that apply to Finance Lease any plan in Bank. An economic benefit is available to Bank if it is realizable during the life of the plan, or on settlement Agreements which transfer to counterparties substantially all of the plan liabilities. the risks and rewards incidental to the ownership of assets, but not necessarily legal title, are classified as finance lease. Bank determines the interest expense on the defined benefit When Bank is the lessor under finance lease, the amounts liability by applying the discount rate used to measure the due under the leases, after deduction of unearned interest defined benefit liability at the beginning of the annual period. income, are included in, ‘Loans & receivables from other The discount rate is the average yield on government bonds customers’, as appropriate. Interest income receivable is issued during the period having maturity of five years or more. recognised in ‘Net interest income’ over the periods of the leases so as to give a constant rate of return on the net The increase in gratuity liabilities attributable to the services investment in the leases. provided by employees during the year ended 15th July, 2020 (current service cost) has been recognised in the When Bank is a lessee under finance leases, the leased Statement of Profit or Loss under ‘Personnel Expenses’ assets are capitalized and included in ‘Property, Plant and together with the net interest expense. Bank recognizes the Equipment’ and the corresponding liability to the lessor total actuarial gain/(loss) that arises in computing Bank’s is included in ‘Other liabilities’. A finance lease and its obligation in respect of gratuity in other comprehensive corresponding liability are recognized initially at the fair value income during the period in which it occurs. of the asset or if lower, the present value of the minimum lease payments. Finance charges payable are recognised The demographic assumptions underlying the valuation are in ‘Interest expenses’ over the period of the lease based on retirement age (58 years), early withdrawal from service the interest rate implicit in the lease so as to give a constant and retirement on medical grounds. rate of interest on the remaining balance of the liability.

(b) Unutilized Accumulated Leave Operating Lease

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

3.16. Leases The bank has recognized lease payments under operating lease as an expense on the straight line basis over the lease The determination of whether an arrangement is a lease, term. or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the 3.17. Foreign currency translation fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a All foreign currency transactions are translated into the

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functional currency, which is Nepalese Rupees, using the the Bank too form part of commitments of the Bank. exchange rates prevailing at the dates when the transactions Contingent liabilities are not recognised in the Statement were affected. of Financial Position but are disclosed unless they are remote. But these contingent liabilities do contain credit Monetary assets and liabilities denominated in foreign risk and are therefore form part of the overall risk of the currencies at the reporting date are translated to Nepalese Bank. Rupees using the spot foreign exchange rate ruling at that date and all differences arising on non-trading activities Financial guarantees are initially recognised in the are taken to ‘Other Operating Income’ in the Statement Statement of Financial Position (within ‘other liabilities’) of Profit or Loss. The foreign currency gain or loss on at fair value, being the premium received. Subsequent to monetary items is the difference between amortized cost initial recognition, the Bank’s liability under each guarantee in the functional currency at the beginning of the period, is measured at the higher of the amount initially recognised adjusted for effective interest and payments during less cumulative amortization recognised in the Statement of the period, and the amortized cost in foreign currency Profit or Loss, and the best estimate of expenditure required translated at the rates of exchange prevailing at the end of to settle any financial obligation arising as a result of the the reporting period. guarantee.

Non-monetary items in a foreign currency that are Any increase in the liability relating to the financial measured in terms of historical cost are translated using guarantees is recorded in the Statement of Profit or Loss the exchange rates as at the dates of the initial transactions. under ‘Impairment Charges for Loans & other losses’. The Non-monetary items in foreign currency measured at fair premium received is recognised in the Statement of Profit or value are translated using the exchange rates at the date Loss under ‘Net fees and commission income’ on a straight when the fair value was determined. line basis over the life of the guarantee.

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 of Profit or Loss. However, foreign currency differences instrument as per NAS 32 representing the net assets of arising on available-for-sale equity instruments are the entity. Bank has a policy to treat share/debenture issue recognized in other comprehensive income. expenses upto 1% of issue amount as immaterial. Thus, same has not been deducted from capital/debenture and 3.18. Financial guarantee and loan commitments has been charged to profit or loss of relevant period.

Contingent Liabilities are possible obligations whose 3.20. Earnings per share including diluted existence will be confirmed only by uncertain future events or present obligations where the transfer of economic Bank presents basic and diluted Earnings per share (EPS) benefits is not probable or cannot be reliably measured data for its ordinary shares. Basic EPS is calculated by as defined in the Nepal Accounting Standard- NAS 37 dividing the profit and loss attributable to ordinary equity (Provisions, Contingent Liabilities and Contingent Assets). holders of Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is To meet the financial needs of customers, the Bank enters determined by adjusting both the profit and loss attributable into various irrevocable commitments and contingent to the ordinary equity holders and the weighted average liabilities. These consist of financial guarantees, letter of number of ordinary shares outstanding, for the effects of all credit and other undrawn commitments to lend. Letters dilutive potential ordinary shares, if any. of credit, guarantees and acceptances commit the Bank to make payments on behalf of customers in the 3.21. Segment Reporting 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 loans. Operating lease commitments of the Bank (as a basis of business activities in 7 different provinces of the lessor and as a lessee) and pending legal claims against country.

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Management monitors the operating results of its segments 3.22. Dividend on Ordinary Shares separately for the purpose of making decisions about resource allocation and performance assessment. Segment Dividend on ordinary shares are recognised as liability performance is evaluated based on operating profits or and deducted from equity when they are approved by the losses which, in certain respects, are measured differently Annual General Meeting of shareholders. Interim Dividends from operating profits or losses in the consolidated financial are deducted from equity when they are declared and no statements. Income taxes are managed on a group basis longer at the discretion of the Bank. Dividend proposed for and are not allocated to operating segments. Transfer prices the year after reporting date and before the authorization of between operating segments are on an arm’s length basis financial statements has been disclosed in notes as non- in a manner similar to transactions with third parties. adjusting event.

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4.1 Cash and cash equivalent Group Bank Current Year Previous Year Current Year Previous Year Cash in hand 1,756,515,440 1,435,466,780 1,756,515,440 1,435,466,780 Balances with B/FIs 3,276,512,029 651,151,940 3,265,001,044 645,579,569 Money at call and short notice - 769,949,308 - 769,949,308 Other 222,783,361 1,923,426,780 168,783,361 1,785,426,780 Total 5,255,810,829 4,779,994,808 5,190,299,845 4,636,422,437

Cash and cash equivalent- Other Placement with maturity upto 3 months ST.CH.Bank Singapore 168,783,361 319,856,807 168,783,361 319,856,807 Axis Bank Dubai - 881,814,881 - 881,814,881 Nepal Investment Bank Ltd. - 33,012,488 - 33,012,488 Axis Bank Singapore - 550,742,604 - 550,742,604 Gandaki Bikas Bank Ltd. 5,000,000 20,000,000 - - Garima Bikas Bank Ltd. 20,000,000 - - - Jyoti Bikas Bank Ltd. 10,000,000 - - - Lumbini Bikas Bank Ltd. 19,000,000 - - - Kailash Bikas Bank Ltd. - 40,000,000 - - Muktinath Bikas Bank Ltd. - 25,000,000 - - Om Development Bank Ltd. - 30,000,000 - - Shangrila Development Bank Ltd. - 23,000,000 - - Total 222,783,361 1,923,426,780 168,783,361 1,785,426,780

4.2 Due from Nepal Rastra Bank Group Bank Current Year Previous Year Current Year Previous Year Statutory balances with NRB 5,239,426,474 2,768,182,555 5,239,426,474 2,768,182,555 Securities purchased under resale agreement - - - - Other deposit and receivable from NRB 86,256,660 13,011,906 86,256,660 13,011,906 Total 5,325,683,135 2,781,194,462 5,325,683,135 2,781,194,462

4.3 Placements with Bank and Financial Instituitions Group Bank Current Year Previous Year Current Year Previous Year Placement with domestic B/FIs 69,000,000 - - - Placement with foreign B/FIs 2,827,086,670 827,701,829 2,827,086,670 827,701,829 Less: Allowances for impairment - - - - Total 2,896,086,670 827,701,829 2,827,086,670 827,701,829

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4.4 Derivative financial instruments 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 40,221,461 85,066,888 40,221,461 85,066,888 Other - - Total 40,221,461 85,066,888 40,221,461 85,066,888

4.5 Other trading assets Group Bank Current Year Previous Year Current Year Previous Year Teasury bills - - - - Government bonds 370,295,779 407,063,913 370,295,779 407,063,913 NRB Bonds - - - - Domestic Corporate bonds - - - - Equities 161,197,050 165,587,102 73,157,226 77,357,898 Other - - - - Total 531,492,829 572,651,015 443,453,005 484,421,811 Pledged - - - - Non-pledged 531,492,829 572,651,015 443,453,005 484,421,811 Government bonds includes interest receivable amount on National Saving Bonds amounting NPR 7,475,779 at current year and NPR 7,703,913 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 31,477,834 31,595,084 33,304,029 31,182,743 31,151,808 31,182,743 32,959,089 48275 shares of Rs.100 each (Group) Hydroelectricity Investment and Development Company Ltd. 160342 shares of Rs. 100 each 14,576,600 21,229,521 14,576,600 25,698,894 14,576,600 21,229,521 14,576,600 25,698,894 Nabil Equity Fund 844878 units of Rs. 10 each (Bank) 8,505,100 7,899,550 8,505,100 7,899,550 8,448,780 7,847,240 8,448,780 7,847,240 850510 units of Rs. 10 each (Group) Global IME Sammunat Scheme 47466 units of Rs. 10 each 474,660 405,426 474,660 395,975 474,660 405,426 474,660 395,975 Laxmi Equity Fund 116991 units of Rs. 10 each 1,169,910 1,021,394 1,169,910 888,624 1,169,910 1,021,394 1,169,910 888,624 Mithila Micro Finace Ltd. 82 units of Rs. 100 each - 66,529 - 30,089 - 66,529 - 30,089 Siddhartha Equity Fund 250000 units of Rs. 10 each 2,500,000 2,488,750 2,500,000 2,511,149 2,500,000 2,488,750 2,500,000 2,511,149 Citizen Mutual Fund-1 200000 units of Rs. 10 each 2,000,000 2,002,946 2,000,000 2,026,838 2,000,000 2,002,946 2,000,000 2,026,838 Nabil Balance Fund-2 250000 units of Rs. 10 each 2,500,000 2,463,863 2,500,000 2,500,000 2,500,000 2,463,863 2,500,000 2,500,000 Citizen Mutual Fund 1 (CMF-11) 250000 units of Rs. 10 each 2,500,000 2,488,750 2,500,000 2,500,000 2,500,000 2,488,750 2,500,000 2,500,000 Sunrise Mutual Fund (SFMF) 200000 units of Rs. 10 each 2,000,000 1,991,000 - - 2,000,000 1,991,000 - - Agriculture Development Bank 2120 Shares of Rs. 100 each 826,719 812,528 619,530 610,739 - - - - Century Commercial Bank Ltd. 1500 Shares of Rs. 100 each 256,463 246,386 341,951 352,407 - - - - Nepal Bank Ltd., 251291 Shares of Rs. 100 each 61,183,920 62,289,887 61,183,920 73,090,311 - - - - NMB Bank Ltd. 953 Shares of Rs. 100 each 311,102 376,639 - 380 - - - - Nepal Investment Bank Limited, 337 shares of Rs. 100 each 82,777 144,593 1,344,578 1,915,275 - - - - Citizen Bank International Limited, 6987 shares of Rs. 100 each 1,872,157 1,307,645 2,140,104 1,729,080 - - - - NMB Hybrid Fund L-1 7887 units of Rs. 10 each 78,870 74,589 78,870 78,751 - - - - NIBL Pragati Fund, 8577 units of Rs. 10 each 85,770 69,588 85,770 63,526 - - - - Nepal SBI Bank Limited, 4 shares of Rs. 100 each - 1,732 - 1,401 - - - - Samata Microfinance Bittiya Sanstha Limited 2 shares of Rs. 100 each 200 1,314 ------Nepal Life Insurance Co. Ltd., 1262 shares of Rs. 100 each 810,814 1,582,964 1,196,304 1,670,113 - - - - Forward Community Microfinance Bittiya Sanstha Ltd. 541 shares of Rs. 100 each 747,503 861,166 747,503 540,708 - - - - Om Development Bank Ltd. 1035 shares of Rs. 100 each in previous year - - 311,102 202,977 - - - - Shangrila Development Bank Ltd., 29 shares of Rs. 100 each 7,475 4,071 7,475 4,590 - - - - Gandaki Bikas Bank Limited, 2535 shares of Rs. 100 each 756,542 507,242 756,542 545,096 - - - - Janata Bank Nepal Ltd. 216 shares of Rs. 100 each in previous year - - 50,642 46,016 - - - - Chhimek Laghubitta Bikas Bank Limited 2048 shares of Rs. 100 each 1,744,675 2,222,275 1,212,159 1,151,893 - - - - Sana Kisan Bikas Bank Ltd, 2445 shares of Rs. 100 each 2,375,137 3,166,631 440,902 404,862 - - - - Nirdhan Utthan Bank Limited 250 shares of Rs. 100 each 236,353 252,608 236,353 167,443 - - - - First Micro Finance Development Bank Ltd. 1049 shares of Rs. 100 each 518,890 579,575 518,890 334,861 - - - - Nabil Bank Limited, 3387 shares of Rs. 100 each 2,313,672 2,579,395 2,313,672 2,408,314 - - - - Swabalamban Laghubitta Bittiya Sanstha Limited 2799 shares of Rs. 100 each 2,487,394 3,435,637 2,711,282 2,109,713 - - - - Life Insurance Co. Nepal, 290 shares of Rs. 100 each 329,369 383,964 386,156 402,978 - - - - Chilime Hydro Power 1 share of Rs. 100 each in previous year - 396 - 519 - - - - Bank of Kathmandu Ltd., 3180 shares of Rs.100 each 794,620 693,286 ------Garima Bikas Bank Limited, 1500 shares of Rs.100 each 328,873 332,995 ------Global IME Bank Limited 3194 shares of Rs.100 each 969,872 759,931 ------Machhapuchhre Bank Limited 7350 shares of Rs.100 each 1,607,276 1,609,724 ------Mahalaxmi Bikas Bank Ltd., 2000 shares of Rs.100 each 422,398 364,353 ------Muktinath Bikas Bank Ltd., 2428 shares of Rs.100 each 609,065 754,127 ------NIC Asia Bank Ltd., 1500 shares of Rs.100 each 571,337 825,767 ------11% NIC Asia Debenture 082/83, 150 units of Rs.1000 each 154,552 156,791 ------Prime Commercial Bank Ltd., 1000 shares of Rs.100 each 273,082 253,853 ------Prabhu Bank Limited, 4300 shares of Rs.100 each 997,557 984,550 ------10.50% SBL Debenture 2082 25 units of Rs.1000 each 25,027 25,286 ------Total 151,600,813 161,197,050 142,505,058 165,587,102 67,352,693 73,157,226 65,352,693 77,357,898

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4.6 Loan and advances to B/FIs Group Bank Current Year Previous Year Current Year Previous Year Loans to microfinance institutions 2,872,711,422 2,040,624,948 2,872,711,422 2,040,624,948 Other - - - - Less: Allowances for impairment 28,499,744 20,204,571 28,499,744 20,204,571 Total 2,844,211,678 2,020,420,376 2,844,211,678 2,020,420,376

Product Deprived sector loans 2,849,974,433 2,020,457,146 2,849,974,433 2,020,457,146 Sub total 2,849,974,433 2,020,457,146 2,849,974,433 2,020,457,146 Interest receivable 22,736,989 20,167,802 22,736,989 20,167,802 Grand total 2,872,711,422 2,040,624,948 2,872,711,422 2,040,624,948

4.6.1: Allowances for impairment Balance at Sawan 1 20,204,571 16,499,580 20,204,571 16,499,580 Impairment loss for the year: Charge for the year 8,295,173 3,704,992 8,295,173 3,704,992 Recoveries/reversal - - - - Amount written off Balance at Ashad end 28,499,744 20,204,571 28,499,744 20,204,571

4.7 Loans and advances to customers Group Bank Current Year Previous Year Current Year Previous Year Loan and advances measured at amortized cost 92,654,985,973 82,434,811,082 92,654,985,973 82,434,765,734 Less: Impairment allowances Collective impairment 917,307,450 813,299,544 917,307,450 813,299,544 Individual impairment 887,327,133 202,605,609 887,327,133 202,605,609 Net amount 90,850,351,390 81,418,905,928 90,850,351,390 81,418,860,580 Loan and advances measured at FVTPL - - - - Total 90,850,351,390 81,418,905,928 90,850,351,390 81,418,860,580

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4.7.1: Analysis of loan and advances - By Product Group Bank Current Year Previous Year Current Year Previous Year Product Term loans 21,461,645,699 17,266,760,515 21,461,645,699 17,266,760,515 Overdraft 8,884,384,480 8,237,963,435 8,884,384,480 8,237,963,435 Trust receipt/Import loans 2,488,836,940 2,154,212,411 2,488,836,940 2,154,212,411 Demand and other working capital loans 16,933,579,461 14,527,383,644 16,933,579,461 14,527,383,644 Personal residential loans 6,271,728,325 5,873,119,844 6,271,728,325 5,873,119,844 Real estate loans 5,554,207,509 5,869,534,155 5,554,207,509 5,869,534,155 Margin lending loans 502,236,836 298,594,452 502,236,836 298,594,452 Hire purchase loans 4,391,244,960 4,928,578,940 4,391,244,960 4,928,578,940 Deprived sector loans 2,270,138,916 2,121,207,698 2,270,138,916 2,121,207,698 Bills purchased 87,623,614 5,903,043 87,623,614 5,903,043 Staff loans 1,025,610,168 751,106,479 1,025,610,168 751,061,131 Other 21,600,662,906 20,115,042,693 21,600,662,906 20,115,042,693 Sub total 91,471,899,812 82,149,407,309 91,471,899,812 82,149,361,961 Interest receivable 1,183,086,161 285,403,772 1,183,086,161 285,403,772 Grand total 92,654,985,973 82,434,811,082 92,654,985,973 82,434,765,734

4.7.2: Analysis of loan and advances - By Currency Group Bank Current Year Previous Year Current Year Previous Year Nepalese rupee 90,318,079,745 80,833,438,278 90,318,079,745 80,833,392,930 Indian rupee - - - - United State dollar 2,336,906,228 1,539,228,000 2,336,906,228 1,539,228,000 Great Britain pound - - - - Euro - 62,144,803 - 62,144,803 Japenese yen - - - - Chinese yuan - - - - Other - - - - Total 92,654,985,973 82,434,811,082 92,654,985,973 82,434,765,734

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4.7.3: Analysis of loan and advances - By Collateral Group Bank Current Year Previous Year Current Year Previous Year Secured Movable/immovable assets 90,075,379,274 80,547,812,510 90,075,379,274 80,547,812,510 Gold and silver 59,693,839 79,281,905 59,693,839 79,281,905 Guarantee of domestic B/FIs - - - - Government guarantee - - - - Guarantee of international rated bank - - - - Collateral of export document 126,960,326 608,218,400 126,960,326 608,218,400 Collateral of fixed deposit receipt 375,316,610 529,882,841 375,316,610 529,882,841 Collateral of Governement securities - 1,100,000 - 1,100,000 Counter guarantee - - - - Personal guarantee 1,871,751 27,513,505 1,871,751 27,513,505 Other collateral 2,015,764,174 641,001,921 2,015,764,174 640,956,573 Subtotal 92,654,985,973 82,434,811,082 92,654,985,973 82,434,765,734 Unsecured Grant Total 92,654,985,973 82,434,811,082 92,654,985,973 82,434,765,734

4.7.4: Allowances for impairment Group Bank Current Year Previous Year Current Year Previous Year Specific allowances for impairment Balance at Sawan 1 202,605,609 151,426,791 202,605,609 151,426,791 Impairment loss for the year: Charge/(reversal) for the year 684,721,524 51,178,818 684,721,524 51,178,818 Write-offs - - - - Exchange rate variance on foreign currency - - - - impairment Other movement - - - - Balance at Ashad end 887,327,133 202,605,609 887,327,133 202,605,609 Collective allowances for impairment Balance at Sawan 1 813,299,544 649,945,188 813,299,544 649,945,188 Impairment loss for the year: Charge/(reversal) for the year 104,007,907 163,354,356 104,007,907 163,354,356 Exchange rate variance on foreign currency - - - - impairment Other movement - - - - Balance at Ashad end 917,307,450 813,299,544 917,307,450 813,299,544 Total allowances for impairment 1,804,634,583 1,015,905,153 1,804,634,583 1,015,905,153

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4.8 Investment securities Group Bank Current Year Previous Year Current Year Previous Year Investment securities measured at amortized cost 14,317,180,062 12,933,242,288 14,317,180,062 12,933,242,288 Investment in equity measured at FVTOCI 734,777,134 709,695,412 701,239,424 677,947,730 Total 15,051,957,196 13,642,937,700 15,018,419,486 13,611,190,018

4.8.1: Investment securities measured at amortized cost Group Bank Current Year Previous Year Current Year Previous Year Debt securities - - - - Government bonds 12,990,003,200 9,430,724,898 12,990,003,200 9,430,724,898 Government treasury bills 1,327,176,862 3,502,517,390 1,327,176,862 3,502,517,390 Nepal Rastra Bank bonds - - - - Nepal Rastra Bank deposits instruments - - - - Other - - - - Less: specific allowances for impairment - - - - Total 14,317,180,062 12,933,242,288 14,317,180,062 12,933,242,288

4.8.2: Investment in equity measured at fair value through other comprehensive income Group Bank Current Year Previous Year Current Year Previous Year Equity instruments Quoted equity securities 200,599,534 189,892,812 167,061,824 158,145,130 Unquoted equity securities 534,177,600 519,802,600 534,177,600 519,802,600 Total 734,777,134 709,695,412 701,239,424 677,947,730

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4.8.3: 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 Sanima Equity Fund 16900000 units of Rs. 10 each (Bank) 202,926,800 200,599,534 202,926,800 189,892,812 169,000,000 167,061,824 169,000,000 158,145,130 20292680 units 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. 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 500000 shares of Rs. 100 each Sanima Middle Tamor Hydro Power Ltd. 64,000,000 64,000,000 50,000,000 50,000,000 64,000,000 64,000,000 50,000,000 50,000,000 640000 shares of Rs. 100 each Mathillo Mailun Khola Jalvidhyut Ltd 37,500,000 37,500,000 37,500,000 37,500,000 37,500,000 37,500,000 37,500,000 37,500,000 375000 shares of Rs. 100 each MDX Nepal Ltd. 375,000 375,000 - - 375,000 375,000 - - 3750 shares of Rs. 100 each Total 737,104,400 734,777,134 722,729,400 709,695,412 703,177,600 701,239,424 688,802,600 677,947,730

4.9 Current tax assets Group Bank Current Year Previous Year Current Year Previous Year Current tax assets Current year income tax assets 787,048,725 1,007,451,953 780,699,915 999,339,551 Tax assets of prior periods 2,961,938,439 1,966,300,052 2,956,204,608 1,956,865,057 Current tax liabilities Current year income tax liabilities 762,269,398 973,129,676 751,726,953 957,816,576 Tax liabilities of prior periods 2,980,976,490 2,023,159,914 2,980,976,490 2,023,159,914 Total 5,741,277 (22,537,584) 4,201,081 (24,771,881)

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4.10 Investment in subsidiaries 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 Group Bank Current Year Previous Year Current Year Previous Year Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value …………………………….Ltd. …………shares of Rs. …….each …………………………….Ltd. …………shares of Rs. …….each ………………………………. Total

4.10.2: Investment in unquoted subsidiaries Group Bank Current Year Previous Year Current Year Previous Year Fair Fair Cost Cost Cost Fair Value Cost Fair Value Value Value Sanima Capital .Ltd. 250,000,000 250,000,000 250,000,000 250,000,000 2,500,000 shares of 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 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 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 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 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 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 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 Group Bank Current Year Previous Year Current Year Previous Year ……………………….Ltd. ……………………….Ltd. ……………………….Ltd. ……………………….Ltd. ……………………….

4.12 Investment properties 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 NPR Group Leasehold Computer & Furniture & Equipment Particulars Land Building Vehicles Machinery Total Properties Accessories Fixture & Others Cost As on 16th July 2018 210,336,100 139,364,847 216,612,700 173,124,261 211,310,801 117,011,681 102,648,294 155,723,409 1,326,132,094 Addition during the Year Acquisition - - - 58,876 - - - - 58,876 Capitalization 218,991,070 - 17,569,178 27,414,685 76,778,400 10,546,516 10,752,229 22,313,514 384,365,592 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 429,327,170 139,364,847 229,518,517 197,217,349 262,913,897 126,004,587 113,320,248 175,215,518 1,672,882,133

Addition during the Year Acquisition - - 1,428,511 - - 713,210 - 1,057,589 3,199,310 Capitalization - - 41,691,404 29,524,280 51,229,750 15,399,893 8,140,822 29,002,424 174,988,574 Disposal during the year - - (11,569,432) (1,510,418) (8,534,300) (2,820,773) (563,870) (5,039,276) (30,038,069)

Adjustment/Revaluation ------

Balance as on 15th July 2020 429,327,170 139,364,847 261,069,000 225,231,211 305,609,347 139,296,917 120,897,200 200,236,255 1,821,031,948

Depreciation and Impairment As on 16th July 2018 - 39,442,259 64,675,178 68,770,049 85,887,475 65,996,813 40,240,197 77,714,255 442,726,225 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 Impairment for the year ------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 78,948,626 50,188,133 96,763,917 549,555,201 Impairment for the year ------Depreciation charge for the Year - 4,746,323 23,628,538 29,397,292 36,656,261 13,215,657 9,910,669 22,383,293 139,938,034

Disposals - - (6,280,191) (1,263,833) (5,884,791) (1,666,886) (434,832) (3,043,269) (18,573,802)

Adjustment ------

As on 15th July 2020 - 49,184,711 101,713,521 121,943,172 131,812,721 90,497,397 59,663,970 116,103,941 670,919,432

Capital Work in Progress 2018 - 6,095,887 ------6,095,887 Capital Work in Progress 2019 - 33,720,847 ------33,720,847 Capital Work in Progress 2020 - 32,043,567 ------32,043,567

Net Book Value

As on 16th July 2018 210,336,100 106,018,475 151,937,522 104,354,212 125,423,326 51,014,869 62,408,097 78,009,154 889,501,756

As on 16th July 2019 429,327,170 128,647,306 145,153,343 103,407,636 161,872,646 47,055,961 63,132,115 78,451,602 1,157,047,779

As on 15th July 2020 429,327,170 122,223,703 159,355,480 103,288,039 173,796,626 48,799,520 61,233,230 84,132,315 1,182,156,083

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Amount In NPR Bank Leasehold Computer & Furniture & Equipment Particulars Land Building Vehicles Machinery Total Properties Accessories Fixture & Others Cost 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

Addition during the Year Acquisition - Capitalization 41,433,880 29,524,280 51,229,750 15,399,893 8,140,822 29,002,424 174,731,050 Disposal during the year (7,777,916) (1,510,418) (8,534,300) (2,268,394) (563,870) (3,193,269) (23,848,167)

Adjustment/Revaluation - -

Balance as on 15th July 2020 429,327,170 139,364,847 259,382,964 223,606,995 301,633,847 138,563,367 120,897,200 199,133,504 1,811,909,894

Depreciation and Impairment As on 16th July 2018 - 39,442,259 63,885,918 68,130,777 84,452,116 65,828,870 40,240,197 76,877,978 438,858,116 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 Impairment for the year - 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 95,663,917 544,227,180 Impairment for the year - Depreciation charge for the Year 4,746,323 23,269,518 29,209,698 36,249,838 13,044,183 9,910,669 22,120,915 138,551,145 - Disposals (5,083,373) (1,263,833) (5,884,791) (1,417,621) (434,832) (1,951,910) (16,036,359)

Adjustment -

As on 15th July 2020 - 49,184,711 101,386,097 120,881,713 129,462,910 90,329,641 59,663,970 115,832,923 666,741,966

Capital Work in Progress 2018 - 6,095,887 ------6,095,887 Capital Work in Progress 2019 - 33,720,847 ------33,720,847 Capital Work in Progress 2020 - 32,043,567 ------32,043,567

Net Book Value

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 77,660,432 1,150,520,679

As on 15th July 2020 429,327,170 122,223,703 157,996,868 102,725,281 172,170,936 48,233,726 61,233,230 83,300,582 1,177,211,496

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4.14 Goodwill and Intangible Assets Amount In NPR Group

Software Particulars Goodwill Other Total Purchased Developed

Cost As on 16th July 2018 - 24,039,000 2,096,856 - 26,135,856 Addition during the Year - - - - - Acquisition - - - - - Capitalization - 68,219,969 - - 68,219,969 Disposal during the year - - - - -

Adjustment/Revaluation - - - - -

Balance as on 16th July 2019 - 92,258,969 2,096,856 - 94,355,825

Addition during the Year - - - - Acquisition - - - - - Capitalization - 7,209,828 - - 7,209,828 Disposal during the year - - (40,256) - (40,256)

Adjustment/Revluation - - - - -

Balance as on 15th July 2020 - 99,468,796 2,056,600 - 101,525,396

Amortization and Impairment As on 16th July 2018 - 13,740,661 507,086 - 14,247,747 Amortization charge for the Year - 8,198,961 419,371 - 8,618,332 Impairment for the year - - - - - Disposals - - - - -

Adjustment - - - - -

As on 16th July 2019 - 21,939,622 926,457 - 22,866,079

Amortization charge for the Year - 16,983,424 411,992 - 17,395,416 Impairment for the year - - - - - Disposals - - (22,707) - (22,707)

Adjustment - - - - -

As on 15th July 2020 - 38,923,046 1,315,742 - 40,238,788

Capital Work in Progress 2018 - 46,252,200 - - 46,252,200 Capital Work in Progress 2019 - - - - - Capital Work in Progress 2020 - - - - -

Net Book Value

As on 16th July 2018 - 56,550,539 1,589,770 - 58,140,309

As on 16th July 2019 - 70,319,347 1,170,399 - 71,489,746

As on 15th July 2020 - 60,545,750 740,858 - 61,286,608

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Amount In NPR Bank

Software Particulars Goodwill Other Total Purchased Developed

Cost 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/Revaluation -

Balance as on 16th July 2019 - 92,258,969 - - 92,258,969

Addition during the Year Acquisition - Capitalization 7,209,828 7,209,828 Disposal during the year - -

Adjustment/Revluation -

Balance as on 15th July 2020 - 99,468,796 - - 99,468,796

Amortization and Impairment 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

Amortization charge for the Year 16,983,424 16,983,424 Impairment for the year - Disposals -

Adjustment -

As on 15th July 2020 - 38,923,046 - - 38,923,046

Capital Work in Progress 2018 - 46,252,200 - - 46,252,200 Capital Work in Progress 2019 - - - - Capital Work in Progress 2020 - - - - -

Net Book Value

As on 16th July 2018 - 56,550,539 - - 56,550,539

As on 16th July 2019 - 70,319,347 - - 70,319,347

As on 15th July 2020 - 60,545,750 - - 60,545,750

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4.15 Deferred Tax

Group Bank Current Year Current Year Net Deferred Net Deferred Deferred Tax Deferred Tax Tax Assets/ Deferred Tax Deferred Tax Tax Assets/ Assets Liabilities (Liabilities) Assets 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 1,420,870 - 1,420,870 2,441,654 - 2,441,654 Property & equipment - 12,006,500 (12,006,500) - 11,932,012 (11,932,012) Employees' defined benefit plan 31,166,694 - 31,166,694 31,007,442 - 31,007,442 Lease liabilities 4,048,026 - 4,048,026 4,048,026 - 4,048,026 Provisions ------Other temporory differences ------Deferred tax on temporory differences 36,635,590 12,006,500 24,629,090 37,497,122 11,932,012 25,565,110 Deferred tax on carry forward of unused tax losses - Deferred tax due to changes in tax rate - Net Deferred tax asset/(liabilities) as on year end 24,629,090 25,565,110 Deferred tax (asset)/liabilities as on 17th July 2019 (15,595,267) (14,774,571) Origination/(Reversal) during the year 9,033,823 10,790,539 Deferred tax expense/(income) recognised in profit or loss 2,793,586 1,750,908

Deferred tax expense/(income) recognised in other comprehensive (11,827,409) (12,541,447) income Deferred tax expense/(income) recognised in directly in equity - -

Previous Year Previous Year Net Deferred Net Deferred Deferred Tax Deferred Tax Tax Assets/ Deferred Tax Deferred Tax Tax Assets/ Assets Liabilities (Liabilities) Assets 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 - 12,319,742 (12,319,742) - 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 12,319,742 15,595,267 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 year end 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 30,765,060 31,104,205 income Deferred tax expense/(income) recognised in directly in equity - -

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4.16 Other assets Group Bank Current Year Previous Year Current Year Previous Year Assets held for sale - - - - Other non banking assets - - - - Bills receivable - - - - Accounts receivable 8,945,381 54,604,439 102,549,852 126,303,050 Accrued income 14,013,640 14,491,692 - - Prepayments and deposit 87,060,798 99,459,207 86,788,644 99,242,100 Income tax deposit - - - - Deferred employee expenditure 631,173,799 517,025,892 631,173,799 517,024,256 Other 1,433,218,750 971,165,580 1,433,218,750 971,025,560 Total 2,174,412,368 1,656,746,810 2,253,731,045 1,713,594,966

4.17 Due to Bank and Financial Institutions 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 2,845,803,755 2,910,358,506 2,845,803,755 2,910,358,506 Settlement and clearing accounts - - - - Other 430,171,082 484,099,936 430,171,082 484,099,936 Total 3,275,974,837 3,694,458,442 3,275,974,837 3,694,458,442

4.18 Due to Nepal Rastra Bank Group Bank Current Year Previous Year Current Year Previous Year Refinance from NRB 86,292,488 1,018,919,629 86,292,488 1,018,919,629 Standing Liquidity Facility - - - - Lender of last resort facility from NRB - - - - Securities sold under repurchase agreements - - - - Other payable to NRB - - - - Total 86,292,488 1,018,919,629 86,292,488 1,018,919,629

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4.19 Derivative financial instruments 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 - - - - Other - - - - Total - - - - 4.20 Deposits from customers Group Bank Current Year Previous Year Current Year Previous Year Institutions customers: Term deposits 24,305,136,079 18,414,500,775 24,319,136,079 18,414,500,775 Call deposits 7,997,613,622 7,747,172,445 8,156,875,847 7,891,183,874 Current deposits 6,682,796,192 5,440,688,062 6,683,561,725 5,440,690,062 Other 1,010,463,948 993,244,989 1,010,463,948 993,244,989 Individual customers: Term deposits 33,904,107,129 24,932,577,667 33,904,107,129 24,932,577,667 Saving deposits 32,730,414,963 30,977,444,549 32,730,414,963 30,977,444,549 Current deposits 383,768,569 665,856,298 383,768,569 665,856,298 Other 61,874,427 58,230,947 61,874,427 58,230,947 Total 107,076,174,929 89,229,715,732 107,250,202,687 89,373,729,162 4.20.1: Currency wise analysis of deposit from customers Group Bank Current Year Previous Year Current Year Previous Year Nepalese rupee 102,922,392,849 87,117,694,175 103,096,420,607 87,261,707,605 Indian rupee - - - - United State dollar 4,073,079,974 2,062,608,988 4,073,079,974 2,062,608,988 Great Britain pound 58,562,852 40,412,095 58,562,852 40,412,095 Euro 17,003,131 6,370,163 17,003,131 6,370,163 Japenese yen - - - - Chinese yuan - - - - Other 5,136,123 2,630,312 5,136,123 2,630,312 Total 107,076,174,929 89,229,715,732 107,250,202,687 89,373,729,162

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4.21 Borrowing 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 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 32,478,077 27,401,007 32,428,917 27,174,446 Total 32,478,077 27,401,007 32,428,917 27,174,446

4.22.1: Movement in provision Group Bank Current Year Previous Year Current Year Previous Year Balance at begining of the year 27,401,007 12,009,452 27,174,446 11,817,943 Provisions made during the year 24,848,972 27,248,752 24,316,644 26,374,516 Provisions used during the year (14,430,052) (9,070,530) (14,430,052) (9,070,530) Provisions reversed during the year (5,341,849) (2,786,667) (4,632,121) (1,947,484) Unwind of discount - - - - Balance at Year end 32,478,077 27,401,007 32,428,917 27,174,446

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4.23 Other liabilities Group Bank Current Year Previous Year Current Year Previous Year Liability for employees defined benefit 25,740,486 20,869,384 25,740,486 20,545,471 obligations Liability for long-service leave 78,071,849 42,870,080 77,617,653 42,430,707 Short-term employee benefits 105,253 - - - Bills payable 18,122,306 36,018,692 18,122,306 36,018,692 Creditors and accruals 94,106,992 44,006,334 92,438,995 43,147,627 Interest payable on deposit 1,832,218 5,331,072 1,832,218 5,331,072 Interest payable on borrowing 884,226 3,354,022 884,226 3,354,022 Liabilities on defered grant income - - - - Unpaid Dividend 94,227,474 77,709,776 94,227,474 77,709,776 Liabilities under Finance Lease - - - - Employee bonus payable 284,393,854 363,521,807 281,082,487 357,795,169 Other 606,907,163 694,130,098 530,819,444 624,841,809 Total 1,204,391,821 1,287,811,266 1,122,765,289 1,211,174,346

Unpaid Dividend Details of dividends unpaid as on balance sheet date have been presented as under: Dividend Payable of FY Current Year (Rs.) Previous Year (Rs.) Remarks 2070/2071 252,130 255,830 Bagmati Development Bank 2069/2070 6,990 126,830 2075/2076 45,259,920 - 2074/2075 48,344,915 71,961,350 2068/2069 149,452 2,205,254 Sanima Bank 2067/2068 150,345 1,641,452 2066/2067 63,722 1,519,059 Total 94,227,474 77,709,776 4.23.1: Defined benefit obligations 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 219,068,509 137,247,761 219,068,509 136,338,538 Total present value of obligations 219,068,509 137,247,761 219,068,509 136,338,538 Fair value of plan assets 193,328,023 116,378,377 193,328,023 115,793,067 Present value of net obligations 25,740,486 20,869,384 25,740,486 20,545,471 Recognised liability for defined benefit obligations 219,068,509 137,247,761 219,068,509 136,338,538

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4.23.2: Plan assets Plan assets comprise Group Bank Current Year Previous Year Current Year Previous Year Equity securities - - - - Government bonds - - - - Bank deposit - - - - Other 193,328,023 116,378,377 193,328,023 115,793,067 Total 193,328,023 116,378,377 193,328,023 115,793,067

4.23.3: Movement in the present value of defined benefit obligations Group Bank Current Year Previous Year Current Year Previous Year Defined benefit obligations at Shrawan 1 137,247,761 172,132,946 136,338,538 172,132,946 Actuarial losses 41,438,446 (107,218,567) 41,978,814 (107,930,595) Benefits paid by the plan (5,825,434) (4,785,536) (5,055,453) (4,752,951) Current service costs and interest 46,207,736 77,118,918 45,806,610 76,889,138 Defined benefit obligations at Ashad end 219,068,509 137,247,761 219,068,509 136,338,538

4.23.4: Movement in the fair value of plan assets Group Bank Current Year Previous Year Current Year Previous Year Fair value of plan assets at Shrawan 1 116,378,377 65,415,333 115,793,067 65,415,333 Opening balance adjustment 7,267,477 12,369,913 7,267,477 12,369,913 Contributions paid into the plan 73,184,721 39,219,043 73,770,031 38,633,733 Benefits paid during the year (3,502,552) (3,978,786) (3,502,552) (3,978,786) Actuarial (losses) gains - - - - Expected return on plan assets - 3,352,874 - 3,352,874 Fair value of plan assets at Ashad end 193,328,023 116,378,377 193,328,023 115,793,067

4.23.5: Amount recognised in profit or loss Group Bank Current Year Previous Year Current Year Previous Year Current service costs 45,687,145 85,799,801 44,601,394 85,672,127 Interest on obligation 2,337,378 7,707,783 2,295,928 7,737,049 Acturial (gain)/loss 26,730,546 (57,407,871) 26,947,001 (57,529,802) Expected return on plan assets - - - - Total 74,755,069 36,099,713 73,844,323 35,879,374

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4.23.6: Amount recognised in other comprehensive income Group Bank Current Year Previous Year Current Year Previous Year Acturial (gain)/loss 50,131,419 (105,782,417) 50,721,516 (106,372,514) Total 50,131,419 (105,782,417) 50,721,516 (106,372,514) 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 Group Bank Current Year Previous Year Current Year Previous Year Discount rate 10%/10% 10%/10% 10% 10% Expected return on plan asset 7%/0% 10%/0% 7% 10% Future salary increase 11%/11% 10%/10% 11% 10% Withdrawal rate (on the basis of past service) 0 to 4 years 15.52%/22.5% 12.75%/11.11% 15.52% 12.75% 4 to 8 years 8.19%/0% 16.06%/0% 8.19% 16.06% 8 to 12 years 2.53%/0% 6.54%/0% 2.53% 6.54% 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 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 1,724,712,000 1,724,712,000 1,724,712,000 Total 1,724,712,000 1,724,712,000 1,724,712,000 1,724,712,000 The bank has issued 370,000 units of debentures with Rs. 1,000 unit price on 5th August 2015 having maturity period of 7 years and 1,354,712 units of debentures with Rs. 1,000 unit price on 13th January 2019 having maturity period of 10 years.

4.25 Subordinated Liabilities Group Bank Current Year Previous Year Current Year Previous Year Redeemable preference shares - - - - Irredemable cumulative preference shares (liabilities component) - - - - Other - - - - Total - - - -

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4.26 Share capital

Group Bank Current Year Previous Year Current Year Previous Year Ordinary shares 8,801,380,984 8,001,255,440 8,801,380,984 8,001,255,440 Convertible preference shares (equity component only) - - - - Irredemable preference shares (equity component only) - - - - Perpetual debt (equity component only) - - - - Total 8,801,380,984 8,001,255,440 8,801,380,984 8,001,255,440

4.26.1: Ordinary shares

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 88,013,809.84 Ordinary share of Rs. 100 each 8,801,380,984 8,001,255,440 Subscribed and paid up capital 88,013,809.84 Ordinary share of Rs. 100 each 8,801,380,984 8,001,255,440 Total 8,801,380,984 8,001,255,440

4.26.2: Ordinary share ownership Bank Current Year Previous Year Percent Amount Percent Amount Domestic ownership Nepal Government - - - - "A" class licensed institutions - - - - Other licensed intitutions - - - - Other Institutions 12.78 1,124,437,300 12.01 960,625,000 Public 87.22 7,676,943,684 87.99 7,040,630,440 Other - - - - Foreign ownership - - - - Total 100.00 8,801,380,984 100.00 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 6,986,877 7.94 TEK RAJ NIRAULA 6,240,437 7.09 NIRAJ GOVINDA SHRESTHA 5,472,998 6.22 JIBA NATH LAMICHHANE 4,868,471 5.53 BINAYA KUMAR SHRESTHA 4,124,533 4.69 AMALA INVESTMENT PVT. LTD. 3,494,612 3.97 GHAN SHYAM THAPA 3,434,493 3.90 KHEM RAJ LAMICHHANE 3,164,946 3.60 EMPLOYEES PROVIDENT FUND 2,990,718 3.40 JAI GANESH INVESTMENT COMPANY PVT. LTD. 2,393,097 2.72 RAM KRISHNA SHAH 2,225,631 2.53 DILIP SHRESTHA 1,070,821 1.22 DINESH MANI SHRESTHA 673,035 0.76 GEETA CHHETRI 593,325 0.67 TULASI RAM DHAKAL 457,339 0.52 4.27 Reserves Group Bank Current Year Previous Year Current Year Previous Year Statutory General Reserve 1,981,070,655 1,623,657,501 1,978,911,000 1,623,657,501 Exchange Equilisation Reserve 16,295,674 13,875,671 16,295,674 13,875,671 Corporate Social Responsibility Fund 19,994,523 35,610,900 19,778,557 35,610,900 Capital Redemption Reserve 264,285,715 211,428,572 264,285,715 211,428,572 Regulatory Reserve 547,387,253 329,278,578 545,256,901 327,148,226 Investment Adjustment Reserve 350,000 350,000 350,000 350,000 Capital Reserve - - - - Assets Revaluation Reserve - - - - Fair Value Reserve (1,629,087) (9,123,792) (1,356,724) (7,598,409) Dividend Equalisation Reserve - - - - Actuarial Gain/(Loss) (23,522,792) 11,569,201 (23,522,792) 11,982,269 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 2,824,419,826 2,236,977,884 2,820,186,217 2,236,785,982 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 2076-77, the bank appropriated Corporate Social Responsibility Reserve of amount NPR 17,762,645.

CSR reserve fund Amount (Rs.) Opening Balance as at Shrawan 1 2076 35,610,900 Less: CSR activities for FY 2076-77 (33,594,988) Add: Reserve @1% on Net Profit 17,762,645 Closing Balance as at Ashad end 2077 19,778,557

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4.28 Contingent liabilities and commitments Group Bank Current Year Previous Year Current Year Previous Year Contingent liabilities 13,458,023,263 14,675,306,811 13,458,023,263 14,675,306,811 Undrawn and undisbursed facilities 13,803,249,689 7,225,872,262 13,803,249,689 7,225,872,262 Capital commitment 55,500,952 34,555,404 55,500,952 34,555,404 Lease Commitment - - - - Litigation - - - - Total 27,316,773,904 21,935,734,478 27,316,773,904 21,935,734,478

4.28.1: Contingent liabilities Group Bank Current Year Previous Year Current Year Previous Year Acceptance and documentary credit 3,995,735,100 4,093,196,329 3,995,735,100 4,093,196,329 Bills for collection 37,381,445 47,631,304 37,381,445 47,631,304 Forward exchange contracts - - - - Guarantees 9,360,286,233 10,471,144,278 9,360,286,233 10,471,144,278 Underwriting commitment - - - - Other commitments 64,620,485 63,334,901 64,620,485 63,334,901 Total 13,458,023,263 14,675,306,811 13,458,023,263 14,675,306,811

4.28.2: Undrawn and undisbursed facilities Group Bank Current Year Previous Year Current Year Previous Year Undisbursed amount of loans 9,719,523,374 4,258,340,199 9,719,523,374 4,258,340,199 Undrawn limits of overdrafts 3,841,550,977 2,722,242,920 3,841,550,977 2,722,242,920 Undrawn limits of credit cards 242,175,338 245,289,143 242,175,338 245,289,143 Undrawn limits of letter of credit - - - - Undrawn limits of guarantee - - - - Total 13,803,249,689 7,225,872,262 13,803,249,689 7,225,872,262

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4.28.3: Capital commitments 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 28,472,470 18,737,199 28,472,470 18,737,199 Approved but not contracted for Sub total 28,472,470 18,737,199 28,472,470 18,737,199 Capital commitments in relation to Intangible assets Approved and contracted for 27,028,482 15,818,206 27,028,482 15,818,206 Approved but not contracted for Sub total 27,028,482 15,818,206 27,028,482 15,818,206 Total 55,500,952 34,555,404 55,500,952 34,555,404

4.28.4: Lease commitments 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 Group Bank Current Year Previous Year Current Year Previous Year Cash and cash equivalent 32,439,331 78,055,569 21,238,334 62,311,850 Due from Nepal Rastra Bank 33,228,355 5,976,361 33,228,355 5,976,361 Placement with bank and financial institutions 22,057,964 54,740,669 19,416,485 58,667,730 Loan and advances to bank and financial 245,611,969 169,850,233 245,611,969 169,850,233 institutions Loans and advances to customers 10,260,622,838 9,704,835,510 10,260,622,838 9,704,835,510 Investment securities 734,972,044 518,302,644 734,972,044 518,302,644 Loan and advances to staff 153,967,860 235,840,893 153,965,819 235,831,803 Other 669,385 2,204,700 669,385 2,204,700 Total interest income 11,483,569,745 10,769,806,579 11,469,725,229 10,757,980,831

Interest income on loan and advances to staff Realised interest 66,274,618 50,317,170 66,272,577 50,308,080 Accrued interest 849,504 1,107,365 849,504 1,107,365 Finance expense under NFRS 86,843,738 184,416,357 86,843,738 184,416,357 Total 153,967,860 235,840,893 153,965,819 235,831,803

4.30 Interest expense Group Bank Current Year Previous Year Current Year Previous Year Due to bank and financial institutions 28,266,087 40,107,005 28,266,087 40,107,005 Due to Nepal Rastra Bank 18,937,401 39,661,112 18,937,401 39,661,112 Deposits from customers 7,066,653,616 6,350,122,920 7,071,456,240 6,354,049,981 Borrowing - - - - Debt securities issued 161,371,200 94,192,331 161,371,200 94,192,331 Subordinated liabilities - - - - Other - 22,559,091 - 21,273,288 Total interest expense 7,275,228,305 6,546,642,459 7,280,030,928 6,549,283,717

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4.31 Fees and Commission Income Group Bank Current Year Previous Year Current Year Previous Year Loan administration fees 196,148,451 245,042,333 196,148,451 245,042,333 Service fees 1,580,982 1,740,765 - - Consortium fees 71,042,843 85,038,000 71,042,843 85,038,000 Commitment fees - 30,927,047 - 30,927,047 DD/TT/Swift fees 19,125,401 28,288,446 19,125,401 28,288,446 Credit card/ATM issuance and renewal fees 95,410,514 73,602,192 95,410,514 73,602,192 Prepayment and swap fees 25,903,423 9,155,487 25,903,423 9,155,487 Investment banking fees - - - - Asset management fees 28,025,896 31,636,130 - - Brokerage fees - - - - Remittance fees 19,496,434 16,335,899 19,496,434 16,335,899 Commission on letter of credit 41,844,221 39,070,618 41,844,221 39,070,618 Commission on guarantee contracts issued 105,364,117 102,435,724 105,364,117 102,435,724 Commission on share underwriting/issue 315,000 1,289,811 - - Locker rental 6,999,148 6,267,858 6,999,148 6,267,858 Other fees and commission income 121,110,781 152,393,934 116,921,158 148,955,997 Total fees and Commission Income 732,367,210 823,224,244 698,255,710 785,119,601

4.32 Fees and commission expense Group Bank Current Year Previous Year Current Year Previous Year ATM management fees 3,075,198 13,492,866 3,075,198 13,492,866 VISA/Master card fees 63,302,069 53,872,105 63,302,069 53,872,105 Guarantee commission - - - - Brokerage 504 213 - - DD/TT/Swift fees 5,383,328 5,210,946 5,383,328 5,210,946 Remittance fees and commission 4,135,000 678,276 4,135,000 678,276 Other fees and commission expense 3,913,379 1,733,335 2,634,880 - Total fees and Commission Expense 79,809,476 74,987,742 78,530,474 73,254,193

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4.33 Net trading income Group Bank Current Year Previous Year Current Year Previous Year Changes in fair value of trading assets (12,895,377) 19,246,771 (6,200,671) 1,667,088 Gain/loss on disposal of trading assets 221,805 4,909,578 - - Interest income on trading assets 31,886,370 32,302,668 31,886,370 32,302,668 Dividend income on trading assets 9,986,940 2,816,260 4,285,821 2,496,642 Gain/loss foreign exchange transation 390,686,304 356,358,458 390,686,304 356,358,458 Other - - - - Net trading income 419,886,042 415,633,736 420,657,825 392,824,856 Interest income from National Saving Bond of Rs. 31.89 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 15th July 2020 is Rs. 73.16 Million whose cost is Rs. 67.35 Million and as at 16th July 2019, fair value is NPR 77.36 Million whose cost is Rs. 65.35 Million.

4.34 Other operating income Group Bank Current Year Previous Year Current Year Previous Year Foreign exchange revauation gain 9,680,009 17,474,293 9,680,009 17,474,293 Gain/loss on sale of investment securities - - - - Fair value gain/loss on investment properties - - - - Dividend on equity instruments 16,900,000 497,378 47,775,000 19,497,378 Gain/loss on sale of property and equipment 2,274,780 7,260,044 2,274,780 7,260,044 Gain/loss on sale of investment property - - - - Operating lease income - - - - Gain/loss on sale of gold and silver - - - - Locker rent - - - - Other - 356,941 - - Total 28,854,789 25,588,656 59,729,789 44,231,715

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4.35 Impairment charge/(reversal) for loan and other losses Group Bank Current Year Previous Year Current Year Previous Year Impairment charge/(reversal) on loan and 8,295,173 3,704,992 8,295,173 3,704,992 advances to B/FIs Impairment charge/(reversal) on loan and 788,729,430 214,533,174 788,729,430 214,533,174 advances to customer Impairment charge/(reversal) on financial - (117) (117) Investment 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 797,024,603 218,238,049 797,024,603 218,238,049

4.36 Personnel Expenses Group Bank Current Year Previous Year Current Year Previous Year Salary 365,426,470 300,933,773 361,274,769 296,594,762 Allowances 341,502,724 291,232,509 337,649,618 287,199,182 Gratuity expense 30,434,689 60,121,254 29,800,082 60,032,789 Provident fund 36,650,885 30,363,340 36,235,715 29,910,476 Uniform 428,270 856,540 428,270 856,540 Training & development expense 15,065,864 16,737,055 14,986,368 16,663,115 Leave encashment 44,320,380 (24,021,541) 44,044,241 (24,153,415) Medical 2,012,479 1,994,817 2,012,479 1,994,817 Insurance 7,015,513 6,371,114 6,920,166 6,277,736 Employees incentive - 11,160,275 - 11,160,275 Cash-settled share-based payments - - - - Pension expense - - - - Finance expense under NFRS 86,844,989 184,421,876 86,843,738 184,416,357 Other expenses related to staff 33,810,137 31,565,527 33,411,340 31,019,930 Subtotal 963,512,400 911,736,540 953,606,787 901,972,566 Employees bonus 284,393,855 363,521,807 281,082,487 357,795,169 Grand total 1,247,906,254 1,275,258,347 1,234,689,274 1,259,767,735

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4.37 Other operating expenses Group Bank Current Year Previous Year Current Year Previous Year Directors' fee 2,674,000 2,126,000 2,618,000 2,056,000 Directors' expense 1,416,617 1,501,007 1,408,570 1,487,671 Auditors' remuneration 1,728,900 1,524,300 1,582,000 1,400,000 Other audit related expense - 112,314 - - Professional and legal expense 3,292,128 2,200,549 3,263,045 2,171,722 Office administration expense 441,153,046 408,803,290 438,726,291 405,949,499 Operating lease expense 122,696,445 99,246,813 121,421,765 97,398,813 Operating expense of investment properties - - - - Corporate social responsibility expense - - - - Onerous lease provisions - - - - Other 5,388,594 6,232,766 3,686,120 5,088,389 Total 578,349,731 521,747,039 572,705,791 515,552,094

4.37.1: Office administration expenses Group Bank Current Year Previous Year Current Year Previous Year Water and electricity 21,790,462 21,786,865 21,589,887 21,513,517 Repair and maintenance 34,873,236 24,875,139 34,785,783 24,797,956 a) Building 772,090 312,965 772,090 312,965 b) Vehicle 4,198,056 4,250,291 4,186,812 4,223,212 c) Computer and accessories 7,601,035 13,863,391 7,596,289 13,834,899 d) Office equipment and furniture 5,273,502 2,947,502 5,208,199 2,943,999 e) Other 17,028,553 3,500,990 17,022,393 3,482,882 Insurance 7,656,067 7,241,464 7,614,207 7,188,781 Postage, telex, telephone, fax 10,403,030 10,147,764 10,316,398 10,023,282 Printing and stationery 22,694,514 25,334,396 22,469,898 25,230,664 Newspaper, books and journals 288,400 348,869 273,858 336,970 Advertisement 56,568,933 49,843,834 56,414,034 49,510,636 Donation - - - - Security expense 98,278,596 88,689,684 98,278,596 88,689,684 Deposit and loan guarantee premium 25,341,825 21,976,730 25,341,825 21,976,730 Travel allowance and expense 4,789,624 5,908,687 4,561,017 5,809,752 Entertainment 12,411,962 17,124,572 12,381,884 17,099,102 Annual/special general meeting expense 432,947 493,569 421,641 488,417 Other 145,623,449 135,031,717 144,277,263 133,284,008 a) Outsource expense 60,323,471 56,920,242 59,262,748 55,431,840 b) Branch connectivity and SMS service 29,676,201 19,750,039 29,676,201 19,750,039 charge c) Fuel expense 13,838,450 15,071,521 13,756,346 14,896,319 d) Rate and tax 7,480,303 6,693,942 7,400,713 6,621,747 e) Office equipment (non-capitalized) 5,215,478 5,266,990 5,133,184 5,266,990 f) Other 29,089,547 31,328,984 29,048,072 31,317,073 Total 441,153,046 408,803,290 438,726,291 405,949,499

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4.38 Depreciation & Amortisation Group Bank Current Year Previous Year Current Year Previous Year Depreciation on property and equipment 139,938,034 132,426,750 138,551,145 130,966,839 Depreciation on investment property - - - - Amortisation of intangible assets 17,395,416 8,618,332 16,983,424 8,198,961 Total 157,333,449 141,045,082 155,534,569 139,165,799

4.39 Non operating income Group Bank Current Year Previous Year Current Year Previous Year Recovery of loan written off - 692,572 - 692,572 Other income 1,409,962 2,668,451 1,409,962 1,394,595 Total 1,409,962 3,361,023 1,409,962 2,087,168

4.40 Non operating expense Group Bank Current Year Previous Year Current Year Previous Year Loan written off 201,807 6,826,064 201,807 6,826,064 Redundancy provision - - - - Expense of restructuring - - - - Other expense 1,564,431 173,195 1,318,683 - Total 1,766,238 6,999,259 1,520,491 6,826,064

4.41 Income tax expense Group Bank Current Year Previous Year Current Year Previous Year Current tax expense Current year 762,269,398 973,129,676 751,726,953 957,816,576 Adjustments for prior years (3,379,369) 1,755,066 - - Deferred tax expense Origination and reversal of temporary 2,793,586 4,244,691 1,750,908 4,272,437 differences Changes in tax rate - - - - Recognition of previously unrecognised tax - - - - losses Total income tax expense 761,683,615 979,129,433 753,477,861 962,089,013

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4.41.1: Reconciliation of tax expense and accounting profit Group Bank Current Year Previous Year Current Year Previous Year Profit before tax 2,528,669,692 3,252,696,261 2,529,742,385 3,220,156,519 Tax amount at tax rate of 30% 767,863,408 981,508,878 758,922,715 966,046,956 Add: Tax effect of expenses that are not 76,435,424 60,103,538 76,430,191 58,401,409 deductible for tax purpose Less: Tax effect on exempt income (84,316,474) (66,727,674) (83,625,954) (66,631,789) Add/less: Tax effect on other items 1,701,257 4,244,691 1,750,908 4,272,437 Total income tax expense 761,683,615 979,129,433 753,477,861 962,089,013 Effective tax rate 30.1% 30.1% 29.8% 29.9%

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Statement of Distributable Profit or Loss For the year ended 15th July 2020 (As per NRB Regulation)

Bank Current Year Previous Year Net profit or (loss) as per statement of profit or loss 1,776,264,524 2,258,067,506 Appropriations: a. General reserve 355,253,499 451,613,501 b. Foreign exchange fluctuation fund 2,420,002 4,368,573 c. Capital redemption reserve 52,857,143 52,857,143 d. Corporate social responsibility fund 17,762,645 22,580,675 e. Employees' training fund - 143,366 f. Capital Adjustment Reserve - - g. Investment Adjustment Reserve - - h. Other - -

Profit or (loss) before regulatory adjustment 1,347,971,235 1,726,504,248 Regulatory adjustment : a. Interest receivable (-)/previous accrued interest received (+) (174,397,904) (87,474,238) 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 (+) (10,790,539) 35,376,642 f. Goodwill recognised (-)/ impairment of Goodwill (+) - - g. Bargain purchase gain recognised (-)/resersal (+) - - h. Acturial loss recognised (-)/reversal (+) (35,505,061) 62,478,491 i. Other (+/-) 2,584,829 (1,884,282) Distributable profit or (loss) 1,129,862,560 1,735,000,860 Opening balance of retained earning 1,751,506,637 1,136,681,538 Less: Cash dividend paid and bonus share issued during the year (1,684,474,829) (1,120,175,762) Add: Transfer from employee's training fund 143,366 - Total Distributable Retained Earnings 1,197,037,733 1,751,506,637

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Sanima Bank Ltd 5. Disclosures & Additional Information Year ended 15th July 2020

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

Board of Directors

Risk Management Committee

Credit Risk Chief Risk Officer Management

Risk Management Integrated Risk Management

Credit Risk Market and Reporting Operational Risk Liquidity Risk Treasury Mid Office

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5.1.1. Credit Risk Amount In NPR Current Year Previous Year Risk is an inherent feature of any business and it drives Deposits with own bank 1,038,190,042 1,146,152,193 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 return on capital. A reasonable level of return is essential for Nepal Government and - - sustainability of the business. However, taking higher risk Nepal Rastra Bank in search of higher earnings may have chances to result Gold & Silver 91,915,483 79,241,905 in failure of business. Thus effective risk management is a Total 1,130,105,525 1,243,656,142 must for business success. Towards this end Sanima Bank has implemented robust risk management architecture as Collateral and other credit enhancements well as policies and processes approved by the Board of Directors. These encompass independent identification, The amount and type of collateral required depends on an measurement and management of risks across various assessment of the credit risk of the counterparty. Guidelines facets of banking operation. are in place covering the acceptability and valuation of each type of collateral. The general creditworthiness of customers Board level risk management committee has been set tends to be the most relevant indicator of credit quality of a up under NRB Directive for ensuring/reviewing bank's loan. However, collateral provides additional security and the risk appetite are in line with the policies and CRO acts as Bank generally requests large borrowers to provide same. member secretary. CRO closely monitors and report on The Bank may take collateral in the form of a first charge credit related risks in RMC meeting. over real estate and residential properties, floating charges over all corporate assets and other liens and guarantees. Credit Risk Mitigation (CRM) The Bank’s policy is to pursue timely realisation of the collateral in an orderly manner. The proceeds are used to The Bank has extensive policy and guidelines to mitigate reduce or repay the outstanding claim. The Bank generally credit risks. The Bank’s credit policy has strengthened does not use non-cash collateral for its own operations. minimizing credit risk and provided support to make qualitative analysis based on sound credit principles and Definition of Past Due procedures. Bank has a policy to consider as security for pledge, hypothecated or mortgage which have value Bank consider that any amounts uncollected one day or considering physical control and legal title. Bank has more beyond their contractual due date are ‘past due’. considered eligible CRM as prescribed by Capital Adequacy standard. Collateral taken as Deposit with own Bank, Deposit Past due but not impaired loans with other BFIs, National Saving & Development Bonds, and Gold & Silver have been considered as CRM and adjusted Past due but not impaired loans are those for which on overall risk weighted exposure on credit risk in line with contractual interest or principal payments are past due, the standard. but the Bank believes that impairment is not appropriate on the basis of the stage of collection of amounts owed to The Bank has developed a risk assessment culture and has the Bank. in place the required reports for assessing concentration of risks. Periodic performance reporting based on Balanced 5.1.2. Market Risk Scorecard, in line with capital strength, to the Board is also in place. These reports are periodically put up to the board. Market risk is the risk that the fair value or future cash flows Board also reviews the same and issues instructions, as of financial instruments will fluctuate due to changes in appropriate, to the Bank’s management. market variables such as interest rates, foreign exchange

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rates, commodity prices and equity prices. The bank a policy of continuously managing assets with liquidity in classifies exposures to market risk into either trading or mind and of monitoring future cash flows and liquidity on non–trading portfolios and manages each of those portfolios a daily basis. The bank has formulated separate liquidity separately.The bank has separate market risk management risk management policy and developed internal control policy in place as a guiding document. processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash Market Risks are discussed at Asset Liability Management flows and the availability of high grade collateral which Committee (ALCO) of the Bank and even discussed at could be used to secure additional funding if required. respective division level on open position on daily basis. The limits for open position are controlled, level wise which The Bank maintains a portfolio of highly marketable and ensures in-depth knowledge of the market and movement diverse assets assumed to be easily liquidated in the event before taking decision (by choice). The monthly reports on of an unforeseen interruption of expected cash flow. The such aspects are well discussed and dealt in ALCO. The Bank also has committed lines of credit that could be committee ensures functioning of the jobs in line with the utilized to meet liquidity needs. Further, the Bank maintains policies and procedures and suggests/recommends for a statutory deposit with the Nepal Rastra Bank equal to necessary steps collectively to address the risk on interest approx. 3.17% of customer local deposits. In accordance rate movement, exchange rate movement and equity price with the bank’s policy, the liquidity position is assessed changes. Most of the market operations (investments) are and managed under a variety of scenarios, giving due done from the Treasury Front Office which reports to the consideration to stress factors relating to both the market Chief Financial Officer and exposure accounting including in general and specific to the Bank. The most important of booking of income/expense is done from Treasury Back these is to maintain the required ratio of liquid assets to Office which reports to the Chief Operating Officer. The Bank liabilities, to meet the regulatory requirement . Liquid assets assesses the open position on daily basis and calculates consist of cash, short–term bank deposits and liquid debt risk exposure for allocation of required capital in line with securities available for immediate sale. Further the Statutory Basel provisions. Likely impact on earnings due to change Liquidity Ratio of the Bank for the month of ended 15th July in the market condition and change in the standing of the is as follows. counterparty are well assessed periodically and necessary actions are taken as appropriate. TFO is equipped with Statutory Liquidity Ratio advanced dealing platform for timely and effectively For the month ended 15th July 2020 20.14% concluding the deals. Similarly the unit is equipped with modern and advanced information system on global news, Analysis of financial assets and liabilities by market movements and any incidents so that bank can remaining contractual maturities manage and maintain the position favorably. The table below summarises the maturity profile of the 5.1.3. Liquidity Risk & Funding management undiscounted cash flows of the Bank’s financial assets and liabilities as at 15th July 2020. Repayments which Liquidity risk is the risk that the Bank will encounter difficulties are subject to notice are treated as if notice were to be in meeting its financial commitments that are settled by given immediately. However, the Bank expects that many delivering cash or another financial asset. Hence the bank customers will not request repayment on the earliest date may be unable to meet its payment obligations when they it could be required to pay and the table does not reflect fall due under both normal and stress circumstances. To the expected cash flows indicated by its deposit retention limit this risk, management has arranged diversified funding history. sources in addition to its core deposit base, and adopted

Contractual maturities & undiscounted cashflows of financial assets & liabilities. Amount In NPR On Up to 3 to 12 More than 15 July 2020 Total Demand 3 months months 1 year Financial Assets Cash & Cash Equivalent 1,756,515,440 3,433,784,405 - - 5,190,299,845

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On Up to 3 to 12 More than 15 July 2020 Total Demand 3 months months 1 year Due from NRB - 5,325,683,135 - - 5,325,683,135 Derivative Financial Assets - 40,221,461 - - 40,221,461 Due from Banks and Financial - 1,395,436,718 1,431,649,952 - 2,827,086,670 Institutions Loans & Advances (Net) - 23,966,706,349 16,050,997,255 53,676,859,464 93,694,563,068 Investment Securities - 1,276,308,296 494,321,572 13,691,242,624 15,461,872,491 Investment in subsidiaries - - - 250,000,000 250,000,000 Total Undiscounted Assets 1,756,515,440 35,438,140,364 17,976,968,779 67,618,102,087 122,789,726,670 Financial Liabilities Due to Bank and Financial 168,500,423 2,627,303,332 480,171,082 - 3,275,974,837 Instituions Due to NRB - 33,657,933 52,634,555 - 86,292,488 Due to Customers 1,217,439,732 25,460,480,865 26,169,881,431 54,402,400,660 107,250,202,687 Debts Issued & Other Borrowed - - - 1,724,712,000 1,724,712,000 Funds Other Financial Liabilities 94,227,474 113,277,744 - 103,358,139 310,863,358 Total Undiscounted Liabilities 1,480,167,629 28,234,719,875 26,702,687,067 56,230,470,799 112,648,045,370 Net Financial 276,347,811 7,203,420,489 (8,725,718,288) 11,387,631,288 10,141,681,300 Assets/(Liabilities) 5.1.4. Fair value of Financial instruments reporting date. For unquoted securities those are carried at cost. Financial instruments are recorded at fair value. The following is a description of how fair values are determined 5.1.5. Operational Risk for financial instruments that are recorded at fair value using valuation techniques. These incorporate the bank’s Operational risk is the risk of losses arising from failed estimate of assumptions that a market participant would internal processes, systems failure, human error, fraud or make when valuing the instruments. external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or For all financial instruments where fair values are regulatory implications, or lead to financial loss. Strategic determined by referring to externally quoted prices or and Reputational Risks are not covered in Operational Risk. observable pricing inputs to models, independent price determination or validation is obtained. In an inactive market, Effective operational risk management systems aims to direct observation of a traded price may not be possible. minimizing losses and customer dissatisfaction due to In these circumstances, the Bank uses alternative market failure in processes, focusing on flows in products and their information to validate the financial instrument’s fair value, design that can expose the Bank to losses due to fraud, with greater weight given to information that is considered to analyzing the impact of failures in technology / system, be more relevant and reliable. Financials assets measured developing plans to meet external shocks that can adversely at fair value (either through PL or OCI), primarily consisting impact continuity in the Bank’s operations. Bank has of quoted equities and quoted mutual fund units, are valued introduced a “comprehensive operational risk monitoring using the quoted market price in active markets as at the and reporting framework” as well as “output checking” reporting date. If unquoted, those are carried at cost. at all branches covering all transactions on daily basis to minimize operational risk. Financial investments – Measured through OCI One of the growing risks among others these days is Financials assets measured through OCI, primarily consist Operations Risk that arises out of inefficient processes of quoted equities and quoted mutual fund units, are valued and people inside and outside the Bank. Asset Liability using the quoted market price in active markets as at the Management Committee (Alco) is the management

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

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and hedging strategies are used to ensure positions major components; first is an internal process to identify, are maintained within established limits. Market risk measure, manage and report risks to which the bank is management policy and Treasury Manual of the bank are exposed or could be exposed in the future; and second is the guiding documents for the management and mitigation an internal process to plan and manage a bank’s capital of currency risk. so as to ensure adequate capital. The Bank prepares the ICAAP report annually complying with the NRB requirement. The table below indicates the currencies to which the The report is reviewed and analyzed by Risk Management bank had significant exposures as at 15 July 2020 and Committee and Board. The report is prepared as per BASEL the effect to the Gain/Loss in case of a market exchange III norms considering various adverse scenarios. The Bank rates up/drop by 5 %. The analysis calculates the effect also conducts the stress testing on thirty two different of a reasonably possible movement of the currency rate unfavorable scenarios on quarterly basis and is reviewed against the NPR, with all other variables held constant, on by senior management, Risk Management Committee and the income statement (due to the fair value of currency Board. The Bank in line with BASEL provisions and ICAAP sensitive non–trading monetary assets and liabilities) and document assesses risk exposures and allocated sufficient equity (due to the change in fair value of currency swaps capital/cushion for perceived risks. The adequacy of capital and forward foreign exchange contracts used as cash flow is main agenda of any ALCO, Man-Com and Board meetings. hedges). A negative amount in the table reflects a potential net reduction in income statement or equity, while a positive 5.2.2. Quantitative disclosures amount reflects a net potential increase. An equivalent decrease in each of the below currencies against NPR 1 Capital structure and capital adequacy would have resulted in an equivalent but opposite impact. • Tier 1 Capital and a breakdown of its Components: Net Open Effect on the Currency Code Position exchange Particulars Amount (NPR) (Liability) gain/(loss) Paid up Equity Share Capital 8,801,380,984 All Currencies 89,095,764 4,454,788 Share Premium - 5.2. CAPITAL MANAGEMENT Proposed Bonus Equity Shares - Statutory General Reserves 1,978,911,000 The Bank's capital management policies and practices Retained Earnings 1,197,037,733 support its business strategy and ensure that it is adequately Un-audited current year cumulative profit - capitalised to withstand even in severe macroeconomic Capital Redemption Reserves Fund 264,285,715 downturns. Sanima Bank is a licensed institution that provides Capital Adjustment Reserves 20,187,887 financial services. Therefore it must comply with capital Dividend Equalization Reserves - requirement of central bank which is Nepal Rastra Bank. Deferred Tax Reserve - The Bank's capital consists of Tier I capital and Tier II capital. Less: Goodwill - 5.2.1. Qualitative disclosures Less: Intangible Assets 60,545,750 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 Less: Investment in equity of licensed - material risk inherent in business for assessing capital Financial Institutions Less: Investment in equity of institutions adequacy in relation to the risk profiles as well as strategies for 781,500,000 maintaining capital levels. This includes basic requirements with financial interests Less: Investment in equity of institutions of having good governance, efficient process of managing - all material risks and an effective regime for assessing and in excess of limits Less: Investments arising out of maintaining adequate capital. The Bank has various BODs - underwriting commitments approved risk management policies for proper governance. Less: Purchase of Land & Building in The Bank has developed a comprehensive ICAAP document - excess of limit & utilized which is subject to review every year. The ICAAP has two

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Particulars Amount (NPR) • Total Qualifying Capital: Less: Reciprocal crossholdings - Particulars Amount (Rs.) Less: Other Deductions - Core Capital (Tier 1) 11,419,757,569 Total Tier 1 Capital 11,419,757,569 Supplementary Capital (Tier 2) 2,895,363,047 • Tier 2 Capital and Breakdown of its Components: Total Capital Fund 14,315,120,616

• Capital Adequacy Ratio: Particulars Amount (NPR) Cumulative and/or Redeemable - The capital adequacy ratio of the bank as on 15th July, Preference Share 2020 is 13.00%. Subordinated Term Debt 1,502,712,000 Hybrid Capital Instruments - • Summary of the bank’s internal approach to assess the adequacy of its capital to support current Stock Premium - and future activities, if applicable: General loan loss provision 1,376,005,373 Exchange Equalization Reserves 16,295,674 Sanima Bank adopts healthy risk management framework. The bank follows Internal Capital Adequacy Assessment Investments Adjustment Reserves 350,000 Process (ICAAP) and Risk Management Guideline while Assets Revaluation Reserves - taking decision on any business. It has always taken note Special Reserve Fund - of ICAAP and has taken steps accordingly in ensuring soundness of capital position and sustainability of the Total Tier 2 Capital 2,895,363,047 business. The bank’s policies and procedures are approved by the Board of Directors and these documents provide • Details of Subordinated Term Debt: guidance on independent identification, measurement and management of risks across various businesses. The Bank has issued “7% Sanima Debenture 2079” of Bank’s different committees like Audit Committee, Risk face value NPR 1,000 per unit of NPR 370,000,000 Management Committee review the business and risks on 20th Shrawan 2072 having maturity of 7 years periodically and take account of stress test results, scenario from issue. The bank has also issued "10% Sanima analysis so as to align risk, return and capital in sustainable Debenture 2085" of face value NPR 1,000 per unit of manner. NPR 1,354,712,000 on 30th Poush 2075. The bank has created debenture redemption reserve as per the The bank also defines risk aspects, considering domestic requirement of NRB, the balance of which stands at economic scenario, and puts in place the system to minimize NPR 264,285,715. As at the year end, the outstanding and remove such risk. The risk appetite and approach amount of debenture is NPR 1,724,712,000 whereas towards risk taking is well discussed in management level NPR 1,502,712,000 is only eligible to be recognized as and board level. It is always aligned with the business, its supplementary Capital (Tier II). return and capital. Basel disclosures have been complied with, addressing the risks and adopting measures to • Deductions from Capital: minimize their impact. Increasing complexities in risks, weakness of businesses and fast changing world with The Bank has invested NPR 250,000,000 in its merchant intense competition pose a threat to sustainability. banking subsidiary 'Sanima Capital', NPR 280,000,000 in 'Sanima Life Insurance', NPR 50,000,000 in Capital planning is an integral part of the bank’s medium Swet Ganga Hydropower and Construction Ltd, NPR term strategic planning and annual budget formulation 6,400,000 in Sanima Middle Tamor Hydro Power Ltd. process. Total risk weighted exposures for the projected , NPR 37,500,000 in Mathillo Mailun Khola Jalvidhyut level of business operations is calculated, the required Ltd. and NPR 100,000,000 in Sanima Insurance Co. Ltd. capital level is projected, and a plan is formulated to retain Accordingly, NPR 781,500,000 has been deducted from the required capital. The bank is well capitalized and able Core Capital. to maintain the required capital through internal generation,

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and equally through capital markets if needed. Categories Amount (NPR) Past due claims 585,167,999 • Summary of terms, conditions and main feature High Risk claims 12,078,800,817 of all capital instrument, especially in case of subordinated term debts including hybrid capital Other Assets 4,165,834,703 instrument: Off Balance Sheet Items 8,130,891,892 Total 99,649,955,042 The Bank has issued “7% Sanima Debenture 2079” of face value NPR 1,000 per unit for NPR 370,000,000 on • Total Risk Weight Exposures calculation Table: 20th Shrawan 2072 and “10% Sanima Debenture 2085” of face value NPR 1000 per unit on 30th Poush 2075 for RISK WEIGHTED EXPOSURES Amount (NPR) NPR 1,354,712,000. The main features of these capital Risk Weighted Exposure for Credit Risk 99,649,955,043 instruments are as follows: Risk Weighted Exposure for Operational 5,542,602,737 Risk Instrument: 7% Sanima Debenture 2079 Risk Weighted Exposure for Market Risk 1,700,706,787 Interest Rate: 7% Add: 2% of the total RWE added by 1,049,300,000 Maturity period: 7 Years Supervisory Review Interest Payment Frequency: Half yearly Add: RWE equivalent to reciprocal of capital Instrument: 10% Sanima Debenture 2085 charge of 2% of Gross Income 2,137,865,291 Interest Rate: 10% Total Risk Weighted Exposures (After 110,080,429,858 Maturity period: 10 Years Bank's adjustment of Pillar II) Interest Payment Frequency: Half yearly Total Core Capital 11,419,757,569 Total Capital 14,315,120,616 2 Risk exposures • Amount of Non-Performing Assets (both Gross and Net): • Risk weighted exposures for credit Risk, Market Risk and Operational Risk: In NPR Gross Loan Loss Particulars Net NPL RISK WEIGHTED EXPOSURES Amount (NPR) Amount Provision Risk Weighted Exposure for Credit Risk 99,649,955,043 Restructured - - - Risk Weighted Exposure for Operational 5,542,602,737 Sub-Standard 47,069,446 11,767,361 35,302,085 Risk Doubtful 279,859,877 139,929,939 139,929,938 Risk Weighted Exposure for Market Risk 1,700,706,787 Loss 95,703,303 95,703,303 - Total Risk Weighted Exposures (Before 106,893,264,567 Bank's adjustment of Pillar II) Total 422,632,626 247,400,603 175,232,023

• Risk Weighted exposures under each 11 5.2.3. Compliance with external requirement categories of Credit Risk: The bank, at all times, has complied the externally imposed Categories Amount (NPR) capital requirements. In the capital adequacy calculation Claims on Government and Central Bank - of 15th July 2020 (presented above), the bank has added 2% of total risk weighted exposures to its risk weighted Claims on Other Financial Entities - exposures as per the direction from Nepal Rastra Bank as Claims on Banks 1,832,119,257 part of supervisory review. Claims on Domestic Corporate and 50,375,889,872 Securities Firms 5.3. Classification of financial assets and financial Claims on Regulatory Retail Portfolio & 16,015,274,506 Other Retail Portfolio liabilities Claims secured by residential properties 3,960,957,547 Analysis of financial instruments by measurement basis- Claims secured by Commercial real 2,505,018,449 as at 15 July 2020 estate

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Financial instruments are measured on an ongoing basis either at fair value or at amortized cost. The summary of significant accounting policies describes how the classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognized. The following table shows the analysis of the carrying amounts of the financial assets and liabilities by category as defined in NAS 39 : Current Year (Amount In NPR) Fair Value through Fair Value through Amortized Cost Total PL OCI Financial Assets Cash & Cash Equivalents - 5,190,299,845 - 5,190,299,845 Due from Nepal Rastra Bank - 5,325,683,135 - 5,325,683,135 Placement with Bank and - 2,827,086,670 - 2,827,086,670 Financial Institutions Derivative Financial Assets 40,221,461 - - 40,221,461 Loan and Advances to B/FIs - 2,844,211,678 - 2,844,211,678 Loans & Advances to Customers - 90,850,351,390 - 90,850,351,390 Other Trading Assets 443,453,005 - - 443,453,005 Investment Securities - 14,317,180,062 701,239,424 15,018,419,486 Investment in subsidiaries - 250,000,000 - 250,000,000 Other Financial Assets - - - - Total Financial Assets 483,674,466 121,604,812,780 701,239,424 122,789,726,670 Financial Liabilities Due to Bank and Financial - 3,275,974,837 - 3,275,974,837 Institutions Due to Nepal Rastra Bank - 86,292,488 - 86,292,488 Derivative financial instruments - - - - Deposits from customers - 107,250,202,687 - 107,250,202,687 Borrowing - - - - Debt securities issued 1,724,712,000 1,724,712,000 Other Financial Liabilities - 310,863,358 - 310,863,358 Total Financial Liabilities - 112,648,045,370 - 112,648,045,370

Previous Year (Amount In NPR) Fair Value through Fair Value through Amortized Cost Total PL 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 - 827,701,829 - 827,701,829 Financial Institutions 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 subsidiaries - 250,000,000 - 250,000,000 Other Financial Assets - - - -

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Fair Value through Fair Value through Amortized Cost Total PL OCI Total Financial Assets 569,488,700 104,867,841,972 677,947,730 106,115,278,401 Financial Liabilities Due to Bank and Financial - 3,694,458,442 - 3,694,458,442 Institutions 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

5.4. Segment wise information

1 The bank has identified its four segments (banking, treasury, card and remittance) 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. The bank has used Fund Transfer Pricing (FTP) method to recognize income/expense for inter segment transactions. The segmental financial information summarized below:

2 The segmental information about profit or loss, assets and liabilities is presented below:

In NPR ‘000’ Particular Banking Treasury Card Remittance Total Revenues from external a 11,296,255 1,232,501 101,526 19,496 12,649,779 customers b Intersegment revenues (409,804) 399,603 (925) 11,126 - c Net Revenue 10,886,451 1,632,104 100,600 30,623 12,649,779 d Interest Revenue 10,709,221 754,389 6,115 - 11,469,725 e Interest Expense 7,071,456 208,575 - - 7,280,031 f Net interest revenue (b) 3,637,765 545,814 6,115 - 4,189,694 g Depreciation and amortisation 138,426 3,111 12,443 1,555 155,535 h Segment profit/(loss) 865,869 889,649 8,632 12,114 1,776,265 Entity's interest in the profit or i loss of associates accounted for - - - - - using equity method

j Other material non-cash items - - - - -

k Impairment of assets 1,833,134 - - - 1,833,134 l Segment assets 99,928,347 26,178,334 188,805 15,495 126,310,981 m Segment liabilities 112,895,312 516,464 83,028 (2,426) 113,492,376

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3 Measurement of operating segment profit or Revenue from each type of product and services: loss, assets and liabilities c Remittance 19,496 d Banking 11,296,255 (a) The bank has used Fund Transfer Pricing (FTP) method to recognise income/expense for any transactions Total Revenue 12,649,779 between reportable segments. (b) Reportable segment's profit or loss and the entity's 6 Information about geographical areas profit or loss before income tax has been computed on similar basis. Revenue from following geographical areas (c ) Reportable segment's assets and the entity's assets has been measured on similar basis. a Domestic 12,649,779 Province -1 1,006,034 4 Reconciliation of reportable segment revenues, Province -2 505,234 profit or loss, assets and liabilities: Bagmati Province 10,190,378 Gandaki Province 293,061 (a) Revenue Province -5 342,439 Total revenues for reportable 12,649,779 Karnali Province 83,959 segments Sudurpashchim Province 228,674 Other revenues - b Foreign - Elimination of intersegment revenues - Total 12,649,779 Entity's revenue 12,649,779 (b) Profit or Loss 7 Information about major customers Total profit or loss for reportable 1,366,461 segments Revenue from any customers does not amounts to 10 Other Profit or loss - percent or more of the entity's revenue. Elimination of intersegment Profit 409,804 Unallocated amounts: - 5.5. Share options and share based payments Entity's profit 1,776,265 (c ) Assets The bank has no any share options and share based Total Assets for reportable segments 126,310,981 payments. Other assets - 5.6. Contingent liabilities and commitment Unallocated amounts: - Entity's Assets 126,310,981 Litigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Bank (d) Liabilities has formal controls and policies for managing legal claims. Total Liabilities for reportable Once professional advice has been obtained and the amount 113,492,376 segments of loss reasonably estimated, the Bank makes adjustments to account for adverse effects which the caims may have Other Liabilities - on its financial standing. There were no pending litigation Unallocated amounts: - against the Bank as at 15th July 2020 which would have a Entity's Liabilities 113,492,376 material impact on the Financial Statements.

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 a Treasury 1,232,501 course of business on an arm's length basis at commercial b Card 101,526 rates with parties who are defined as related parties as per the Nepal Accounting Standard - NAS 24 - ‘Related

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Party Disclosures’, except for the transactions that Key Current Previous Management Personnel (KMPs) have availed under schemes Year Year uniformly applicable to all staff at concessionary rates. Post-employment benefits 5,613 6,697 Those transactions include lending activities, acceptance of Other Allowances 1,550 2,874 deposits, Off-Balance Sheet transactions and provision of other banking and finance services. Share Based Payment - - Total 38,242 39,278 5.7.1. Parent and Ultimate Controlling Party Grand Total 56,883 57,505

The Bank does not have an identifiable parent of its own. In addition to the above, the Bank has also provided non- cash benefits such as fuel, medical benefits to KMP who 5.7.2. Transactions with Key Managerial Personnel (KMPs) are employees of the Bank in line with the approved benefit plans of the Bank. Employee Bonus has been provided as As per NAS 24 – Related Party Disclosures’, Key Management per prevailing laws. Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the 5.7.4. Transactions, Arrangements and Agreements activities of the entity. According to the definition a person involving KMPs and Close Family Members (CFM) cannot be considered as a KMP unless such person have both the authority and responsibility to carry out all the three CFMs of the KMP are those family members who may be activities mentioned in the above definition, (i.e. planning, expected to influence, or to be influenced by, that individual directing and controlling the activities of the entity). in their dealings with the entity. They may include individual’s domestic partner and children, children of the individual’s Accordingly the Board of Directors of the Bank and domestic partner and dependents of the individual or the Management Committee are considered as KMP of the Bank. individual’s domestic partner.

5.7.3. Compensations of KMP 5.7.5. Loans & receivables to KMPS and their CFMs: Amount In NPR '000 Amount In NPR '000 Current Previous Year Year Current Year Previous Year Closing Closing To Directors: Limit Limit Balance Balance Sitting fees & expenses 4,027 3,544 Loans and 163,112 142,763 113,342 108,095 Total 4,027 3,544 Receivables To CEO: Credit Cards 2,891 168 1,851 176 Short term employee benefits 12,012 11,836 166,004 142,931 115,193 108,271 Festival Allowance and payment 1,882 1,622 against annual leave 5.7.6. Deposits and Investments from KMPs and their Post-employment benefits 721 712 CFMs: Other Allowances - 514 Amount In NPR '000 Share Based Payment - - Current Year Previous Year Total 14,615 14,684 Deposits & Investments 7,118 4,646 To Other Senior Management 7,118 4,646 Personnel: Short term employee benefits 26,736 26,247 5.7.7. Transactions, Arrangements and Agreements Festival Allowance and payment involving Related Party Entities 4,344 3,460 against annual leave Amount In NPR '000

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Related Nature of Nature of Current Previous interest/principal recovered till 16th September 2020, from Party Relation Transaction Year Year internal source of fund of borrowers. SLA Income 1,581 1,493 Sanima RTS Expense 450 350 5.9. Merger & Acquisition Capital Subsidiary Investment in Ltd. (100% 250,000 250,000 No mergers and acquisitions have taken place during the year. holding) Shares Deposit 174,028 144,013 5.10. Additional disclosures of non-consolidated entities The Bank has entered into Service Level Agreement with its Results of a subsidiary (Sanima Securities Ltd.) which subsidiary (Sanima Capital Ltd.) to provide operational and was incorporated lately during previous year has not been technical assistance for a fee of Rs. 1.2 million for base year consolidation by the Bank as no any transactions were and annual increment of 10% on base year fee. performed and also the capital was not injected till year end. Till the date of authorization of financial statements, 5.7.8. Interest Expense to KMP and their CFMs and Entities the subsidiary has not come into operation. The Bank has which are controlled and / or jointly controlled by the no substantial interest in other entities. KMPs or their CFMs Amount In NPR '000 5.11. Earnings Per Ordinary Share Current Year Previous Year Earnings Per Share- Basic (NPR) Interest Income 6,558 5,253 Interest Expenses 385 590 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 5.7.9 Investment in mutual fund outstanding during the year, as per the NAS 33 - Earnings per Share. Bank has sponsored sanima equity fund by initial investment of NPR 169 million (13%) with its subsidiary (Sanima Capital) has total investment of NPR 202.93 million (15.61%). Current Year Previous Year Similarly, Sanima equity fund has appointed Sanima Capital Profit Attributable to as a fund manager with an annual fee 1.75% of net assets 1,776,264,524 2,258,067,506 ordinary Shareholders value (NAV) managed and depository with an annual fee 0.5% of NAV. Weighted average number of Ordinary 88,013,810 80,012,554 5.8. Events after the reporting date Shares

Basic Earnings per 20.18 28.22 Impairment loss on loans and advances as per NRB Ordinary Share (NPR) directive has been reassessed considering the overdue

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 8,001,255 8,001,255 - - 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 88,013,810 88,013,810 80,012,554 80,012,554

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Earnings Per Share- Diluted (NPR) Current Year Previous Year Weighted average The calculation of Diluted Earnings Per Share as at reporting number of ordinary 88,013,810 80,012,554 date is based on sum of profit attributable to equity holders shares used for of the Bank plus notional earning's from the possible Diluted EPS Diluted Earnings per dilution divided by the weighted average number of ordinary 20.18 28.22 shares outstanding during the year, after adjustment for the Ordinary Share (NPR) effects of all potentially dilutive weighted average number of ordinary shares. 5.12 Dividend

The Board of Directors of the Bank, vide board resolution Current Year Previous Year dated 13th October 2020, has recommended the distribution Profit Attributable to 1,776,264,524 2,258,067,506 ordinary Shareholders of 10% of Paid up capital as Stock dividend amounting to NPR 880,138,098.40 and 3.6% of Paid of Capital as Notional Earnings - - Cash dividend (including tax on dividend) amounting to Total Earnings NPR 316,849,715.42 from the retained earnings at the Attributable to 1,776,264,524 2,258,067,506 ordinary Shareholders end of the year 2019/20 which equates to a distribution Weighted average of 13.6% dividend amounting to NPR 1,196,987,813.82. number of Ordinary During the year, Bank has paid 10% of paid up capital as 88,013,810 80,012,554 Shares used for Basic Stock dividend amounting to NPR 800,125,544.00 and EPS 11.05263% of paid up Capital as Cash dividend (including Weighted average tax on dividend) amounting to NPR 884,349,285.47 from number of potential - - ordinary shares the retained earnings at the end of the year 2018/19 which outstanding equates to a distribution of 21.05263% dividend amounting to NPR 1,684,474,829.47.

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Principal Indicators

Particulars Indicators FY 2015/16 FY 2016/17 FY 2017/18* FY 2018/19* FY 2019/20* 1 Percent of Net Profit/Gross Income Percent 26.63 22.84 18.55 18.86 14.04 2 Earning Per Share NPR 32.55 26.31 21.22 28.22 20.18 3 Market Value Per Share NPR 750 431 324 348 330 4 Price Earning Ratio Times 23.04 16.38 15.27 12.33 16.35 5 Dividend (Including Bonus) Percent 15.79 16.00 14.00 21.05 13.60 6 Cash Dividend Percent 0.79 - 14.00 11.05 3.60 7 Interest Income/Loan & Advances Percent 7.98 9.76 11.71 12.89 12.24 8 Staff Expenses/Total Operating Expenses Percent 44.09 44.55 61.61 63.38 60.48 Interest Expenses / Total Deposit and 9 Percent 3.10 4.79 6.40 6.96 6.58 Borrowing 10 Exchange Gain/Total Income Percent 4.11 3.40 3.09 3.12 3.17 11 Staff Bonus/Total Staff Expenses Percent 54.72 54.94 31.01 28.40 22.77 12 Net Profit/Loan and Advances Percent 2.44 2.52 2.45 2.71 1.90 13 Net Profit/Total Assets Percent 1.78 1.86 1.85 2.07 1.41 14 Total Credit/Deposit Percent 88.10 89.03 87.45 90.42 85.10 15 Total Operating Expenses/Total Assets Percent 1.05 1.09 1.53 1.82 1.62 Adequacy of Capital Fund on Risk Weighted 16 Assets a) Core Capital Percent 10.69 14.07 11.14 10.63 10.37 b) Supplementary Captial Percent 1.67 1.50 1.27 2.56 2.63 c) Total Capital Fund Percent 12.36 15.57 12.41 13.19 13.00 17 Liquidity Percent 24.24 26.08 24.72 22.87 24.01 18 Non-Performing Loan/Total Credit Percent 0.019 0.010 0.030 0.08 0.45 19 Weighted Average Interest Rate Spread Percent 4.63 4.26 4.66 4.35 3.47 20 Book Net-Worth NPR 5,352,251,266 9,060,833,497 10,787,885,501 11,989,548,059 12,818,604,934 21 Total Number of Shares Nos. 30,602,880 68,976,340 80,012,554 80,012,554 88,013,810 22 Total Staff Nos. 470 601 862 962 1,072 23 No. of Branches (including Head Office) Nos. 40 46 74 78 79 24 Base Rate Percent 6.07 10.20 9.91 9.45 8.62 25 Return on Equity Percent 22.69 14.39 18.67 23.20 16.09 26 Return on Assets Percent 1.78 1.86 1.85 2.07 1.41 27 Total Assets to Shareholders Fund Times 14.97 7.73 8.51 9.10 9.85 *Based on NFRS

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Comparision-Unaudited and Audited Financial Statements of FY 2019/20 NPR in '000 Statement of Financial Position As per As per Variance unaudited Audited Reasons for Variance Assets Financial Financial In amount In % Statement Statement Cash and cash equivalent 5,190,300 5,190,300 - - Due from Nepal Rastra Bank 5,325,683 5,325,683 - - Placement with Bank and Financial Institutions 2,827,087 2,827,087 - - Derivative financial instruments 40,221 40,221 - - Other trading assets 443,453 443,453 - - Loan and advances to B/FIs 2,655,930 2,844,212 188,282 7.09 Reclassification of assets head and change in LLP Loans and advances to customers 90,566,104 90,850,351 284,247 0.31 Investment securities 15,018,419 15,018,419 - - Current tax assets 40,802 4,201 (36,601) - Due to change in profit Investment in susidiaries 250,000 250,000 - - Investment in associates - - - - Investment property - - - - Property and equipment 1,159,093 1,177,211 18,119 1.56 Acquisition of additional fixed assets Goodwill and Intangible assets 60,525 60,546 20 0.03 Additional amortization Deferred tax assets 26,855 25,565 (1,290) (4.80) Deferred tax computation Recognition of unpaid dividend as receivable from RTS and Other assets 2,531,171 2,253,731 (277,440) (10.96) reclassification of assets head Total Assets 126,135,643 126,310,981 175,338 0.14 Liabilities

Due to Bank and Financial Instituions 3,690,391 3,275,975 (414,416) (11.23) Reclassification of liabilities head Due to Nepal Rastra Bank 86,292 86,292 - - Derivative financial instruments - - - - Deposits from customers 106,835,786 107,250,203 414,416 0.39 Reclassification of liabilities head Borrowing - - - - Current Tax Liabilities - - - - Provisions 33,089 32,429 (660) (2.00) Reversal of provisions Deferred tax liabilities - - - - Due to recognition of unpaid dividend and change in actuarial valuation Other liabilities 1,018,582 1,122,765 104,184 10.23 of employee benefits Debt securities issued 1,724,712 1,724,712 - - Subordinated Liabilities - - - - Total liabilities 113,388,853 113,492,376 103,524 0.09 Equity Share capital 8,801,381 8,801,381 - - Share premium - - - - Retained earnings 1,119,722 1,197,038 77,315 6.90 Due to change in profit and regulatory adjustment Reserves 2,825,687 2,820,186 (5,501) (0.19) Total equity attributable to equity holders 12,746,790 12,818,605 71,815 0.56 Non-controlling interest - - - - Total equity 12,746,790 12,818,605 71,815 0.56 Total Liabilities and Equity 126,135,643 126,310,981 175,338 0.14 Income heads reclassification and change in accrued interest income Interest income 11,495,494 11,469,725 (25,769) (0.22) of bad loans Interest expense 7,280,031 7,280,031 - - Net interest income 4,215,463 4,189,694 (25,769) (0.61) Income heads reclassification and change in accrued interest income Fee and commission income 694,967 698,256 3,289 0.47 of bad loans Fee and commission expense 75,948 78,530 2,582 3.40 Income heads reclassification & reversal of provision Net fee and commission income 619,019 619,725 706 0.11 Net interest, fee and commission income 4,834,482 4,809,420 (25,062) (0.52) Net trading income 388,771 420,658 31,886 8.20 Income heads reclassification Other operating income 59,660 59,730 70 0.12 Total operaing income 5,282,913 5,289,807 6,894 0.13 Impairment charge/(reversal) for loans and other losses 883,459 797,025 (86,434) (9.78) Change in LLP Net operating income 4,399,455 4,492,783 93,328 2.12 Operating expense Personnel expenses 1,252,548 1,234,689 17,859 1.43 Change in actuarial valuation of employee benefits and staff bonus Other operating expenses 572,275 572,706 (431) (0.08) Additional adjustments Depreciation & Amortisation 156,019 155,535 484 0.31 Operating profit 2,418,613 2,529,853 111,240 4.60 Non operating income 1,408 1,410 2 0.14 Non operating expense 1,520 1,520 - - Profit before income tax 2,418,500 2,529,742 111,242 4.60 Income tax expense Current Tax 715,126 751,727 36,601 5.12 Due to change in profit Deferred Tax - 1,751 1,751 - Deferred tax computation Profit /(loss) for the period 1,703,374 1,776,265 72,891 4.28 Other comprehensive income (28,187) (29,263) (1,076) 4 Due to change in actuarial valuation of employee benefits Total comprehensive income 1,675,187 1,747,001 71,815 4.29 Distributable Profit Net profit/(loss) as per profit or loss 1,703,374 1,776,265 72,891 4.28 Appropriations: Profit required to be appropriated to statutory reserves (412,986) (428,293) (15,308) 3.71 Due to change in profit Profit required to be (transferred to)/reversed from Due to change in AIR, deferred tax and actuarial valuation of employee Regulatory Reserve (237,698) (218,109) 19,589 (8.24) benefits Profit/(loss) after Regulatory adjustments 1,052,691 1,129,863 77,172 7.33

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Capital Adequacy Table 15th July 2020 Form No. 1 NPR In million Particulars Current Year Previous Year a Common Equity Tier 1 Capital 11,419.76 10,770.22 b Tier 1 Capital 11,419.76 10,770.22 c Tier 2 Capital 2,895.36 2,594.20 d Total Capital 14,315.12 13,364.41 e Risk Weighted Exposures 110,080.43 101,286.28

Regulatory Ratios a Leverage Ratio (Regulatory Requirement >= 4%) 8.03 8.56 b Common Equity Tier 1 to Risk Weighted Exposure Ratios 10.37 10.63 c Tier 1 to Risk Weighted Exposure Ratios 10.37 10.63 d Total Capital to Risk Weighted Exposure Ratio 13.00 13.19

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Capital Adequacy Table 15th July 2020 Form No. 1A NPR In million 1. 1 RISK WEIGHTED EXPOSURES Current Year Previous Year a Risk Weighted Exposure for Credit Risk 99,649.96 90,990.90 b Risk Weighted Exposure for Operational Risk 5,542.60 4,586.57 c Risk Weighted Exposure for Market Risk 1,700.71 1,595.03 Total Risk Weighted Exposures (Before adjustments of Pillar II) 106,893.26 97,172.50 Adjustments under Pillar II ALM policies & practices are not satisfactory, add 1% of net interest SRP 6.4a (5) - - income to RWE SRP 6.4a (6) Add .....% of the total deposit due to insufficient Liquid Assets - - Add RWE equvalent to reciprocal of capital charge of 2% of gross income SRP 6.4a (7) 1,049.30 1,198.60 this year and 3% of gross income last year SRP 6.4a (9) Add 2% of RWE this year and 3% of RWE last year 2,137.87 2,915.18 If desired level of disclosure requirement has not been achieved, Add SRP 6.4a (10) - - .....% of RWE Total Risk Weighted Exposures (After Bank's adjustments of Pillar II) 110,080.43 101,286.28

1.2 CAPITAL Current Year Previous Year (A) Tier 1 Capital [Core Capital (CET 1 + AT 1)] 11,419.76 10,770.22 Common Equity Tier 1 (CET 1) 11,419.76 10,770.22 a Paid up Equity Share Capital 8,801.38 8,001.26 b Equity Share Premium c Proposed Bonus Equity Shares d Statutory General Reserves 1,978.91 1,623.66 e Retained Earnings 1,197.04 1,751.51 f Unaudited current year cumulative profit/(loss) 0.00 0.00 g Capital Redemption Reserve 264.29 211.43 h Capital Adjustment Reserve 20.19 20.19 i Dividend Equalization Reserves j Other Free Reserve k Less: Goodwill l Less: Intangible Assets 60.55 70.32 m Less: Deferred Tax Assets n Less: Fictitious Assets o Less: Investment in equity in licensed Financial Institutions p Less: Investment in equity of institutions with financial interests 781.50 767.50 q Less: Investment in equity of institutions in excess of limits r Less: Investments arising out of underwriting commitments s Less: Reciprocal crossholdings t Less: Purchase of land & building in excess of limit and unutilized u Less: Cash Flow Hedge v Less: Defined Benefits Pension Assets w Less: Unrecognized Defined Benefit Pension Liabilities x 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) 2,895.36 2,594.20 a Cumulative and/or Redeemable Preference Share b Subordinated Term Debt 1,502.71 1,576.71 c Hybrid Capital Instruments d Stock Premium e General Loan Loss Provision 1,376.01 1,003.26 f Exchange Equalization Reserve 16.30 13.88 g Investment Adjustment Reserve 0.35 0.35 h Assets Revaluation Reserve i Other Reserves Total Capital Fund (Tier I and Tier II) 14,315.12 13,364.41

Current Previous 1.3 CAPITAL ADEQUACY RATIOS Month End Month End Common Equity Tier 1 Capital to Total Risk Weighted Exposures (After Bank's adjustments 10.37% 10.63% of Pillar II) Tier 1 Capital to Total Risk Weighted Exposures(After Bank's adjustments of Pillar II) 10.37% 10.63% Tier 1 and Tier 2 Capital to Total Risk Weighted Exposures(After Bank's adjustments of 13.00% 13.19% Pillar II)

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Risk Weighted Exposure for Credit Risk 15th July 2020 Form No. 2 NPR In million Specific (NPR In Risk Weighted Book Value Net Value Risk Weight A. Balance Sheet Exposures Provision million) Exposures a b c d=a-b-c e f=d*e Cash Balance 1,756.52 1,756.52 0% - Balance With Nepal Rastra Bank 5,301.85 5,301.85 0% - Gold - 0% - Investment in Nepalese Government Securities 14,485.02 14,485.02 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 Domestic Public Sector Entities - - 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 2,983.30 - 2,983.30 20% 596.66 Claims on domestic banks that do not meet capital adequacy requirements - - - 100% - Claims on foreign bank (ECA Rating 0-1) 4,051.75 - 4,051.75 20% 810.35 Claims on foreign bank (ECA Rating 2) 62.87 - 62.87 50% 31.43 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% 1,968.38 - 1,968.38 20% 393.68 above their respective regulatory capital requirement Claims on Domestic Corporates 50,376.13 0.24 50,375.89 100% 50,375.89 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) 21,776.73 423.03 21,353.70 75% 16,015.27 Claims fulfilling all criterion of regularity retail except granularity - - 100% - Claims secured by residential properties 6,601.60 - 6,601.60 60% 3,960.96 Claims not fully secured by residential properties - - 150% - Claims secured by residential properties (Overdue) - - 100% - Claims secured by Commercial real estate 2,505.02 - 2,505.02 100% 2,505.02 Past due claims (except for claims secured by residential properties) 638.34 247.40 0.83 390.11 150% 585.17 High Risk claims 8,062.89 0.17 10.19 8,052.53 150% 12,078.80 Lending against securities (bonds & shares) 502.24 - 502.24 100% 502.24 Investments in equity and other capital instruments of institutions listed in stock 231.30 - 231.30 100% 231.30 exchange Investments in equity and other capital instruments of institutions not listed in the stock 2.68 - 2.68 150% 4.02 exchange Staff loan secured by residential property 1,390.28 1,390.28 50% 695.14 Interest Receivable/claim on government securities 226.29 226.29 0% - Cash in transit and other cash items in the process of collection - - - 20% - Other Assets (as per attachment) 7,189.83 4,456.70 - 2,733.14 100% 2,733.14 TOTAL (A) 130,139.92 4,704.27 434.29 125,001.37 91,519.06

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Specific Eligible Risk Weighted B. Off Balance Sheet Exposures Book Value Net Value Risk Weight Provision CRM Exposures Revocable Commitments - 0% - Bills Under Collection 37.38 37.38 0% - Forward Exchange Contract Liabilities - - 10% - LC Commitments With Original Maturity Upto 6 months domestic counterparty 1,469.47 71.14 1,398.33 20% 279.67 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 2,156.62 161.31 1,995.31 50% 997.66 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 7,021.26 361.65 440.18 6,219.43 50% 3,109.72 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 2,162.02 23.19 2,138.83 100% 2,138.83 Financial Guarantee - - 100% - Acceptances and Endorsements 369.64 - 369.64 100% 369.64 Unpaid portion of Partly paid shares and Securities - - 100% - Irrevocable Credit commitments (short term) 4,083.73 - 4,083.73 20% 816.75 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 64.62 - 64.62 100% 64.62 Unpaid Guarantee Claims 177.01 - 177.01 200% 354.02 TOTAL (B) 17,541.75 361.65 695.82 16,484.28 8,130.89 Total RWE for credit Risk Before Adjustment (A) +(B) 147,681.67 5,065.92 1,130.11 141,485.65 99,649.96 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 147,681.67 5,065.92 1,130.11 141,485.65 99,649.96

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Eligible Credit Risk Mitigants 15th July 2020 Form No. 3 NPR In million Sec/ Deposits Govt.& G'tee of Sec/G'tee G'tee of G'tee Deposits (NPR In G'tee of with other NRB Govt. of of Other domestic of Total with Bank million) Foreign Credit exposures banks/FI Securities Nepal Sovereigns banks MDBs 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 Domestic Public Sector Entities - 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 0.24 - 0.24 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) 332.39 90.65 423.03 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) - 0.83 0.83 High Risk claims 9.75 0.44 10.19 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 342.37 - 91.92 ------434.29 Off Balance Sheet Exposures Forward Exchange Contract Liabilities - LC Commitments With Original Maturity Upto 6 months domestic counterparty 71.14 71.14 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 161.31 161.31 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 440.18 - 440.18 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 23.19 - 23.19 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 695.82 ------695.82 Grand Total 1,038.19 - 91.92 ------1,130.11

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Other Assets Form No. 5 NPR In million Specific S.No. Assets Gross Amount Net Balance Provision 1 Fixed Assets 1,177.21 - 1,177.21 2 Interest Receivable on Other Investment 4.38 4.38 3 Interest Receivable on Loan 760.59 760.59 - 4 Non Banking Assets - - 5 Reconciliation Account - - 6 Draft Paid Without Notice - - 7 Sundry Debtors 6.43 6.43 8 Advance payment and Deposits 4,996.45 3,696.10 1,300.35 9 Staff Loan and Advance 143.23 143.23 10 Stationery 23.48 23.48 11 Other 78.05 78.05 TOTAL 7,189.83 4,456.70 2,733.14

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Risk Weighted Exposure for Operational Risk 15th July 2020 Form No. 6 NPR In million

S. Fiscal Year Previous Particulars N. 2073/074 2074/075 2075/076 Year 1 Net Interest Income 2,242.12 2,939.05 4,024.28 2 Commission and Discount Income 155.19 185.96 785.12 3 Other Operating Income 300.55 519.16 63.22 4 Exchange Fluctuation Income 194.26 282.48 373.83 5 Addition/Deduction in Interest Suspense during the period 60.97 68.73 - 6 Gross income (a) 2,953.10 3,995.39 5,246.46 7 Alfa (b) 15% 15% 15% 8 Fixed Percentage of Gross Income [c=(a×b)] 442.96 599.31 786.97 9 Capital Requirement for operational risk (d) (average of c) 609.75 458.66 Risk Weight (reciprocal of capital requirement of 11%/10%) in 10 9.09 10 times (e) 11 Equivalent Risk Weight Exposure [f=(d×e)] 5,542.60 4,586.57

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 2 - - investment) 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] 5,542.60 4,586.57

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Risk Weighted Exposure for Market Risk 15th July 2020 Form No. 7 NPR In NPR Open Position (NPR In Open Position Relevant Open S.No. Currency Previous Year (FCY) million) (NPR) Position

1 INR 1.60 3,652,540,920 3,652,540,920 3,091,767,217 2,281,768,495.81 2 USD 191,392.30 120.55 23,072,342 23,072,342 60,486,872 3 GBP (10,539.31) 151.36 (1,595,230) 1,595,230 647,945 4 EUR 23,563.35 136.98 3,227,590 3,227,590 434,818 5 THB 125,350.00 3.79 475,077 475,077 119,321 6 CHF 15,230.00 128.10 1,950,963 1,950,963 695,844 7 AUD 94,851.50 84.51 8,015,426 8,015,426 1,232,861 8 CAD 21,849.71 88.73 1,938,616 1,938,616 1,158,521 9 SGD 114,819.57 86.61 9,943,949 9,943,949 9,094,333 10 JPY 17,403,021.00 1.12 19,543,593 19,543,593 12,950,496 11 HKD 59,960.00 15.57 933,577 933,577 177,126 12 DKK 73,550.00 18.54 1,363,617 1,363,617 114,506 13 SEK 28,160.00 13.23 372,416 372,416 118,334 14 SAR 120,422.00 32.15 3,870,965 3,870,965 3,482,885 15 QAR 62,575.00 33.15 2,074,048 2,074,048 1,077,468 16 AED 109,636.03 32.69 3,583,454 3,583,454 1,551,606 17 MYR 43,984.00 28.47 1,252,224 1,252,224 1,140,835 18 KRW 1,453,000.00 0.10 145,009 145,009 85,886 19 CNY 238,564.49 17.30 4,125,973 4,125,973 2,569,843 20 KWD 3,486.75 391.99 1,366,771 1,366,771 714,770 21 BHD 1,680.00 319.86 537,365 537,365 447,775 22 - - - 23 - - - (a) Total Open Position 3,738,738,664 3,741,929,124 3,190,069,262 (b) Fixed Percentage 5% 5% (c) Capital Charge for Market Risk (=a×b) 187,096,456 159,503,463 (d) Risk Weight (reciprocal of capital requirement of 11%/10%) in times 9.09 10.00 (e) Equivalent Risk Weight Exposure (=c×d) 1,700,706,787 1,595,034,631

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Sanima Capital Limited Statement of Financial Position As on 15th July 2020 Amount In NPR. Particulars Note Current Year Previous Year Assets Cash and cash equivalent 4.1 239,538,743 287,585,801 Due from Nepal Rastra Bank 4.2 - - Placement with Bank and Financial Institutions 4.3 69,000,000 - Derivative financial instruments 4.4 - - Other trading assets 4.5 88,039,824 88,229,204 Loan and advances to B/FIs 4.6 - - Loans and advances to customers 4.7 - 45,348 Investment securities 4.8 33,537,710 31,747,682 Current tax assets 4.9 1,540,196 2,234,297 Investment in susidiaries 4.10 - - Investment in associates 4.11 - - Investment property 4.12 - - Property and equipment 4.13 4,944,587 6,527,100 Goodwill and Intangible assets 4.14 740,858 1,170,399 Deferred tax assets 4.15 - 820,696 Other assets 4.16 14,286,159 15,113,192 Total Assets 451,628,077 433,473,719 Liabilities Due to Bank and Financial Instituions 4.17 - - Due to Nepal Rastra Bank 4.18 - - Derivative financial instruments 4.19 - - Deposits from customers 4.20 - - Borrowing 4.21 - - Current Tax Liabilities 4.9 - - Provisions 4.22 49,160 102,261 Deferred tax liabilities 4.15 936,020 - Other liabilities 4.23 175,231,368 148,722,570 Debt securities issued 4.24 - - Subordinated Liabilities 4.25 - - Total liabilities 176,216,548 148,824,831 Equity Share capital 4.26 250,000,000 250,000,000 Share premium - - Retained earnings 23,308,271 36,587,339 Reserves 4.27 2,103,258 (1,938,451) Total equity attributable to equity holders 275,411,529 284,648,888 Non-controlling interest - - Total equity 275,411,529 284,648,888 Total liabilities and equity 451,628,077 433,473,719 Contingent liabilities and commitments 4.28 - -

As per our report on even date Mandip Luitel Tej Bahadur Chand Arun Raut, FCA Acting CEO Chairman Partner S.R. Pandey & Co. Directors Chartered Accountants Nischal Raj Pandey Pawan Kumar Acharya Saroj Guragain Rajendra Kafle Date: October 4, 2020 Professional Independent Place: Naxal, Kathmandu Dr. Gopal Prasad Bhatta Professional Independent

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Sanima Capital Limited Statement of Profit or Loss For the year ending on 15th July 2020 Amount In NPR. Particulars Note Current Year Previous Year Interest income 4.29 18,647,140 15,752,809 Interest expense 4.30 - 1,285,803 Net interest income 18,647,140 14,467,006 Fee and commission income 4.31 36,142,771 39,947,345 Fee and commission expense 4.32 1,279,003 1,733,549 Net fee and commission income 34,863,768 38,213,796 Net interest, fee and commission income 53,510,908 52,680,802 Net trading income 4.33 (771,782) 22,808,880 Other operating income 4.34 - 356,941 Total operating income 52,739,126 75,846,624 Impairment charge/(reversal) for loans and other losses 4.35 - - Net operating income 52,739,126 75,846,624 Operating expense Personnel expenses 4.36 13,216,980 15,490,612 Other operating expenses 4.37 7,675,211 8,037,647 Depreciation & Amortisation 4.38 1,798,881 1,879,283 Operating Profit 30,048,054 50,439,082 Non operating income 4.39 - 1,273,856 Non operating expense 4.40 245,747 173,195 Profit before income tax 29,802,307 51,539,742 Income tax expense 4.41 Current Tax 7,163,076 17,068,166 Deferred Tax 1,042,678 (27,746) Profit of the year 21,596,553 34,499,322 Basic earnings per share 8.64 13.80 Diluted earnings per share 8.64 13.80

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Sanima Capital Limited Statement of Other Comprehensive Income For the year ending on 15th July 2020 Amount In NPR. Particulars Note Current Year Previous Year Profit of the year ending on 15th July 2020 21,596,553 34,499,322 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 1,790,029 (540,386) Gain/(losses) on revalution - - Actuarial gains/(losses) on defined benefit plans 590,097 (590,097) Income tax relating to above items (714,038) 339,145 Net other comrehensive income that will not be reclassified to profit or loss 1,666,088 (791,338) 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 period, net of income tax 1,666,088 (791,338) Total comprehensive income of the year ending on 15th July 2020 23,262,641 33,707,984

Total comprehensive income attributable to: Equity holders of the Company 23,262,641 33,707,984 Non-controlling interest - - Total comprehensive income of the year ending on 15th July 2020 23,262,641 33,707,984

Profit attributable to: the controlling entity 21,596,553 34,499,322 Non-controlling interest - - Total 21,596,553 34,499,322

Earning per share Basic earnings per share 8.64 13.80 Annualized Basic earnings per share 8.64 13.80 Diluted earnings per share (Annualized) 8.64 13.80

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Sanima Capital Limited Statement of Cash Flows For the year ending on 15th July 2020 Amount In NPR. Current Year Previous Year CASH FLOWS FROM OPERATING ACTIVITIES Interest received 16,435,589 15,752,809 Fees and other income received 37,442,131 41,523,955 Dividend received 2,308,438 319,619 Receipts from other operating activities 8,675 - Interest paid - (1,285,803) Commission and fees paid (2,471,378) (1,733,549) Cash payment to employees (13,984,420) (9,064,700) Other expense paid (7,540,315) (9,300,992) Operating cash flows before changes in operating assets and liabilities 32,198,720 36,211,340 (Increase)/Decrease in operating assets Due from Nepal Rastra Bank - - Placement with bank and financial institutions (69,000,000) 170,000,000 Other trading assets (6,292,377) (48,928,638) Loan and advances to bank and financial institutions - - Loans and advances to customers 46,984 48,857 Other assets 138,856 (507,798) Increase/(Decrease) in operating liabilities Due to bank and financial institutions - - Due to Nepal Rastra Bank - - Deposit from customers - - Borrowings - - Other liabilities 27,706,326 113,688,661 Net cash flow from operating activities before tax paid (15,201,491) 270,512,421 Income taxes paid (6,461,688) (8,411,884) Net cash flow from operating activities (21,663,179) 262,100,537 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities - - Receipts from sale of investment securities - - Purchase of property and equipment (403,475) (324,897) Receipt from the sale of property and equipment 485,437 - Purchase of intangible assets - - Receipt from the sale of intangible assets - - Purchase of investment properties - - Receipt from the sale of investment properties - - Interest received 2,641,479 - Dividend received 3,392,680 - Net cash used in investing activities 6,116,121 (324,897) 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 - - Dividends paid (32,500,000) (20,000,000) Interest paid - - Other receipt/payment - - Net cash from financing activities (32,500,000) (20,000,000) Net increase (decrease) in cash and cash equivalents (48,047,058) 241,775,640 Cash and cash equivalents at the beginning of the period 287,585,801 45,810,161 Effect of exchange rate fluctuations on cash and cash equivalents held - - Cash and cash equivalents at end of year 239,538,743 287,585,801 As per our report on even date Mandip Luitel Tej Bahadur Chand Arun Raut, FCA Acting CEO Chairman Partner S.R. Pandey & Co. Directors Chartered Accountants Nischal Raj Pandey Pawan Kumar Acharya Saroj Guragain Rajendra Kafle Date: October 4, 2020 Professional Independent Place: Naxal, Kathmandu Dr. Gopal Prasad Bhatta Professional Independent

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Sanima Capital Limited Statement of Changes in Equity For the year ending on 15th July 2020 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 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 and - - - - - (1,525,383) - 14,499,322 734,045 13,707,984 - 13,707,984 distributions Balance at 17th July 2019 250,000,000 - - - - (1,525,383) - 36,587,339 (413,068) 284,648,888 - 284,648,888 Balance at 17th July 2019 250,000,000 - - - - (1,525,383) - 36,587,339 (413,068) 284,648,888 - 284,648,888 Profit for the period ending ------21,596,553 - 21,596,553 - 21,596,553 on 15th July 2020 Other comprehensive - - - - - 1,253,020 - - 413,068 1,666,088 - 1,666,088 income, net of tax Total comprehensive income - - - - - 1,253,020 - 21,596,553 413,068 23,262,641 - 23,262,641 for the year Transfer to reserve during the period ------Reserve required by MB Regulations - (2,159,655) 2,159,655 - - - Corporate Social Responsibility Reserve - (215,966) 215,966 - - - Transfer from reserve during the year period ------Contributions from and - - - distributions to owners Share issued ------Share based payments ------Dividends to equity holders - - - Bonus shares issued ------Cash dividend paid/ declared ------(32,500,000) - (32,500,000) - (32,500,000) Other ------Total contributions by and - - - - - 1,253,020 - (13,279,068) 2,788,689 (9,237,359) - (9,237,359) distributions Balance at 15th July 2020 250,000,000 - - - - (272,363) - 23,308,271 2,375,621 275,411,529 - 275,411,529

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Annual Report 2019/20

16th Annual Report 16

th 2019/20 Annual Report 2019/20 Report Annual

‘Alkapuri’ Naxal, Kathmandu, Nepal Phone: +977-1-5970033, Fax: +977-1-4428969 Email: [email protected] www.sanimabank.com

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