Consolidated Statement of Financial Position for the Year Ended 32Nd Ashad 2075 in NPR

www.sanimabank.com 1 2 www.sanimabank.com Consolidated Statement of Financial Position For the year ended 32nd Ashad 2075 In NPR. Group Bank Note Ashad end 2075 Ashad end 2074 Ashad end 2073 Ashad end 2075 Ashad end 2074 Ashad end 2073 Assets Cash and cash equivalent 4.1 4,531,900,641 2,952,471,513 837,797,583 4,530,152,334 2,948,780,102 837,797,583 Due from Nepal Rastra Bank 4.2 5,608,171,848 5,265,301,643 2,574,787,981 5,608,171,848 5,265,301,643 2,574,787,981 Placement with Bank and Financial Institutions 4.3 649,156,510 982,243,177 2,994,663,379 649,156,510 982,243,177 2,994,663,379

Derivative financial instruments 4.4 - 17,734,529 11,003,478 - 17,734,529 11,003,478 Other trading assets 4.5 494,859,452 433,970,678 95,398,304 478,048,147 406,239,582 95,398,304 Loan and advances to B/FIs 4.6 1,645,223,405 603,938,195 928,376,115 1,645,223,405 603,938,195 928,376,115 Loans and advances to customers 4.7 67,598,133,216 51,038,471,540 39,738,413,130 67,598,133,761 51,038,471,540 39,738,413,130 Investment securities 4.8 9,615,731,842 6,444,154,180 7,703,158,249 9,413,443,775 6,429,154,180 7,676,014,824 Current tax assets 4.9 - 6,733,863 11,766,488 - 17,139,730 11,766,488 Investment in susidiaries 4.10 - - - 250,000,000 110,000,000 110,000,000 Investment in associates 4.11 ------Investment property 4.12 ------Property and equipment 4.13 889,501,757 722,470,711 654,874,507 881,846,292 713,080,633 646,548,160 Goodwill and Intangible assets 4.14 58,140,309 4,367,320 2,758,412 56,550,539 3,315,403 2,758,412 Deferred tax assets 4.15 50,605,018 - - 50,151,213 - - Other assets 4.16 689,951,809 968,870,818 501,682,977 661,074,779 946,304,967 501,028,043 Total Assets 91,831,375,806 69,440,728,169 56,054,680,603 91,821,952,603 69,481,703,681 56,128,555,897

Group Bank Note Ashad end 2075 Ashad end 2074 Ashad end 2073 Ashad end 2075 Ashad end 2074 Ashad end 2073 Liabilities Due to Bank and Financial Instituions 4.17 1,346,959,039 2,103,519,307 4,981,671,102 1,346,959,039 2,103,519,307 4,981,671,102 Due to Nepal Rastra Bank 4.18 358,950,008 611,009,105 3,060,479,578 358,950,008 611,009,105 3,060,479,578 Derivative financial instruments 4.19 18,851,134 - - 18,851,134 - - Deposits from customers 4.20 77,805,318,203 55,686,614,340 41,585,362,372 77,849,380,056 56,161,055,860 41,664,487,644 Borrowing 4.21 ------Current Tax Liabilities 4.9 69,570,852 - - 66,294,857 - - Provisions 4.22 12,572,748 43,636,197 22,701,864 11,817,943 43,355,931 22,701,864 Deferred tax liabilities 4.15 - 31,035,758 15,953,905 - 30,923,343 15,953,905 Other liabilities 4.23 1,040,306,882 1,441,628,552 482,014,300 1,011,814,065 1,013,927,072 481,138,842 Debt securities issued 4.24 370,000,000 370,000,000 370,000,000 370,000,000 370,000,000 370,000,000 Subordinated Liabilities 4.25 ------Total liabilities 81,022,528,866 60,287,443,259 50,518,183,121 81,034,067,102 60,333,790,619 50,596,432,936 Equity Share capital 4.26 8,001,255,440 6,897,634,000 4,022,031,700 8,001,255,440 6,897,634,000 4,022,031,700 Share premium ------Retained earnings 1,156,659,737 1,285,614,783 789,413,345 1,136,681,538 1,280,242,935 788,338,825 Reserves 4.27 1,650,931,763 970,036,128 725,052,437 1,649,948,523 970,036,128 721,752,437 Total equity attributable to equity holders 10,808,846,940 9,153,284,910 5,536,497,482 10,787,885,501 9,147,913,063 5,532,122,961 Non-controlling interest Total Equity 10,808,846,940 9,153,284,910 5,536,497,482 10,787,885,501 9,147,913,063 5,532,122,961 Total Liabilities and Equity 91,831,375,806 69,440,728,169 56,054,680,603 91,821,952,603 69,481,703,681 56,128,555,897 Contingent liabilities and commitment 4.28 29,004,329,135 20,837,946,202 11,902,007,691 28,851,318,655 20,837,946,202 11,902,007,691 Net assets value per share 135.09 132.70 137.65 134.83 132.62 137.55 Bhuvan Dahal Binaya Kumar Shrestha Directors As per our report of even date Chief Executive Officer Chairman Tuk Prasad Poudel Sunir Kumar Dhungel Sambha Lama Managing Partner Saroj Guragain Bharat Kumar Pokharel SAR Associates Date: October 31, 2018 Chief Financial Officer Mahesh Ghimire Chartered Accountants Place: Naxal, Kathmandu Uttam Kumar Bhattarai

www.sanimabank.com 3 Consolidated Statement of Profit or Loss For the year ended 32nd Ashad 2075 In NPR. Group Bank Note Current Year Previous Year Current Year Previous Year Interest income 4.29 8,129,035,230 5,152,432,203 8,107,978,846 5,126,693,380

Interest expense 4.30 5,090,072,370 2,794,576,846 5,092,454,648 2,818,180,505

Net interest income 3,038,962,860 2,357,855,356 3,015,524,197 2,308,512,875

Fee and commission income 4.31 727,684,423 459,334,622 706,389,342 455,743,812

Fee and commission expense 4.32 50,152,348 32,044,769 50,152,348 32,044,769

Net fee and commission income 677,532,075 427,289,854 656,236,994 423,699,044

Net interest, fee and commission income 3,716,494,935 2,785,145,210 3,671,761,191 2,732,211,918

Net trading income 4.33 293,415,099 238,229,707 298,410,710 236,999,326

Other operating income 4.34 15,537,850 8,666,525 38,961,666 10,932,182

Total operating income 4,025,447,884 3,032,041,442 4,009,133,567 2,980,143,427

Impairment charge/(reversal) for loans and other losses 4.35 239,217,543 134,882,142 239,217,543 134,882,142

Net operating income 3,786,230,340 2,897,159,300 3,769,916,024 2,845,261,285

Operating expense

Personnel expenses 4.36 879,064,446 564,648,398 865,555,664 558,087,735

Other operating expenses 4.37 390,683,713 293,993,268 383,730,300 289,913,667

Depreciation & Amortisation 4.38 107,533,605 83,892,700 105,455,444 81,845,041

Operating Profit 2,408,948,577 1,954,624,935 2,415,174,616 1,915,414,843

Non operating income 4.39 914,061 41,208,786 895,458 41,207,401

Non operating expense 4.40 734,365 280,973 734,365 280,973

Profit before income tax 2,409,128,273 1,995,552,747 2,415,335,708 1,956,341,270

Income tax expense 4.41

Current Tax 777,526,986 572,657,812 774,250,990 562,158,566

Deferred Tax (56,493,106) 17,136,911 (56,418,506) 17,119,971

Profit for the period 1,688,094,393 1,405,758,024 1,697,503,224 1,377,062,733

Profit attributable to:

Equity holders of the Bank 1,688,094,393 1,405,758,024 1,697,503,224 1,377,062,733

Non-controlling interest

Profit for the period 1,688,094,393 1,405,758,024 1,697,503,224 1,377,062,733

Earnings per share

Basic earnings per share 21.10 21.56 21.22 21.12

Diluted earnings per share 21.10 21.56 21.22 21.12

Bhuvan Dahal Binaya Kumar Shrestha Directors As per our report of even date Chief Executive Officer Chairman Tuk Prasad Poudel Sunir Kumar Dhungel Managing Partner Saroj Guragain Sambha Lama SAR Associates Chief Financial Officer Chartered Accountants Bharat Kumar Pokharel Date: October 31, 2018 Mahesh Ghimire Place: Naxal, Kathmandu Uttam Kumar Bhattarai

4 www.sanimabank.com Consolidated Statement of Other Comprehensive Income For the year ended 32nd Ashad 2075 In NPR. Group Bank Note Current Year Previous Year Current Year Previous Year Profit for the year 1,688,094,393 1,405,758,024 1,697,503,224 1,377,062,733

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 (9,801,770) - (8,163,038) - measured at fair value Gain/(losses) on revalution

Actuarial gains/(losses) on defined benefit plans (74,023,798) (7,168,440) (74,023,798) (7,168,440)

Income tax relating to above items 25,147,670 2,150,532 24,656,051 2,150,532

Net other comrehensive income that will not be (58,677,898) (5,017,908) (57,530,785) (5,017,908) reclassified to 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 (58,677,898) (5,017,908) (57,530,785) (5,017,908) income tax Total comprehensive income for the year 1,629,416,495 1,400,740,116 1,639,972,439 1,372,044,825

Total comprehensive income attributable to:

Equity holders of the Bank 1,629,416,495 1,400,740,116 1,639,972,439 1,372,044,825

Non-controlling interest

Total comprehensive income for the year 1,629,416,495 1,400,740,116 1,639,972,439 1,372,044,825

www.sanimabank.com 5 Consolidated Statement of Changes In Equity For the year ended 32nd Ashad 2075 In NPR.

Group Attributable to equity holders of the Bank Reval- Non-con- Share General Exchange Regulatory Fair value uation Retained Other trolling Total equity Share Capital premium reserve equalisation reserve reserve re- earning reserve Total interest reserve serve Balance at Shrawan 1, 2073 4,710,596,500 - 564,540,000 4,193,641 - - - 7,141,221 70,121,459 5,356,592,822 5,356,592,822 Adjustment/Restatement (688,564,800) - - - - 91,133,000 - 785,539,160 (8,235,664) 179,871,696 179,871,696 Adjusted/Restated balance at Shrawan 4,022,031,700 - 564,540,000 4,193,641 - 91,133,000 - 792,680,381 61,885,795 5,536,464,517 5,536,464,517 1, 2073 Comprehensive income for the year - - Profit for the year 1,405,758,024 1,405,758,024 1,405,758,024 Other comprehensive income, net of tax - - Gains/(losses) from investments in equity (91,133,000) (91,133,000) instruments measured at fair value Gains/(losses) on revaluation - Acturaial gains/(losses) on defined benefit plans (5,017,908) (5,017,908) Gains/(losses) on cash flow hedge - Exchange gains/(losses) (arising from translat- - ing financial assets of foreign operation) Total comprehensive income for the year - - Transfer to reserve during the year - - 260,823,854 1,860,595 - - - (388,244,535) 74,569,011 (50,991,076) (50,991,076) Transfer from reserve during the year- Business 26,875,500 (168,727,611) 7,176,146 - - - - 200,225,965 4,994 65,554,994 65,554,994 combination Transactions with owners, directly recog- - - nised in equity Share issued 2,160,162,000 168,727,611 - 2,328,889,611 2,328,889,611 Share based payments - - - Dividends to equity holders - - Bonus shares issued 688,564,800 (688,564,800) - - Cash dividend paid (36,240,253) (36,240,253) (36,240,253) Other - - - Total contributions by and distributions 2,875,602,300 - 268,000,000 1,860,595 - (91,133,000) - 492,934,401 69,556,097 3,616,820,393 3,616,820,393 Balance at Ashad end 2074 6,897,634,000 - 832,540,000 6,054,236 - - - 1,285,614,783 131,441,892 9,153,284,910 9,153,284,910 Balance at Shrawan 1, 2074 6,897,634,000 - 832,540,000 6,054,236 - - - 1,285,614,783 131,441,892 9,153,284,910 9,153,284,910 Adjustment/Restatement - 0 - - Adjusted/Restated balance at Shrawan 6,897,634,000 - 832,540,000 6,054,236 - - - 1,285,614,783 131,441,892 9,153,284,910 9,153,284,910 1, 2074 Comprehensive income for the year - - Profit for the year 1,688,094,393 1,688,094,393 1,688,094,393 Other comprehensive income, net of tax - - Gains/(losses) from investments in equity (6,861,239) (6,861,239) instruments measured at fair value Gains/(losses) on revaluation - Acturaial gains/(losses) on defined benefit plans (51,816,659) (51,816,659) Gains/(losses) on cash flow hedge - Exchange gains/(losses) (arising from translat- - ing financial assets of foreign operation) Total comprehensive income for the year - - Transfer to reserve during the year - 339,504,000 3,452,862 337,775,191 - - (724,418,693) 69,832,175 26,145,534 26,145,534.26 Transfer from reserve during the year - 10,990,695 (10,990,695) - - Transactions with owners, directly recog- - - nised in equity Share issued - - - - Share based payments - - - Dividends to equity holders - - Bonus shares issued 1,103,621,440 (1,103,621,440) - - Cash dividend paid - - Other - - - Total contributions by and distributions 1,103,621,440 - 339,504,000 3,452,862 337,775,191 (6,861,239) - (128,955,045) 7,024,822 1,655,562,029 1,655,562,029 Balance at Ashad end 2075 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

6 www.sanimabank.com Consolidated Statement of Changes In Equity

For the year ended 32nd Ashad 2075 In NPR. Bank Attributable to equity holders of the Bank Reval- Non-con- Share General Exchange Regulatory Fair value uation Retained Other trolling Total equity Share Capital premium reserve equalisation reserve reserve re- earning reserve Total interest reserve serve Balance at Shrawan 1, 2073 4,710,596,500 - 564,540,000 4,193,641 - - - 2,799,665 70,121,459 5,352,251,266 - 5,352,251,266 Adjustment/Restatement Adjustment 91,133,000 94,382,620 (5,643,924) 179,871,696 179,871,696 Reclassification (688,564,800) 691,156,540 (2,591,740) - - Adjusted/Restated balance at Shrawan 1, 2073 4,022,031,700 - 564,540,000 4,193,641 - 91,133,000 - 788,338,825 61,885,795 5,532,122,961 5,532,122,961 Comprehensive income for the year - - Profit for the year 1,377,062,733 1,377,062,733 1,377,062,733 Other comprehensive income, net of tax - - Gains/(losses) from investments in equity instruments (91,133,000) (91,133,000) measured at fair value Gains/(losses) on revaluation - Acturaial gains/(losses) on defined benefit plans (5,017,908) (5,017,908) Gains/(losses) on cash flow hedge - Exchange gains/(losses) (arising from translating - financial assets of foreign operation) Total comprehensive income for the year - - - - - (91,133,000) - 1,377,062,733 (5,017,908) 1,280,911,825 1,280,911,825 Transfer to reserve during the year 260,823,854 1,860,595 (360,579,536) 74,569,011 (23,326,076) (23,326,076) Transfer from reserve during the year- Business 26,875,500 (168,727,611) 7,176,146 200,225,965 4,994 65,554,994 65,554,994 combination Transactions with owners, directly recognised - - in equity Share issued 2,160,162,000 168,727,611 2,328,889,611 2,328,889,611 Share based payments - - Dividends to equity holders - - Bonus shares issued 688,564,800 (688,564,800) - - Cash dividend paid (36,240,253) (36,240,253) (36,240,253) Other - - Total contributions by and distributions 2,875,602,300 - 268,000,000 1,860,595 - (91,133,000) - 491,904,110 69,556,097 3,615,790,101 - 3,615,790,101 Balance at Ashad end 2074 6,897,634,000 - 832,540,000 6,054,236 - - - 1,280,242,935 131,441,892 9,147,913,063 - 9,147,913,063 Balance at 1 Shrawan 2074 6,897,634,000 - 832,540,000 6,054,236 - - 1,280,242,935 131,441,892 9,147,913,063 9,147,913,063 Adjustment/Restatement - - Adjusted/Restated balance at 1 Shrawan 2074 6,897,634,000 - 832,540,000 6,054,236 - - - 1,280,242,935 131,441,892 9,147,913,063 9,147,913,063 Comprehensive income for the year - - Profit for the year 1,697,503,224 1,697,503,224 1,697,503,224 Other comprehensive income, net of tax - - Gains/(losses) from investments in equity instruments (5,714,127) (5,714,127) measured at fair value Gains/(losses) on revaluation - Acturaial gains/(losses) on defined benefit plans (51,816,659) (51,816,659) Gains/(losses) on cash flow hedge - Exchange gains/(losses) (arising from translating - financial assets of foreign operation) Total comprehensive income for the year - - - - - (5,714,127) - 1,697,503,224 (51,816,659) 1,639,972,439 1,639,972,439 Transfer to reserve during the year 339,504,000 3,452,862 335,644,839 (748,433,875) 69,832,175 - - Transfer from reserve during the year 10,990,695 (10,990,695) - - Transactions with owners, directly recognised - - in equity Share issued - - Share based payments - - Dividends to equity holders - - Bonus shares issued 1,103,621,440 (1,103,621,440) - - Cash dividend paid - - Other - - Total contributions by and distributions 1,103,621,440 - 339,504,000 3,452,862 335,644,839 (5,714,127) - (143,561,397) 7,024,822 1,639,972,439 - 1,639,972,439 Balance at Ashad end 2075 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

Bhuvan Dahal Binaya Kumar Shrestha Directors As per our report of even date Chief Executive Officer Chairman Tuk Prasad Poudel Sunir Kumar Dhungel Sambha Lama Managing Partner Saroj Guragain Bharat Kumar Pokharel SAR Associates Chief Financial Officer Chartered Accountants Mahesh Ghimire Date: October 31, 2018 Place: Naxal, Kathmandu Uttam Kumar Bhattarai

www.sanimabank.com 7 Consolidated Statement of Cash Flows

For the year ended 32nd Ashad 2075 In NPR.

Bhuvan Dahal Binaya Kumar Shrestha Directors As per our report of even date Chief Executive Officer Chairman Tuk Prasad Poudel Sunir Kumar Dhungel Managing Partner Sambha Lama Saroj Guragain SAR Associates Chief Financial Officer Bharat Kumar Pokharel Chartered Accountants Mahesh Ghimire Date: October 31, 2018 Place: Naxal, Kathmandu Uttam Kumar Bhattarai

8 www.sanimabank.com Sanima Bank Ltd Notes to the Financial Statements Year ended 16th July 2018

1. BANK

1.1 General

Sanima Bank Limited (hereinafter referred to as “The Bank”) is a public limited company, incorporated on 30th June 2004 as per the then Companies Act 1964 of Nepal, and domiciled in Nepal. The Bank obtained license from Nepal Rastra Bank on 26th November 2004 and operated the banking business from 6th December 2004. The Bank obtained license to operate as “A” class financial institution under the Bank and Financial Institutions Act, 2006 on 13th February 2012. The registered office of the Bank is located at Alakapuri Building, Naxal, Kathmandu, Nepal. The Bank is listed in Nepal Stock Exchange Limited for public trading of stocks.

1.2 Principal Activities and Operations

Bank

The principal activities of the Bank are to provide full-fledged commercial banking services including, agency services, trade finance services, card services, e-commerce products and services, remittance and bullion trading services to its customers through its strategic business units, branches, extension counters, ATMs and network of agents.

Subsidiary and Associates

Ownership as on: Subsidiary Principal Activities 16th July 2018 15th July 2017 Provides merchant/investment banking services such as Manage- ment of public offerings, portfolio management, underwriting of secu- Sanima Capital rities, management of mutual fund schemes, depository participant’s Limited 100% 100% service under Central Depository Service (CDS) and administration and record keeping of securities of its clients As on 16th July 2018 and comparative period, bank has not identified any associates.

2. BASIS OF PREPARATION

2.1. Statement of Compliance

The Financial Statements of Bank for the year ended 16th July, 2018 comprising Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and Notes to the Financial Statements (including Significant Accounting Policies), have been prepared in accordance with Nepal Financial Reporting Standards (here- after referred as NFRS), laid down by the Institute of Chartered Accountants of Nepal and in compliance with the requirements of all applicable laws and regulations.

2.2. Reporting Period and Approval of Financial Statements

The Bank has prepared the financial statements for the first time in accordance with NFRS depicting financial performance for FY 2017/18 and financial position of 16th July 2018 and the comparatives of FY 2016/17. Hence the date of transition to NFRS is 17th July, 2016. The comparative figures including the opening balance on the date of transition have been re-classified and re-measured as per NFRS.

The accompanied Financial Statements have been authorized by the Board of Directors vide its resolution date 31st October, 2018 and recommended for its approval by the Annual General Meeting of the shareholders.

www.sanimabank.com 9 2.3. Functional and Presentation Currency

The Financial Statements of Bank and Group are presented in Nepalese Rupees (Rs.), which is the currency of the primary economic environment in which the Bank operates. There was no change in Bank’s presentation and functional currency during the period under review.

2.4. Use of Estimates, Assumptions and Judgments

The preparation of Financial Statements in conformity with Nepal Accounting Standards requires the management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ due to these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

The most significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have most significant effect in the Financial Statements are as follows:

2.4.1 Going Concern

The Directors have made an assessment of Bank’s ability to continue as a going concern and satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, Board is not aware of any material uncertainties that may cast significant doubt upon Bank’s ability to continue as a going concern and they do not intend either to liquidate or to cease operations of it. Therefore, the Financial Statements continue to be prepared on the going concern basis.

2.4.2 Fair Value of Financial Instruments

Where the fair values of financial assets and financial liabilities recorded in the statement of financial position can be derived from active markets, they are derived from observable market data. However, if this is not available, judgment is required to establish fair values. The valuation of financial instruments is described in more detail in Notes.

2.4.3 Impairment of Financial Assets – Loans and Advances

The Bank review their individually significant loans and advances at each statement of financial position date to assess whether an impairment loss should be recorded in the income statement. The bank has conducted objective evidence test for individual impairment through different parameters like inability to meet loan agreements, substantial drop in profits/ turnover, significant adverse cash flows, significant adverse net worth situation, problematic borrower financial position, etc. In particular, Judgment of the management is required in the estimation of the amount and timing of future cash flows while determining the impairment loss.

These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the impairment allowance.

Loans and advances of top 50 customers (holding 21 % of portfolio) have been assessed individually and found to be not impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The bank has segregated risk assets into five groups with similar risk characteristics i.e. home loan, auto loan, personal loan, short term loan and long term loan for collective impairment assessment. The collective assessment takes in to account data from the loan portfolio such as levels of arrears, credit quality, portfolio size etc. and judgments based on current economic conditions as per Para 63 of NAS 39. Also the collective assessment takes into account the past sixty months data for PD computation and five years data for loss given default (LGD) computation. Collective impairment assessment on loans and advances is derived from product of PD and LGD.

10 www.sanimabank.com The impairment loss on loans and advances as per paragraph 63 of NAS 39 is Rs. 31.58 Million and as per the norms prescribed by Nepal Rastra Bank for loan loss provision is Rs. 817.87 Million in total. The impairment loss on loans and advances to BFIs as per paragraph 63 of NAS 39 is Rs. 1.02 Million and as per the norms prescribed by Nepal Rastra Bank for loan loss provision is Rs. 16.50 Million.

Loans and advances have been impaired as the higher of amount derived as per the norms prescribed by Nepal Rastra Bank for loan loss provision and amount determined as per paragraph 63 of NAS 39, as per Carve-out pronounced on 20th September 2018.

The impairment loss on loans and advances is disclosed in Note 4.6 and 4.7 to the financial statements.

2.4.4 Impairment of Investments measured through OCI

Bank reviews its investments classified as available for sale, at each reporting date to assess whether they are impaired. Objective evidence that an available for sale debt security is impaired includes among other things significant financial difficulty of the issuer, a breach of contract such as a default or delinquency in interest or principal payments etc. Bank also records impairment charges on available for sale equity investments where there is significant or prolonged decline in fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. Bank generally treats ‘significant’ as 20% and ‘prolonged’ as greater than six months. In addition, Bank evaluates, among other factors, historical share price movements, duration and extent up to which the fair value of an investment is less than its cost.

2.4.5 Taxation

Bank is subject to income tax and judgment is required to determine the total provision for current, deferred and other taxes due to the uncertainties that exist with respect to the interpretation of the applicable tax laws, at the time of preparation of these Financial Statements.

Deferred tax assets are recognized in respect of impairment allowances which will be recovered in the foreseeable future tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Judg- ment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits, together with future tax planning strategies.

Details on deferred tax assets/liability are disclosed in Note 4.15 to the financial statements.

2.4.6 Defined Benefit Plans

The cost of the defined benefit obligations and the present value of their obligations are determined using actuarial valuations.

The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and possible future liability increases if any. Due to the long term nature of these plans, such estimates are subject to uncertainty.

All assumptions are reviewed at each reporting date.

In determining the appropriate discount rate, management considers the average interest rates of Nepal government bonds with maturities of five years or more. The mortality rate is based on publicly available mortality tables. Future salary increases are based on expected future salary increase rates of Bank and attrition rate are based on the past period’s attrition rates.

2.4.7 Fair Value of Property, Plant and Equipment

The freehold land and buildings of the bank are not reflected at fair value and no revaluation has been carried at the reporting date. Under NFRS 1, a first-time adopter may elect to use a previous GAAP revaluation of an item of property, plant and equipment at, or before, the date of transition to NFRSs as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to:

www.sanimabank.com 11 a. Fair value; or b. Cost or depreciated cost in accordance with NFRSs, adjusted to reflect, for example, changes in a general or specific priceindex

Previous GAAP has been considered the fair value for Property and Equipment on the basis that these assets value are comparable to fair value. 2.4.8 Useful Life-time of the Property, Plant and Equipment Bank reviews the residual values, useful lives and methods of depreciation of property, plant and equipment at each reporting date. Judgment of the management is exercised in the estimation of these values, rates, methods and hence they are subject to uncertainty. a) Fixed Assets

Fixed assets except land are stated at acquisition cost less accumulated depreciation. Acquisition cost includes expenditures that are directly attributable to the acquisition of the assets. Assets with a value less than Rs. 10,000 are charged off as a revenue expense irrespective of its useful life in the year of purchase. Leasehold improvements are capitalized at cost and amortized over the lease period or ten years whichever is earlier. The amount of amortization is charged as revenue expenses. b) Computer Software

Acquired computer software licenses are capitalized on the basis of cost incurred to acquire and bring to use the specific software and are amortized over their useful life estimated as 5 years from the date of acquisition or over the period of the license, whichever is less.

2.4.9 Commitments and Contingencies

All discernible risks are accounted for in determining the amount of all known liabilities. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not recognized in the Statement of Financial Position but are disclosed unless they are remote.

2.4.10 Provisions for Liabilities and Contingencies The Bank receives legal claims against it in the normal course of business. Management has made judgments as to the likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits.

2.5. Changes in Accounting Policies The bank has changed its accounting policies, wherever required, to ensure compliance with NFRS. Detailed accounting policies are mentioned in Note 3. The effect of change in accounting policy at the date of transition has been given to the retained earnings (and reserves, if applicable).

2.6. New Standards in issue but not yet effective

There are no Standards which have been issued but not yet effective up to the date of issuance of the financial statements.

2.7. New standards and interpretation not adapted

NFRS 1 First- time adoption of Nepal Accounting Standards allows first time adopters certain exemptions from the retrospective application of certain NFRS.

The Bank has taken the following exemptions.

12 www.sanimabank.com a. Business Combinations

Not applied for subsidiaries, which are considered business combination for NFRS, or in interest in associates and joint ventures that occurred before 17th July 2016.

Use of this exemption means that the NAS carrying amounts of assets and liabilities, which are required to be recognised under NFRS, is their deemed cost at the date of the acquisition. After the date of the acquisition, measurement is in accordance with NFRS. Assets and liabilities that do not qualify for recognition under NFRS are excluded from the opening NFRS statement of financial position.

The Bank did not recognize or exclude any previously recognised amounts as a result of NFRS recognition requirements. NFRS 1 also requires that the local NAS carrying amount of goodwill must be used in the opening NFRS statement of financial position (apart from adjustments for goodwill impairment and recognition or de-recognition of intangible assets). b. Others The Bank has elected to disclose the following amounts prospectively from the date of transition: i. The present value of the defined benefit obligation, the fair value of the plan assets and the surplus or deficit in the plan; and ii. The experience adjustments arising on the plan liabilities and the plan assets. iii. The Bank has designated unquoted equity instruments held at 16th July 2018 as investments measured at fair value through OCI.

2.8. Discounting

The fair value of debt securities shall be determined by discounting by the future cash flows by the coupon interest rate. The Bank has a policy to treat share/debenture issue expenses up to 1% of share/debentures issue price as immaterial. Consid- ering those expenses as immaterial and impracticable to determine reliably, same has not been considered in computation of effective interest rate as per Carve-out (optional) pronounced on 20th September 2018.

Employee benefits has been determined by considering discount rate as the average yield on government bonds issued during the period having maturity of five years or more.

2.9. Responsibility for Financial Statements

The Board of Directors is responsible for the preparation and presentation of Financial Statements of Sanima Bank Limited as per the provisions of the Companies Act, 2006.

2.10. Presentation of Financial Statements

The assets and liabilities of Bank presented in the Statement of Financial Position are grouped in an order of liquidity. An analysis on recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in the Notes.

2.11. Materiality and Aggregation

In compliance with Nepal Accounting Standard - NAS 01 (Presentation of Financial Statements), each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or functions too are presented separately unless they are immaterial. Financial Assets and Financial Liabilities are offset and the net amount reported in the Statement of Financial Position only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expenses are not offset in the Statement of Profit or Loss unless required or permitted by an Accounting Standard.

2.12. Comparative Information

The Financial Statement of the Bank provides comparative information in respect of previous periods. The accounting policies have been consistently applied by Bank with those of the previous financial year in accordance with NAS 01 Presentation of

www.sanimabank.com 13 Financial Statements, except those which had to be changed as a result of application of the new NFRS. Further, comparative information is reclassified wherever necessary to comply with the current presentation.

3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these Financial Statements, and deviations if any have been disclosed accordingly.

3.1. Basis of Measurement

The Financial Statements of Bank have been prepared on the historical cost basis, except for the following material items in the Statement of Financial Position:

• Liabilities for defined benefit obligations are recognized at the present value of the defined benefit obligation less the fair value of the plan assets. • Unquoted investments available for sale are measured through OCI. 3.2. Basis of consolidation a. Business Combinations and Goodwill Business combinations are accounted for using the acquisition method as per the requirements of Nepal Accounting Standard - NFRS 03 (Business Combinations). The Bank measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is immediately recognised in the profit or loss.

The Bank elects on a transaction-by transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognised amount of the identifiable net assets, at the acquisition date. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transactions costs, other than those associated with the issue of debt or equity securities, that the Bank incurs in connection with a business combination are expensed as incurred.

The Bank has applied Exemptions for NFRS 3 as stated in Appendix C as below: A first-time adopter may elect not to apply NFRS 3 retrospectively to past business combinations (business combinations that occurred before the date of transition to NFRSs). However, if a first-time adopter restates any business combination to comply with NFRS 3 it shall restate all later business combinations and shall also apply NFRS 10 from that same date. b. Non-controlling interest (NCI)

Non-controlling interest (NCI), also known as minority interest, is an ownership position whereby a shareholder owns less than 50% of outstanding shares and has no control over decisions. Non-controlling interests are measured at the net asset value of entities and do not account for potential voting rights. For each business combination, the Group elects to measure any non-controlling interest in the acquiree at fair value. Changes in group interest in subsidiary that do not result in the loss of control are accounted for transactions of owners in the capacity of owners. Adjustments to non-controlling interest are based on proportionate amount of net assets of subsidiary. c. Subsidiaries

Subsidiaries are entities that are controlled by the Bank. The Bank is presumed to control an investee when it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. At each reporting date the Bank reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more elements of control mentioned above.

14 www.sanimabank.com The Financial Statements of Subsidiaries are fully consolidated from the date on which control is transferred to the Bank and continue to be consolidated until the date when such control ceases. The Financial Statements of the Bank’s Subsidiaries are prepared for the same reporting period as per the Bank, using consistent accounting policies. The cost of acquisition of a Subsidiary is measured as the fair value of the consideration, including contingent consideration, given on the date of transfer of title. The acquired identifiable assets, liabilities are measured at their fair values at the date of acquisition. Subsequent to the initial measurement, the Bank continues to recognize the investments in Subsidiaries at cost. When a Subsidiary is acquired or sold during the year, operating results of such Subsidiary is included from the date of acquisition or to the date of disposal. All Subsidiaries of the Bank have been incorporated in Nepal.

Subsidiary Principal Activities Cost as on 16th July 2018 Cost as on 15th July 2017 Management of public offerings, portfolio 250,000,000 110,000,000 Sanima Capital Limited management, underwriting of securities, management of mutual fund schemes 250,000,000 110,000,000 d. Loss of Control Upon the loss of control, the Bank derecognizes the assets and liabilities of the Subsidiary, any non-controlling interests and other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in the Statement of Profit or loss. If the Bank retains any interest in the previous Subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as equity-accounted investee or in accordance with the Bank’s accounting policy for financial instruments depending on the level of influence retained. e. Special Purpose Entity (SPE) A special purpose vehicle/entity is a “bankruptcy-remote entity” that a parent company uses to isolate or securitize assets and it often holds this off-balance sheet. Some also call this a “bankruptcy-remote entity” or “variable interest entities” since its operations are limited to the acquisition and financing of specific assets as a method of isolating risk. A special purpose vehicle/ entity is a subsidiary company with an asset/liability structure and legal status that makes its obligations secure, even if the parent company goes bankrupt. Group does not have any SPE. f. Transaction elimination on consolidation Intra group balances and transactions, any unrealized income and expenses arising from intra group transactions, are eliminat- ing in preparing the consolidated financial statements. Unrealized gains/losses arising from transactions with equity accounted investees are eliminated against the investments to the extent of group interest of investee. 3.3. Cash and cash equivalent Cash and Cash Equivalents include cash in hand, balances with banks, placements with banks and money at call and at short notice with maturity less than three months. Details of the Cash and Cash Equivalents are given in Note 4.1 to the Financial Statements.

3.4. Financial Assets and financial liabilities a. Recognition

All financial assets and liabilities are initially recognized on the trade date, i.e. the date that Bank becomes a party to the contractual provisions of the instrument. This includes ‘regular way trades’. Regular way trade means purchases or sales of financial assets that required delivery of assets within the time frame generally established by regulation or convention in the market place.

www.sanimabank.com 15 The classification of financial instruments at the initial recognition depends on their purpose and characteristics and the management’s intention in acquiring them. b. Classification and Measurement

Financial Assets All financial instruments are measured initially at their fair value plus transaction costs that are directly attributable to acquisition or issue of such financial instruments except in the case of such financial assets and liabilities at fair value through profit or loss, as per the Nepal Accounting Standard - NAS 39 (Financial Instruments: Recognition and Measurement). Transaction cost in relation to financial assets and financial liabilities at fair value through profit or loss are dealt with the Statement of Profit or Loss.

At the inception, a financial asset is classified into one of the following: a. Financial assets at fair value through profit or loss i. Financial assets held for trading ii. Financial assets designated at fair value through profit or loss b. Financial Assets at amortized cost c. Financial assets at fair value through OCI The subsequent measurement of financial assets depends on their classification.

Financial Assets at Fair Value through Profit or Loss

A financial asset is classified as fair value through profit or loss if it is held for trading or is designated at fair value through profit or loss. i. Financial Assets Held for Trading Financial assets are classified as held for trading if they are acquired principally for the purpose of selling or repurchasing in the near term or holds as a part of a portfolio that is managed together for short-term profit or position taking. This category also includes derivative financial instruments entered into by Bank that are not designated as hedging instruments in hedge relationships as defined by Nepal Accounting Standards NAS 39 (Financial Instruments: Recognition and Measurement).

Financial assets held for trading are recorded in the Statement of Financial Position at fair value. Changes in fair value are recognized in ‘Net trading income'. Dividend income is recorded in ‘Net trading income’ when the right to receive the payment has been established. Bank evaluates its held for trading asset portfolio, other than derivatives, to determine whether the intention to sell them in the near future is still appropriate. When Bank is unable to trade these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly changes, Bank may elect to reclassify these financial assets.

Financial assets held for trading include instruments such as government securities and equity instruments that have been acquired principally for the purpose of selling or repurchasing in the near term. ii. Financial Assets Designated at Fair Value through Profit or Loss

Bank designates financial assets at fair value through profit or loss in the following circumstances: • Such designation eliminates or significantly reduces measurement or recognition inconsistency that would otherwise arise from measuring the assets • The assets are part of a group of Financial assets, financial liabilities or both, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy • The asset contains one or more embedded derivatives that significantly modify the cash flows that would otherwise have been required under the contract.

16 www.sanimabank.com Financial assets designated at fair value through profit or loss are recorded in the Statement of Financial Position at fair value. Changes in fair value are recorded in ‘Net gain or loss on financial instruments designated at fair value through profit or losses’ in the Statement of Profit or Loss. Interest earned is accrued under ‘Interest income’, using the effective interest rate method, while dividend income is recorded under ‘Other operating income’ when the right to receive the payment has been established.

The Bank has not designated any financial assets upon initial recognition as designated at fair value through profit or loss. iii. Financial Assets measured at amortized cost

Held to Maturity Financial Assets are non-derivative financial assets with fixed or determinable payments and fixed maturities which the Bank has the intention and ability to hold to maturity. After the initial measurement, held to maturity financial investments are subsequently measured at amortized cost using the effective interest rate, less impairment. The amortization is included in ‘Interest income’ in the Statement of Profit or Loss. The losses arising from impairment of such investments are recognized in the Statement of Profit or Loss.

The Amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

Loans and Receivables from Customers

Loans and receivables include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

• Those that the Bank intends to sell immediately or in the near term and those that the Bank, upon initial recognition, designates as fair value through profit or loss • Those that the Bank, upon initial recognition, designates as available for sale • Those for which the Bank may not recover substantially all of its initial investment through contractual cash flows, other than because of credit deterioration.

After initial measurement, loans and receivables shall be subsequently measured at amortized cost using the effective interest rate, less allowance for impairment. The amortization shall be included in ‘Interest Income’ in the Statement of Profit or Loss. The losses arising from impairment are recognized in ‘Impairment charge / reversal for loans and other losses’ in the Statement of Profit or Loss. However, Bank has a policy to treat loan administration fees up to 1% of loan amount as immaterial. Considering those fees as immaterial and impracticable to determine reliably, same has not been considered in computation of effective interest rate as per Carve-out (optional) pronounced on 20th September 2018.

Staff Loans measured at fair value

The bank has a policy to provide home loan, hire purchase loan and home loan tied up with insurance to employees at subsi- dized interest rate. The Bank has measured the staff loans at fair value. The bank is considering average base rate (10.27%) as fair market interest rate for deriving fair value of staff loans though the loans are provided to staffs at interest rate of 4%(Hire Purchase) and 5%(Home loan). Difference of book value with fair value of loans has been shown as prepaid employee benefits.

Financial Assets measured at fair value through OCI

Financial assets measured through OCI include equity and debt securities. Equity Investments classified as ‘Fair value through OCI’ are those which are neither classified as ‘Held for neither Trading ’nor ‘Designated. Debt securities in this category are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions.

www.sanimabank.com 17 After initial measurement, available for sale financial investments are subsequently measured at fair value. Unrealized gains and losses are recognized directly in equity through ‘Other comprehensive income / expense’ in the ‘Fair value reserve’. When the investment is disposed of the cumulative gain or loss previously recognized in equity is recognized in the Statement of Profit or Loss under ‘Other operating income’. Where Bank holds more than one investment in the same security, they are deemed to be disposed off on a first-in-first-out basis. Interest earned whilst holding ‘Financial investments at fair value through OCI’ is reported as ‘Interest income’ using the effective interest rate. Dividend earned whilst holding ‘Financial investments at fair value through OCI’ are recognized in the Statement of Profit or Loss as ‘other operating income’ when the right to receive the payment has been established. The losses arising from impairment of such investments are recognized in the Statement of Profit or Loss under ‘Impairment charge for loans and other losses’ and removed from the ‘Available for sale reserve’.

Financial Liabilities At the inception, Bank determines the classification of its financial liabilities. Accordingly financial liabilities are classified as: a. Financial liabilities at fair value through profit or loss i. Financial liabilities held for trading ii. Financial liabilities designated at fair value through profit or loss b. Financial liabilities at amortized cost

Financial Liabilities at Fair Value through Profit or Loss Financial Liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as fair value through profit or loss. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value and changes therein are recognized in profit or loss.

(i) Financial Liabilities Held for Trading

Financial liabilities are classified as held for trading if they are acquired principally for the purpose of selling or repurchasing in the near term or holds as a part of a portfolio that is managed together for short-term profit or position taking. This category includes derivative financial instrument entered into by Bank that are not designated as hedging instruments in hedge relationships as defined by Nepal Accounting Standard - NAS 39 (Financial Instruments: Recognition and Measurement).

(ii) Financial Liabilities Designated at Fair Value through Profit or Loss

Bank designates financial liabilities at fair value through profit or loss at following circumstances:

• Such designation eliminates or significantly reduces measurement or recognition inconsistency that would otherwise arise from measuring the liabilities. • The liabilities are part of a group of Financial assets, financial liabilities or both, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy • The liability contains one or more embedded derivatives that significantly modify the cash flows that would otherwise have been required under the contract.

Financial Liabilities At Amortized Cost

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

After initial recognition, such financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortization is included in ‘Interest Expenses’ in the Statement of Profit or Loss. Gains and losses are recognized in the Statement of Profit or Loss when the liabilities are derecognized.

18 www.sanimabank.com Reclassification

(i) Reclassification of Financial Instruments ‘At fair value through profit or loss’,

Bank does not reclassify derivative financial instruments out of the fair value through profit or loss category when it is held or issued.

Non-derivative financial instruments designated at fair value through profit or loss upon initial recognition is not reclassified subsequently out of fair value through profit or loss category.

Bank may, in rare circumstances reclassify financial instruments out of fair value through profit or loss category if such instruments are no longer held for the purpose of selling or repurchasing in the near term not withstanding that such financial instruments may have been acquired principally for the purpose of selling or repurchasing in the near term. Financial assets classified as fair value through profit or loss at the initial recognition which would have also met the definition of ‘Loans and Receivables’ as at that date is reclassified out of the fair value through profit or loss category only if Bank has the intention and ability to hold such asset for the foreseeable future or until maturity.

The fair value of financial instruments at the date of reclassification is treated as the new cost or amortized cost of the financial instrument after reclassification. Any gain or loss already recognized in respect of the reclassified financial instrument until the date of reclassification is not reversed to the Statement of Profit or Loss.

If a financial asset is reclassified, and if Bank subsequently increases its estimates of the future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the effective interest rate from the date of the change in estimate rather than an adjustment to the carrying amount of the asset at the date of change in estimate.

(ii) Reclassification of ‘Financial Assets measured at fair value through OCI’

Bank may reclassify financial assets out of available for sale category as a result of change in intention or ability or in rare circumstances that a reliable measure of fair value is no longer available.

The fair value of financial instruments at the date of reclassification is treated as the new cost or amortized cost of the financial instrument after reclassification. Difference between the new amortized cost and the maturity value is amortized over the remaining life of the asset using the effective interest rate. Any gain or loss already recognized in Other Comprehensive Income in respect of the reclassified financial instrument is accounted as follows:

1. Financial assets with fixed maturity :

Gain or loss recognized up to the date of reclassification is amortized to profit or loss over the remaining life of the investment using the effective interest rate. If the financial asset is subsequently impaired, any previous gain or loss that has been recognized in other comprehensive income is reclassified from equity to profit or loss.

2. Financial assets without fixed maturity : Gain or loss recognized up to the date of reclassification is recognized in profit or loss only when the financial asset is sold or otherwise disposed of. If the financial asset is subsequently impaired, any previous gain or loss that has been recognized in other comprehensive income is reclassified from equity to profit or loss.

If a financial asset is reclassified, and if Bank subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the effective interest rate from the date of the change in estimate rather than an adjustment to the carrying amount of the asset at the date of change in estimate.

www.sanimabank.com 19 (iii) Reclassification of ‘Financial Instruments amortized at cost’

As a result of a change in intention or ability, if it is no longer appropriate to classify an investment as amortized at cost, Bank may reclassify such financial assets as at fair value through OCI and re-measured at fair value. Any difference between the carrying value of the financial asset before reclassification and fair value is recognized in equity through other comprehensive income.

However, if Bank were to sell or reclassify more than an insignificant amount of held to maturity investments before maturity [other than in certain specific circumstances permitted in Nepal Accounting Standard - NAS 39 (Financial Instruments: Rec- ognition and Measurement)], the entire category would be tainted and would have to be reclassified as ‘Investment measured at fair value through OCI’. Furthermore, Bank would be prohibited from classifying any financial assets as ‘Held to Maturity’ during the following two years. These reclassifications are at the election of management and determined on an instrument by instrument basis. c. Derecognition

Derecognition of Financial Assets Bank derecognizes a financial asset (or where applicable a part of financial asset or part of a group of similar financial assets) when: • The rights to receive cash flows from the asset have expired; or • Bank has transferred its rights to receive cash flows from the asset or • Bank has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement and either Bank has transferred substantially all the risks and rewards of the asset or it has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognized) and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.

When Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Bank’s continuing involvement in the asset. In that case, Bank also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that Bank has retained.

When Bank’s continuing involvement that takes the form of guaranteeing the transferred asset, the extent of the continuing involvement is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration received by Bank that Bank could be required to repay.

Derecognition of Financial Liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability.

The difference between the carrying value of the original financial liability and the consideration paid is recognized in profit or loss.

20 www.sanimabank.com Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the net amount presented in the Statement of Financial Position when and only when Bank has a legal right to set off the recognized amounts and it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under NFRSs or for gains and losses arising from a group of similar transaction such as in trading activity. d. Determination of fair value

‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability or • In the absence of principal market, in the most advantageous market for asset or liability.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 - Valuation technique using quoted market price: financial instruments with quoted prices for identical instruments in active markets.

• Level 2 - Valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

• Level 3 – Valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable.

Level 1

When available, the Bank measures the fair value of an instrument using quoted prices in an active market for that instrument or dealer price quotations (assets and long positions are measured at a bid price, liabilities and short positions are measured at an asking price), without any deduction for transaction costs.

A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.

Level 2

If a market for a financial instrument is not active, then the Bank establishes fair value using a valuation technique. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analysis and option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Bank calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available observable market data.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument, i.e. without modification or repackaging, or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at

www.sanimabank.com 21 initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the transaction is closed out.

Level 3

Certain financial instruments are recorded at fair value using valuation techniques in which current market transactions or observable market data are not available. Their fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Bank’s best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid and ask prices to reflect costs to close out positions, credit and debit valuation adjustments, liquidity spread and limitations in the models. Also, profit or loss calculated when such financial instruments are first recorded (day 1 profit or loss) is deferred and recognised only when the inputs become observable or on derecognition of the instrument.

Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Bank entity and the counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties; to the extent that the Group believes a third-party market participant would take them into account in pricing a transaction.

Assets and Liabilities Recorded at Fair Value

A description of how fair values are determined for assets and liabilities that are recorded at fair value using valuation techniques is summarized below which incorporates the bank’s estimate of assumptions that a market participant would make when valuing the instruments. Derivative financial Instruments

Derivative financial instruments such as forward foreign exchange contracts are valued using a valuation technique with market observable inputs (Level 2). The most frequently applied valuation technique is forward pricing model which incorporates various inputs including foreign exchange spot and forward premiums. Financial Investments measured at fair value through OCI

Quoted equities, Quoted Mutual Funds classified as financial investments measured at fair value through OCI are valued using quoted market prices in the active markets as at the reporting date (Level 1). Foreign Quoted Debt Securities classified as financial investments measured at fair value through OCI are valued using market rate published by the Stock exchange in which the Securities is listed (Level 1). Unquoted equities, classified as financial investments measured at fair value through OCI are valued using a valuation technique with market observable inputs (Level 2). The most frequently applied valuation technique is proxy pricing which incorporates the inputs of market price of similar market instruments. e. Impairment

At each reporting date, Bank assesses whether there is any objective evidence that a financial asset or group of financial assets not carried at fair value through profit or loss is impaired. A financial asset or group of financial assets is deemed to be impaired if and only if there is objective evidence of impairment as a result of one or more events, that have occurred after the initial recognition of the asset (an ‘incurred loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Objective evidence of impairment may include: indications that the borrower or a group of borrowers is experiencing significant financial difficulty; the probability that they will enter bankruptcy or other financial reorganization; default or delinquency in interest or principal payments; and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

22 www.sanimabank.com Impairment of Financial Assets carried at Amortized Cost

For financial assets carried at amortized cost, such as amounts due from banks, held to maturity investments etc., Bank first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant or collectively for financial assets that are not individually significant. In the event Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, financial assets in a group with similar credit risk characteristics are collectively assesses for impairment. However, assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

Impairment of loans and advances (financial assets measured at amortized cost) has been determined as per the directive of Nepal Rastra Bank.

Reversal of Impairment

If the amount of an impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was recognised, the excess is written back by reducing the financial asset impairment allowance account accordingly. The write-back is recognized in the Statement of Profit or Loss.

Write-off of Financial Assets measured at Amortized Cost

Financial assets (and the related impairment allowance accounts) are normally written off either partially or in full, when there is no realistic prospect of recovery. Where financial assets are secured, this is generally after receipt of any proceeds from the realization of security.

Impairment of Rescheduled Loans and Advances

Where possible, the Bank seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms and the loan is no longer considered past due. Management continually reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual impairment assessment, calculated as per the central bank’s directive.

Collateral Valuation

The Bank seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at a minimum, at inception and based on the guidelines issued by the central bank (Nepal Rastra Bank). Non-financial collateral, such as real estate, is valued based on data provided by third parties such as independent valuator and audited financial statements.

Collateral Repossessed or Where Properties have Devolved to the Bank

The Bank’s policy is to determine whether a repossessed asset is best used for its internal operations or should be sold. The immovable property acquired by foreclosure of collateral from defaulting customers, or which has devolved on the Bank as part settlement of debt, has not been accounted for as an investment property or as part of the assets of the Bank in accordance with directions issued by the Nepal Rastra Bank.

Collateral repossessed are considered as Non-Banking Assets, are the assets obtained as security for loans & advances subsequently taken over by the Bank in the course of loan recovery. Such assets are valued at fair market value or total amount due from the borrower, whichever is lower and the balance loan remaining is charged to profit and loss account in the same year. Provision for possible losses on non-banking assets equal to the takeover value is made in the year of takeover by a charge to the Income Statement.

www.sanimabank.com 23 Impairment of Financial Assets measured at fair value through OCI

For financial investments measured at fair value through OCI, Bank assesses at each reporting date whether there is objective evidence that an investment is impaired.

In the case of debt instruments, Bank assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognised in the Income Statement. Future interest income is based on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognised, the impairment loss is reversed through the Income Statement.

In the case of equity investments classified as fair value through OCI, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss is removed from equity and recognized in the Statement of profit or loss. However, any subsequent increase in the fair value of an impaired available for sale equity security is recognised in other comprehensive income.

Bank writes-off certain financial investments measured at fair value through OCI when they are determined to be uncollectible.

Impairment of Non-Financial Assets

The Bank assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an 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 carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used.

3.5. Trading Assets

Financial assets such as government securities, equity etc. held for short term with an intention to trade have been classified as trading assets. Trading assets are measured at fair value with any changes in fair value being recognised in Profit or Loss.

3.6. Derivative assets and derivative liabilities

Derivative financial instruments such as forward foreign exchange contracts are valued using a valuation technique with market observable inputs. The most frequently applied valuation technique is forward pricing model which incorporates various inputs including foreign exchange spot and forward premiums.

3.7. Property and Equipment

Recognition

Property, plant and equipment are tangible items that are held for use in the production or supply of services, for rental to others or for administrative purposes and are expected to be used during more than one period. The Bank applies the requirements of the Nepal Accounting Standard - NAS 16 (Property, Plant and Equipment) in accounting for these assets. Property, plant and equipment are recognised if it is probable that future economic benefits associated with the asset will flow to the entity and the cost of the asset can be reliably measured.

24 www.sanimabank.com Measurement

An item of property, plant and equipment that qualifies for recognition as an asset is initially measured at its cost. Cost includes expenditure that is directly attributable to the acquisition of the asset and cost incurred subsequently to add to, replace part of an item of property, plant & equipment. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of computer equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Cost Model

Property and equipment is stated at cost excluding the costs of day–to–day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the equipment when that cost is incurred, if the recognition criteria are met.

Revaluation Model

The Bank has not applied the revaluation model to the any class of freehold land and buildings or other assets. Such properties are carried at a previously recognised GAAP Amount.

On revaluation of an asset, any increase in the carrying amount is recognised in ‘Other comprehensive income’ and accumulated in equity, under capital reserve or used to reverse a previous revaluation decrease relating to the same asset, which was charged to the Statement of Profit or Loss. In this circumstance, the increase is recognised as income to the extent of previous write down. Any decrease in the carrying amount is recognised as an expense in the Statement of Profit or Loss or debited to the Other Comprehensive income to the extent of any credit balance existing in the capital reserve in respect of that asset.

The decrease recognised in other comprehensive income reduces the amount accumulated in equity under capital reserves. Any balance remaining in the revaluation reserve in respect of an asset is transferred directly to retained earnings on retirement or disposal of the asset.

Subsequent Cost The subsequent cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item, if it is probable that the future economic benefits embodied within that part will flow to the Bank and it can be reliably measured. The cost of day to day servicing of property, plant and equipment are charged to the Statement of Profit or Loss as incurred.

Derecognition

The carrying amount of an item of property, plant and equipment is derecognized on disposal or when no future economic benefits are expected from its use. The gain or loss arising from de-recognition of an item of property, plant and equipment is included in the Statement of Profit or Loss when the item is derecognized. When replacement costs are recognized in the carrying amount of an item of property, plant and equipment, the remaining carrying amount of the replaced part is derecognized. Major inspection costs are capitalized. At each such capitalization, the remaining carrying amount of the previous cost of inspections is derecognized. The gain or losses derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognized.

Depreciation

Depreciation is calculated by using the straight line method on cost or carrying value of property, plant & equipment other than freehold land.

www.sanimabank.com 25 The depreciable amount of an item of property, plant and equipment is allocated on systematic basis over its useful life and is depreciated as follows:

Nature of Asset Useful Life (in Years) Depreciation Rate % Building 50 5 Furniture 10 25 Office Equipment 10 25 Vehicles 7 20 Computers 7 25 Plant and Machinery 10 15 Leasehold Assets 10 Years or Lease period whichever is less Depreciation on assets acquired during the year is computed on a proportionate basis from date of purchase or put to use, whichever is earlier. Changes in Estimates The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. Capital Work in Progress These are expenses of capital nature directly incurred in the construction of buildings, major plant and machinery and system development, awaiting capitalization. Capital work-in-progress would be transferred to the relevant asset when it is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Capital work-in-progress is stated at cost less any accumulated impairment losses. 3.8. Intangible Assets Recognition An intangible asset is an identifiable non-monetary asset without physical substance, held for use in the production or supply of goods or services, for rental to others or for administrative purposes. An intangible asset is recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the entity and the cost 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 by the Bank in previous annual Financial Statements or interim Financial Statements are not recognised as part of the cost of an intangible asset at a later date.

Computer Software

Cost of purchased licenses and all computer software costs incurred, licensed for use by the Bank, which are not integrally related to associated hardware, which can be clearly identified, reliably measured, and it’s probable that they will lead to future economic benefits, are included in the Statement of Financial Position under the category ‘Intangible assets’ and carried at cost less accumulated amortization and any accumulated impairment losses. Goodwill

Goodwill, if any that arises upon the acquisition of Subsidiaries is included in intangible assets. Goodwill is measured at initial recognition in accordance with Note. Subsequent Expenditure

Expenditure incurred on software is capitalized only when it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and this expenditure can be measured and attributed to the asset reliably. All other expenditure is expensed as incurred. Goodwill is measured at cost less accumulated impairment losses.

26 www.sanimabank.com Amortization of Intangible Assets

Intangible Assets, except for goodwill, are amortized on a 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 useful economic life based on a pattern in which the asset’s economic benefits are consumed by the bank. Amortization methods, useful lives, residual values are reviewed at each financial year end and adjusted if appropriate. The Bank assumes that there is no residual value for its intangible assets.

Acquired computer software licenses are capitalized on the basis of cost incurred to acquire and bring to use the specific software and are amortized over their useful life estimated as 5 years from the date of acquisition or over the period of the license, whichever is less. Derecognition of Intangible Assets

The carrying amount of an item of intangible asset is derecognized on disposal or when no future economic benefits areexpected from its use. The gain or loss arising on de-recognition of an item of intangible assets is included in the Statement of Profit or Loss when the item is derecognized. 3.9. Investment Property Properties held to earn rental and or capital appropriation are recognised as investment property. Such properties are measured at cost. 3.10. Income Tax As per Nepal Accounting Standard- NAS 12 (Income Taxes) tax expense is the aggregate amount included in determination of profit or loss for the period in respect of current and deferred taxation. Income Tax expense is recognised in the statement of Profit or Loss, except to the extent it relates to items recognised directly in equity or other comprehensive income in which case it is recognised in equity or in other comprehensive income. Current Tax Current tax assets and liabilities consist of amounts expected to be recovered from or paid to Inland Revenue Department in respect of the current year, using the tax rates and tax laws enacted or substantively enacted on the reporting date and any adjustment to tax payable in respect of prior years. Deferred Tax Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences except:

• Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination, and at the time of transaction, affects neither the accounting profit nor taxable profit or loss. • In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carried forward unused tax credits and unused tax losses (if any), to the extent that it is probable that the taxable profit will be available against which the deductible temporary differences, carried forward unused tax credits and unused tax losses can be utilized except:

• Where the deferred tax asset relating to the deductible temporary differences arising from the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of transaction, affects neither the accounting profit nor taxable profit or loss. • In respect of deductible temporary differences associated with investments in Subsidiaries, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary difference will be utilized.

www.sanimabank.com 27 The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is probable that sufficient profit will be available to allow the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Current and deferred tax assets and liabilities are offset only to the extent that they relate to income taxes imposed by the same taxation authority. 3.11. Deposits, debt securities issued and subordinated liabilities

Deposits, debt securities issued and subordinated liabilities have been measured at amortized cost. Bank has a policy to treat debt securities issue expenses up to 1% of debt securities issue price as immaterial thus the same has not been considered in computation of fair value of debt securities. 3.12. Provisions A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The amount recognised is the best estimate of the consideration required to settle the present obligation at the reporting date, taking in to account the risks and uncertainties surrounding the obligation at that date. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is determined based on the present value of those cash flows. A provision for onerous contracts is recognized when the expected benefits to be derived by the Bank from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured as the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Bank recognizes any impairment loss on the assets associated with that contract. The expense relating to any provision is presented in the Statement of Profit or Loss net off any reimbursement.

3.13. Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to Bank and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

Interest Income For all financial instruments measured at amortized cost, interest bearing financial assets classified as measured at fair value through OCI and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR. EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ’Interest income’ for financial assets and ’Interest and similar expense’ for financial liabilities. However, for a reclassified financial asset for which the bank subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate. Bank has a policy to treat loan administration fees up to 1% of loan amount as immaterial. Considering loan administration and other fees as immaterial and impracticable to determine reliably, same has not been included in computation of effective interest rate as per Carve-out (optional) pronounced on 20th September 2018.

28 www.sanimabank.com Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Fee and Commission Income

Fees earned for the provision of services over a period of time are accrued over the period, which include service fees and commission income. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the loan.

Dividend Income Dividend income is recognized when the right to receive payment is established. Net Trading Income

Net Trading Income includes all gains and losses from changes in fair value and related capital gain/loss and dividend from financial assets ‘Held for Trading’.

Net income from other financial instrument measured at fair value through Profit or Loss

Net income from other financial instrument measured at fair value through Profit or Loss includes all gains/(losses) arised from the revaluation of financial instrument at fair value.

3.14. Interest expense

For all financial liabilities measured at amortized cost, interest expense is recognised using the EIR. EIR is the rate that exactly discounts estimated future cash payments through the expected life of the financial liabilities or a shorter period, where appropriate, to the net carrying amount of the financial liability.

3.15. Employee Benefits

Defined Contribution Plans

A defined contribution plan is a post-employment benefit plan under which the Bank makes fixed contribution into a separate Bank account (a fund) and will have no legal or constructive obligation to pay further contributions even if the fund does not hold sufficient assets to pay all employee benefits relating to employee services in the current and prior periods as defined in Nepal Accounting Standards – NAS 19 (Employee Benefits).

The contribution payable by the employer to a defined contribution plan in proportion to the services rendered to Bank by the employees and is recorded as an expense under ‘Personnel Expense’ as and when they become due. Unpaid contribution are recorded as a liability under ‘Other Liabilities’ in Notes 4.23.

Bank contributed 10% of the salary of each employee to the Employees’ Provident Fund. The above expenses are identified as contributions to ‘Defined Contribution Plans’ as defined in Nepal Accounting Standards – NAS 19 (Employee Benefits).

Defined Benefit Plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Accordingly, staff gratuity and leave encashment has been considered as defined benefit plans as per Nepal Accounting Standards – NAS 19 (Employee Benefits).

(a) Gratuity

An actuarial valuation is carried out every year to ascertain the full liability under gratuity. Bank’s obligation in respect of defined benefit obligation is calculated by estimating the amount of future benefit that employees have earned for their service in the current and prior periods and discounting that benefit to determine its present value, then

www.sanimabank.com 29 deducting the fair value of any plan assets to determine the net amount to be shown in the Statement of Financial Position. The value of a defined benefit asset is restricted to the present value of any economic benefits available in the form of refunds from the plan or reduction on the future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirement that apply to any plan in Bank. An economic benefit is available to Bank if it is realizable during the life of the plan, or on settlement of the plan liabilities.

Bank determines the interest expense on the defined benefit liability by applying the discount rate used to measure the defined benefit liability at the beginning of the annual period. The discount rate is the average yield on government bonds issued during the period having maturity of five years or more.

The increase in gratuity liabilities attributable to the services provided by employees during the year ended 16th July, 2018 (current service cost) has been recognised in the Statement of Profit or Loss under ‘Personnel Expenses’ together with the net interest expense. Bank recognizes the total actuarial gain/(loss) that arises in computing Bank’s obligation in respect of gratuity in other comprehensive income during the period in which it occurs.

The demographic assumptions underlying the valuation are retirement age (58 years), early withdrawal from service and retirement on medical grounds.

(b) Unutilized Accumulated Leave

Bank’s liability towards the accumulated leave which is expected to be utilized beyond one year from the end of the reporting period is treated as other long term employee benefits. Bank’s net obligation towards unutilized accumulated leave is calculated by discounting the amount of future benefit that employees have earned in return for their service in the current and prior periods to determine the present value of such benefits. The discount rate is the average yield on government bonds issued during the period having maturity of five years or more. The calculation is performed using the Projected Unit Credit method. Net change in liability for unutilized accumulated leave including any actuarial gain and loss are recognized in the Statement of Profit or Loss under ‘Personnel Expenses’ in the period in which they arise.

3.16. Leases

The determination of whether an arrangement is a lease, or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Finance Lease Agreements which transfer to counterparties substantially all the risks and rewards incidental to the ownership of assets, but not necessarily legal title, are classified as finance lease. When Bank is the lessor under finance lease, the amounts due under the leases, after deduction of unearned interest income, are included in, ‘Loans & receivables from other customers’, as appropriate. Interest income receivable is recognised in ‘Net interest income’ over the periods of the leases so as to give a constant rate of return on the net investment in the leases. When Bank is a lessee under finance leases, the leased assets are capitalized and included in ‘Property, Plant and Equipment’ and the corresponding liability to the lessor is included in ‘Other liabilities’. A finance lease and its corresponding liability are recognized initially at the fair value of the asset or if lower, the present value of the minimum lease payments. Finance charges payable are recognised in ‘Interest expenses’ over the period of the lease based on the interest rate implicit in the lease so as to give a constant rate of interest on the remaining balance of the liability. Operating Lease All other leases are classified as operating leases. When acting as lessor, Bank includes the assets subject to operating leases in ‘Property, plant and equipment’ and accounts for them accordingly. Impairment losses are recognized to the extent that residual values are not fully recoverable and the carrying value of the assets is thereby impaired.

30 www.sanimabank.com When Bank is the lessee, leased assets are not recognized on the Statement of Financial Position. Rentals payable and receivable under operating leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘Other operating expenses’ and ‘Other operating income’, respectively.

The bank recognized accrued lease for the period as an expense on incremental basis (as per lease term) considering the general inflation as per Carve-out (optional) pronounced on 20th September 2018. 3.17. Foreign currency translation All foreign currency transactions are translated into the functional currency, which is Nepalese Rupees, using the exchange rates prevailing at the dates when the transactions were affected.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Nepalese Rupees using the spot foreign exchange rate ruling at that date and all differences arising on non-trading activities are taken to ‘Other Operating Income’ in the Statement of Profit or Loss. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the rates of exchange prevailing at the end of the reporting period.

Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items in foreign currency measured at fair value are translated using the exchange rates at the date when the fair value was determined.

Foreign exchange differences arising on the settlement or reporting of monetary items at rates different from those which were initially recorded are dealt with in the Statement of Profit or Loss. However, foreign currency differences arising on available- for-sale equity instruments are recognized in other comprehensive income. 3.18. Financial guarantee and loan commitments Contingent Liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefits is not probable or cannot be reliably measured as defined in the Nepal Accounting Standard- NAS 37 (Provisions, Contingent Liabilities and Contingent Assets).

To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. These consist of financial guarantees, letter of credit and other undrawn commitments to lend. Letters of credit, guarantees and acceptances commit the Bank to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. They carry a similar credit risk to loans. Operating lease commitments of the Bank (as a lessor and as a lessee) and pending legal claims against the Bank too form part of commitments of the Bank. Contingent liabilities are not recognised in the Statement of Financial Position but are disclosed unless they are remote. But these contingent liabilities do contain credit risk and are therefore form part of the overall risk of the Bank.

Financial guarantees are initially recognised in the Statement of Financial Position (within ‘other liabilities’) at fair value, being the premium received. Subsequent to initial recognition, the Bank’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortization recognised in the Statement of Profit or Loss, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.

Any increase in the liability relating to the financial guarantees is recorded in the Statement of Profit or Loss under ‘Impairment Charges for Loans & other losses’. The premium received is recognised in the Statement of Profit or Loss under ‘Net fees and commission income’ on a straight line basis over the life of the guarantee.

3.19. Share capital and reserves

Share capital and reserves have been treated as equity instrument as per NAS 32 representing the net assets of the entity. Bank has a policy to treat share/debenture issue expenses upto 1% of issue amount as immaterial. Thus, same has not been deducted from capital/debenture and has been charged to profit or loss of relevant period.

www.sanimabank.com 31 3.20. Earnings per share including diluted

Bank presents basic and diluted Earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit and loss attributable to ordinary equity holders of Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting both the profit and loss attributable to the ordinary equity holders and the weighted average number of ordinary shares outstanding, for the effects of all dilutive potential ordinary shares, if any. 3.21. Segment Reporting The bank has identified its geographical segments on the basis of business activities in 7 different provinces of the country. Management monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profits or losses which, in certain respects, are measured differently from operating profits or losses in the consolidated financial statements. Income taxes are managed on a group basis and are not allocated to operating segments. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

3.22. Dividend on Ordinary Shares Dividend on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Annual Gen- eral Meeting of shareholders. Interim Dividend are deducted from equity when they are declared and no longer at the discretion of the Bank. Dividend proposed for the year after reporting date and before the authorization of financial statements has been disclosed in notes as non-adjusting event. 3.23. FIRST TIME ADOPTION OF NFRS As stated in Note 2.2, these are the Bank’s first financial statements prepared in accordance with NFRS. The comparative figures have also been presented alongside. The effect of any difference in opening balance as per NFRS and as per NRB Di- rective no. 4 have been given on Retained Earnings or Other components of Reserves, wherever applicable and transferred to Regulatory Reserve. Accordingly the difference in current year profit has also been booked in regulatory reserve.

As per the provisions of NFRS, the effect of any difference in opening balance under NFRS is Rs. 179.87 Million in equity compared to NRB Directives which is disclosed in Note 5.11 to financial statements.

32 www.sanimabank.com Cash and Cash Equivalent For the year ended 32nd Ashad 2075 4.1 Group Bank Current Year Previous Year Current Year Previous Year Cash in hand 1,082,295,735 907,599,244 1,082,295,735 907,599,244 Balances with B/FIs 467,150,163 741,398,754 465,401,856 737,707,342 Money at call and short notice 600,092,329 412,410,170 600,092,329 412,410,170 Other 2,382,362,414 891,063,346 2,382,362,414 891,063,346 Total 4,531,900,641 2,952,471,513 4,530,152,334 2,948,780,102

Cash and cash equivalent- Other Placement with maturity upto 3 months Axis Bank Dubai 1,983,065,454 722,762,630 1,983,065,454 722,762,630 Nepal Investment Bank Ltd. 32,936,877 - 32,936,877 - ST.CH.Bank Singapore 116,336,046 - 116,336,046 - Janata Bank Ltd. - 64,709,266 - 64,709,266 National Development Bank Srilanka - 103,591,450 - 103,591,450 Deposit Collection Instrunment 250,024,038 - 250,024,038 - Total 2,382,362,414 891,063,346 2,382,362,414 891,063,346

Due from Nepal Rastra Bank nd For the year ended 32 Ashad 2075 4.2 Group Bank Current Year Previous Year Current Year Previous Year Statutory balances with NRB 5,575,806,134 5,240,739,798 5,575,806,134 5,240,739,798 Securities purchased under resale agreement - - - - Other deposit and receivable from NRB 32,365,714 24,561,845 32,365,714 24,561,845 Total 5,608,171,848 5,265,301,643 5,608,171,848 5,265,301,643

The bank has reconcilied the balances as per books and statement of central bank. Aging of identified reconcilied differences is depcited below: Reconciliation Status Total Amount <3 Months 3-6 Months Nepal Rastra Bank 56,601,602 55,100,608 1,500,994

Placements with Bank and Financial Instituitions For the year ended 32nd Ashad 2075 4.3 Group Bank Current Year Previous Year Current Year Previous Year Placement with domestic B/FIs - 30,942,224 - 30,942,224 Placement with foreign B/FIs 649,156,510 951,300,953 649,156,510 951,300,953 Less: Allowances for impairment - - - - Total 649,156,510 982,243,177 649,156,510 982,243,177

www.sanimabank.com 33 Derivative Financial Instruments For the year ended 32nd Ashad 2075 4.4 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 - 17,734,529 - 17,734,529 Other - - - - Total - 17,734,529 - 17,734,529 Other Trading Assets For the year ended 32nd Ashad 2075 4.5 Group Bank Current Year Previous Year Current Year Previous Year Teasury bills - - Government bonds 407,357,338 331,806,076 407,357,338 331,806,076 NRB Bonds - - Domestic Corporate bonds - - Equities 87,502,114 102,164,602 70,690,809 74,433,506 Other - - Total 494,859,452 433,970,678 478,048,147 406,239,582 Pledged - - - - Non-pledged - - - -

Interest receivable amounting to Rs. 7,457,338 In current year and Rs. 5,756,076 In previous year on Governments bonds(NSB) is capitalised.

34 www.sanimabank.com 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) 31,182,743 34,290,769 31,182,743 31,974,016 31,182,743 34,290,769 31,182,743 31,974,016 Hydroelectricity Investment and Development Company Ltd. 14,576,600 22,492,058 14,576,600 28,471,817 14,576,600 22,492,058 14,576,600 28,471,817 (145766 shares of Rs. 100 each) Nabil Equity Fund (844878 shares of Rs. 10 each (Bank)) 8,496,492 8,348,291 8,505,100 8,504,621 8,448,780 8,293,010 8,448,780 8,448,780 (850501 shares of Rs. 10 each (Group)) Global IME Sammunat Scheme (47466 shares of Rs. 10 each) 474,660 414,404 474,660 474,660 474,660 414,404 474,660 474,660 Laxmi Equity Fund (116991 shares of Rs. 10 each) 1,169,910 943,363 1,169,910 1,159,966 1,169,910 943,363 1,169,910 1,159,966 Mithila Micro Finace Ltd. (30 shares of Rs. 100 each) - 30,313 25,400 382,728 - 30,313 25,400 382,728 Siddhartha Equity Fund (250000 shares of Rs. 10 each) 2,500,000 2,379,245 - - 2,500,000 2,379,245 - - Citizen Mutual Fund-1 (200000 shares of Rs. 10 each) 2,000,000 1,847,648 - - 2,000,000 1,847,648 - - Rural Microfinance Development Centre Ltd. - - - 649,309 - - - 649,309 (845 Ordinary Shares of Rs. 100 each) Laxmi Micro Finance Limited (90 Ordinary Shares of Rs. 100 each) - - 486,413 627,362 - - 8,600 166,066 Siddhartha Mutual Fund (100000 Ordinary Shares of Rs. 10 each) - - 1,000,000 2,280,450 - - 1,000,000 2,280,450 Riddi Hydro Power Development Ltd. - - 13,900 31,628 - - 13,900 31,628 (147 Ordinary Shares of Rs. 100 each) Kalika Micro Credit Development Bank Ltd. (82 Ordinary - - 8,200 141,467 - - 8,200 141,467 Shares of Rs. 100 each) Nyadi Group Power Ltd. (579 Ordinary Shares of Rs. 100 each) - - 57,900 150,983 - - 57,900 150,983 Mero Micro Finance Ltd. (45 Ordinary Shares of Rs. 100 each) - - 4,100 98,337 - - 4,100 98,337 Khanikhola Hydropower Ltd. (16 Ordinary Shares of Rs. 100 each) - - 1,600 3,300 - - 1,600 3,300 Siddhartha Bank Limited (153 shares of Rs. 100 each) 47,978 45,693 954,336 734,781 - - - - Nepal Investment Bank Limited (7285 shares of Rs. 100 each) 4,532,636 4,503,627 6,563,922 10,005,841 - - - - Citizen Bank International Limited (2259 shares of Rs. 100 each) 546,466 530,725 1,285,544 1,156,768 - - - - NMB Hybrid Fund L-1 (7887 shares of Rs. 10 each) 72,312 76,081 78,870 77,730 - - - - NIBL Pragati Fund (8577 shares of Rs. 10 each) 68,307 76,846 85,770 85,041 - - - - Nepal SBI Bank Limited (3 shares of Rs. 100 each) 1,538 1,490 10,310 16,508 - - - -

Samata Microfinance Bittiya Sanstha Limited( 12 shares of Rs. 100 each) 19,388 16,485 1,000 3,996 - - - - Nepal Life Insurance Co. Ltd. (3090 shares of Rs. 100 each) 3,151,977 3,229,900 2,480,925 4,634,319 - - - - Forward Community Microfinance Bittiya Sanstha Ltd. (327 742,205 722,673 2,600 83,034 - - - - shares of Rs. 100 each) Nepal Doorsanchar Comapany Limited (500 shares of Rs. 100 each) 365,349 358,878 638,295 669,263 - - - - Om Development Bank Ltd. (880 shares of Rs. 100 each) 162,943 157,687 ------Shangrila Development Bank Ltd. (1138 shares of Rs. 100 each) 184,659 177,862 ------Gandaki Bikas Bank Limited (2125 shares of Rs. 100 each) 423,088 433,665 ------Janata Bank Nepal Ltd. (1716 shares of Rs. 100 each) 266,490 268,200 ------Chhimek Laghubitta Bikas Bank Limited (239 shares of Rs. 100 each) 221,270 208,660 ------Sana Kisan Bikas Bank Ltd (343 shares of Rs. 100 each) 407,359 396,090 ------Nirdhan Utthan Bank Limited (166 shares of Rs. 100 each) 186,900 169,219 ------First Micro Finance Development Bank Ltd. (897 shares of Rs. 100 each) 506,310 482,200 ------NABIL Bank Limited Promotor Share (2700 shares of Rs. 100 each) 2,029,327 1,846,553 ------Swabalamban Laghubitta Bittiya Sanstha Limited (2178 shares of Rs. 100 each) 2,788,304 2,688,567 ------Life Insurance Co. Nepal (226 shares of Rs. 100 each) 379,996 364,922 ------NMB Sulav Investment Fund 1 - - 180,869 181,073 - - - - Laxmi Value Fund 1 - - 338,405 360,732 - - - - Siddartha Investment Growth 1 - - 3,533,063 3,695,469 - - - - Chilime Hydro Power - - 101,016 68,045 - - - - NMB Bank Ltd - - 981,062 784,073 - - - - Nepal Bangladesh Bank Ltd - - 1,120,827 947,033 - - - - Standard Chartered Bank Limited - - 2,102,700 3,709,053 - - - - Swadeshi Laghubitta Bittiya Sanstha Ltd. - - 1,200 1,200 - - - - Total 77,505,207 87,502,114 77,967,240 102,164,602 60,352,693 70,690,809 56,972,393 74,433,506

www.sanimabank.com 35 Loan and Advances to B/FIs For the year ended 32nd Ashad 2075 4.6 Group Bank Current Year Previous Year Current Year Previous Year Loans to microfinance institutions 1,661,722,984 610,000,000 1,661,722,984 610,000,000 Other - - Less: Allowances for impairment 16,499,580 6,061,805 16,499,580 6,061,805 Total 1,645,223,405 603,938,195 1,645,223,405 603,938,195 Product Deprived sector loans 1,649,957,966 606,180,543 1,649,957,966 606,180,543 Sub total 1,649,957,966 606,180,543 1,649,957,966 606,180,543 Interest receivable 11,765,019 3,819,457 11,765,019 3,819,457 Grand total 1,661,722,984 610,000,000 1,661,722,984 610,000,000

Allowances for Impairment For the year ended 32nd Ashad 2075 4.6.1 Group Bank Current Year Previous Year Current Year Previous Year Balance at Shrawan 6,061,805 9,368,414 6,061,805 9,368,414 Impairment loss for the year: Charge for the year 10,437,774 - 10,437,774 - Recoveries/reversal - (3,306,609) - (3,306,609) Amount written off Balance at Ashad end 16,499,580 6,061,805 16,499,580 6,061,805

Loans and Advances to Customers For the year ended 32nd Ashad 2075 4.7 Group Bank Current Year Previous Year Current Year Previous Year Loan and advances measured at amortized cost 68,399,505,195 51,611,072,368 68,399,505,740 51,611,072,368 Less: Impairment allowances Collective impairment 649,945,188 519,217,382 649,945,188 519,217,382 Individual impairment 151,426,791 53,383,445 151,426,791 53,383,445 Net amount 67,598,133,216 51,038,471,540 67,598,133,761 51,038,471,540 Loan and advances measured at FVTPL - - - - Total 67,598,133,216 51,038,471,540 67,598,133,761 51,038,471,540

36 www.sanimabank.com Analysis of Loan and Advances - By Product nd For the year ended 32 Ashad 2075 4.7.1 Group Bank Current Year Previous Year Current Year Previous Year Product Term loans 11,817,221,698 8,797,392,310 11,817,221,698 8,797,392,310 Overdraft 7,785,095,709 6,728,516,009 7,785,095,709 6,728,516,009 Trust receipt/Import loans 1,181,905,000 735,083,076 1,181,905,000 735,083,076 Demand and other working capital loans 11,473,733,631 7,710,948,092 11,473,733,631 7,710,948,092 Personal residential loans 5,147,487,244 3,518,404,862 5,147,487,244 3,518,404,862 Real estate loans 6,162,304,032 5,323,221,483 6,162,304,032 5,323,221,483 Margin lending loans 329,442,651 272,556,377 329,442,651 272,556,377 Hire purchase loans 4,949,637,467 4,588,174,363 4,949,637,467 4,588,174,363 Deprived sector loans 1,735,881,700 1,895,348,155 1,735,881,700 1,895,348,155 Bills purchased - 272,395,844 - 272,395,844 Staff loans 362,363,658 229,261,380 362,364,203 229,261,380 Other 17,248,896,416 11,395,109,685 17,248,896,416 11,395,109,685 Sub total 68,193,969,206 51,466,411,636 68,193,969,750 51,466,411,636 Interest receivable 205,535,990 144,660,732 205,535,990 144,660,732 Grand total 68,399,505,195 51,611,072,368 68,399,505,740 51,611,072,368 Staff loans comprises of home loan, auto loan, overdraft loan and advances to staffs including interest receivables. Staff loans except staff advances amounting to Rs. 38.09 million are measured at fair value considering discount rate of 10.27% (avg base rate) in current year. Staff advances are provided for a period upto 12 months.

Analysis of Loan and Advances - By Currency nd For the year ended 32 Ashad 2075 4.7.2 Group Bank Current Year Previous Year Current Year Previous Year Nepalese rupee 67,718,126,103 51,345,702,775 67,718,126,648 51,345,702,775 Indian rupee - - - - United State dollar 681,379,092 258,390,865 681,379,092 258,390,865 Great Britain pound - - - - Euro - 6,978,729 - 6,978,729 Japenese yen - - - - Chinese yuan - - - - Other - - - - Total 68,399,505,195 51,611,072,368 68,399,505,740 51,611,072,368

www.sanimabank.com 37 Analysis of Loan and Advances - By Collateral For the year ended 32nd Ashad 2075 4.7.3 Group Bank Current Year Previous Year Current Year Previous Year Secured Movable/immovable assets 66,420,132,646 49,566,433,371 66,420,132,646 49,566,433,371 Gold and silver 149,209,889 - 149,209,889 - Guarantee of domestic B/FIs - - - - Government guarantee - - - - Guarantee of international rated bank 29,604,509 - 29,604,509 - Collateral of export document 763,436,821 - 763,436,821 - Collateral of fixed deposit receipt 644,538,304 587,940,989 644,538,304 587,940,989 Collateral of Governement securities 1,043,934 2,026,863 1,043,934 2,026,863 Counter guarantee - - - Personal guarantee 351,500 59,063,002 351,500 59,063,002 Other collateral 391,187,594 1,395,608,143 391,188,139 1,395,608,143 Subtotal 68,399,505,195 51,611,072,368 68,399,505,740 51,611,072,368 Unsecured - - - - Grand Total 68,399,505,195 51,611,072,368 68,399,505,740 51,611,072,368

Allowances for Impairment nd For the year ended 32 Ashad 2075 4.7.4 Group Bank Current Year Previous Year Current Year Previous Year Specific allowances for impairment Balance at Shrawan 1 (Opening) 53,383,445 30,684,859 53,383,445 30,684,859 Impairment loss for the year: Charge/(reversal) for the year 98,043,346 22,698,587 98,043,346 22,698,587 Write-offs - - - - Exchange rate variance on foreign currency impairment - - - - Other movement - - - - Balance at Ashad end 151,426,791 53,383,445 151,426,791 53,383,445 Collective allowances for impairment Balance at Shrawan 1 (Opening) 519,217,382 403,732,474 519,217,382 403,732,474 Impairment loss for the year: Charge/(reversal) for the year 130,727,805 115,484,908 130,727,805 115,484,908 Exchange rate variance on foreign currency impairment - - - - Other movement - - - - Balance at Ashad end 649,945,188 519,217,382 649,945,188 519,217,382 Total allowances for impairment 801,371,979 572,600,828 801,371,979 572,600,828

38 www.sanimabank.com Investment Securities nd For the year ended 32 Ashad 2075 4.8 Group Bank Current Year Previous Year Current Year Previous Year Investment securities measured at amortized cost 8,967,804,213 6,441,501,580 8,797,804,213 6,426,501,580 Investment in equity measured at FVTOCI 647,927,630 2,652,600 615,639,562 2,652,600 Total 9,615,731,842 6,444,154,180 9,413,443,775 6,429,154,180

Investment Securities Measured at Amortized Cost nd For the year ended 32 Ashad 2075 4.8.1 Group Bank Current Year Previous Year Current Year Previous Year Debt securities - - Government bonds 5,645,787,081 4,798,284,059 5,645,787,081 4,798,284,059 Government treasury bills 3,152,017,250 1,628,209,022 3,152,017,250 1,628,209,022 Nepal Rastra Bank bonds - - Nepal Rastra Bank deposits instruments - - Other 170,000,000 15,000,000 Less: specific allowances for impairment (119) 8,499 (119) 8,499 Total 8,967,804,213 6,441,501,580 8,797,804,213 6,426,501,580

Investment in Equity Measured at Fair Value Through Other Comprehensive Income nd For the year ended 32 Ashad 2075 4.8.2 Group Bank Current Year Previous Year Current Year Previous Year Equity instruments Quoted equity securities 160,836,962 - 160,836,962 - Unquoted equity securities 487,090,668 2,652,600 454,802,600 2,652,600 Total 647,927,630 2,652,600 615,639,562 2,652,600

www.sanimabank.com 39 Information Relating to Investment In Equities For the year ended 32nd Ashad 2075 4.8.3 Group Bank Current Year Previous Year Current Year Previous Year Cost Value Fair Value Cost Value Fair Value Cost Value Fair Value Cost Value Fair Value Investment in quoted equity Sanima Equity Fund 16900000 shares of Rs. 10 each (Bank) 20292680 shares of Rs. 10 each (Group) 202,926,800 193,125,030 - - 169,000,000 160,836,962 - - Investment in unquoted equity Sanima Life Insurance Co. Ltd. 2800000 shares of Rs. 100 each 280,000,000 280,000,000 350,000 350,000 280,000,000 280,000,000 350,000 350,000 Nepal Clearing House Company Ltd. 27631 shares of Rs. 100 each 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 Sanima Insurance Ltd.1000000 shares of Rs. 100 each 100,000,000 100,000,000 - - 100,000,000 100,000,000

Swet Ganga Hydropower and Construction Ltd (Lower Likhu Hydro Power Project) 250000 shares of Rs. 100 each 25,000,000 25,000,000 - - 25,000,000 25,000,000 - - Tamor Sanima Energy Pvt Ltd (Sanima Middle Tamor Hydro Power Project) 250000 shares of Rs. 100 each 25,000,000 25,000,000 - - 25,000,000 25,000,000 - - Mathillo Mailun Khola Jalvidhyut Ltd 225000 shares of Rs. 100 each 22,500,000 22,500,000 - - 22,500,000 22,500,000 - - Total 657,729,400 647,927,630 2,652,600 2,652,600 623,802,600 615,639,562 2,652,600 2,652,600

Current Tax Assets For the year ended 32nd Ashad 2075 4.9 Group Bank Current Year Previous Year Current Year Previous Year Current tax assets Current year income tax assets 692,715,137 1,267,521,421 691,029,387 1,267,521,421 Tax assets of prior periods 1,265,835,671 - 1,265,835,671 - Current tax liabilities Current year income tax liabilities 778,999,752 1,260,787,557 774,250,990 1,250,381,690 Tax liabilities of prior periods 1,249,121,908 - 1,248,908,924 - Total (69,570,852) 6,733,863 (66,294,857) 17,139,730

Investment in Subsidiaries nd For the year ended 32 Ashad 2075 4.10 Group Bank Current Year Previous Year Current Year Previous Year Investment in quoted subsidiaries - - - - Investment in unquoted subsidiaries - - 250,000,000 110,000,000 Total investment - - 250,000,000 110,000,000 Less: Impairment allowances - - - - Net carrying amount - - 250,000,000 110,000,000

40 www.sanimabank.com Investment in Quoted Subsidiaries For the year ended 32nd Ashad 2075 4.10.1 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" Total

Investment in Unquoted Subsidiaries For the year ended 32nd Ashad 2075 4.10.2 Group Bank Current Year Previous Year Current Year Previous Year Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value

"Sanima Capital .Ltd. 2,500,000 shares of Rs.100.each" 250,000,000 250,000,000 110,000,000 110,000,000

Total 250,000,000 250,000,000 110,000,000 110,000,000

Information Relating to Subsidiaries of the Bank For the year ended 32nd Ashad 2075 4.10.3 Group Bank Percentage of ownership held Percentage of ownership held Current Year Previous Year Current Year Previous Year

Sanima Capital Ltd. 100% 100%

www.sanimabank.com 41 Non Controlling Interest of the Subsidiaries nd For the year ended 32 Ashad 2075 4.10.4 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

Investment in Associates For the year ended 32nd Ashad 2075 4.11 Group Bank Current Year Previous Year Current Year Previous Year Investment in quoted subsidiaries Investment in unquoted subsidiaries Total investment Less: Impairment allowances Net carrying amount

Investment in Quoted Associates For the year ended 32nd Ashad 2075 4.11.1 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

Investment in Unquoted Associates For the year ended 32nd Ashad 2075 4.11.2 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

42 www.sanimabank.com Information Relating to Associates of the Bank nd For the year ended 32 Ashad 2075 4.11.3 Group Bank Percentage of ownership held by the bank Percentage of ownership held by the bank Current Year Previous Year Current Year Previous Year

…………………………………….Ltd. …………………………………….Ltd. …………………………………….Ltd. …………………………………….Ltd. ……………………………. Total

Equity Value of Associates For the year ended 32nd Ashad 2075 4.11.4 Group Bank Current Year Previous Year Current Year Previous Year

Investment Properties For the year ended 32nd Ashad 2075 4.12 Group Bank Current Year Previous Year Current Year Previous Year

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

www.sanimabank.com 43 ------4.13 2074 (485,669) 35,864,112 (9,852,494) 82,673,878

(14,475,294) (30,151,067) 904,907,185 154,693,415 311,643,523 285,697,323 358,518,707 358,518,707 722,470,711 Total Ashad End Total 1,045,125,306 1,326,132,093

------(485,669) 6,095,887 2075 (9,852,494) 82,673,878 (14,475,294) (30,151,067) (20,693,240) 904,907,185 154,693,415 311,643,523 285,697,323 358,518,707 104,900,757 442,726,224 686,606,599 889,501,757 1,045,125,306 1,326,132,093 Total Ashad end Total

------(643,197) (1,232,032) (8,528,899) (6,048,808) Others 12,963,257 19,565,017 45,181,608 56,024,776 68,344,837 15,066,595 77,362,624 50,806,093 78,441,015 100,817,945 119,150,930 155,803,639 Equipment &

------(309,423) (313,100) (252,091) 7,669,516 9,650,353 8,624,141 72,360,178 81,701,108 21,260,286 24,198,631 31,868,147 40,240,197 49,832,961 62,408,097 102,648,294 Machinery

------136,033 (449,526) (357,920) 8,547,398 7,850,917 (1,597,234) (1,243,592) 80,354,707 87,756,099 30,716,784 48,852,989 57,042,467 10,482,574 66,281,449 30,713,631 50,730,233 Fixture 117,011,682 Furniture &

------Ashad 2075 (8,424,298) (9,313,571) 23,170,826 38,233,741 50,807,724 54,783,782 69,530,310 25,035,700 85,252,439 nd (11,714,435) (12,881,079) 146,864,851 173,384,156 211,310,800 103,853,847 126,058,362 Vehicles

Group ------(495,176) (427,080) (2,124,547) (1,424,821) 11,688,295 69,442,374 22,901,104 91,848,302 83,320,276 36,075,952 47,337,168 22,616,006 68,528,353 44,511,135 173,044,031 104,515,678 Computer & Accessories

------For the year ended 32 Property and Equipment (274,702) (621,702) (4,706,208) (2,410,357) 13,098,708 17,756,183 80,356,845 37,113,896 50,212,604 17,135,703 64,937,950 91,371,161 124,102,284 141,583,765 216,612,700 151,674,750 Leasehold Properties

------5,535,877 5,567,773 6,095,887 28,647,297 34,183,175 39,750,948 Building 139,364,847 139,364,847 139,364,847 105,181,672 105,709,786

------372,264 372,264 Land 38,736,100 171,600,000 210,336,100 210,336,100 210,336,100 209,963,836

Particulars

Cost 2073 As on Shrawan 1, Year Addition during the Acquisition Capitalization Disposal during the year Adjustment/Revaluation Balance as on Ashad end 2074 Year Addition during the Acquisition Capitalization Disposal during the year Adjustment/Revaluation Balance as on Ashad end 2075 Depreciation and Impairment 2073 As on Shrawan 1, Year Depreciation charge for the Impairment for the year Disposals Adjustment As on Ashad end 2074 Impairment for the year Year Depreciation charge for the Disposals Adjustment As on Ashad end 2075 in Progress 2074 Capital Work in Progress 2075 Capital Work Net Book Value As on Ashad end 2074 As on Ashad end 2075

44 www.sanimabank.com

------4.13 (485,669) (9,852,494) 80,789,758 35,864,112 (14,475,294) (30,151,067) End 2074 356,385,213 356,385,213 713,080,633 896,331,465 311,643,523 285,447,949 151,745,563 Total Ashad Total 1,314,608,521 1,033,601,734

------(485,669) 6,095,887 (9,852,494) 80,789,758 35,864,112 end 2075 (14,475,294) (30,151,067) (20,693,240) 356,385,213 438,858,116 713,080,633 881,846,292 896,331,465 311,643,523 285,447,949 103,166,143 151,745,563 Total Ashad Total 1,314,608,521 1,033,601,734

- (643,197) (1,232,032) (8,528,899) (6,048,808) & Others 67,860,191 76,877,979 49,319,340 76,954,262 99,433,463 45,181,608 55,977,163 12,526,225 15,066,595 18,978,100 Equipment 153,832,240 117,179,531

- (309,423) (313,100) (252,091) 7,669,516 8,624,141 9,650,353 31,868,147 40,240,197 49,832,961 62,408,097 72,360,178 81,701,108 21,260,286 24,198,631 102,648,294 Machinery

- 136,033 (449,526) (357,920) 8,458,073 7,850,917 (1,597,234) (1,243,592) Fixture 56,941,519 65,828,869 30,445,656 50,813,889 79,985,783 87,387,174 30,716,784 48,841,366 10,130,943 116,642,757 Furniture &

- Ashad 2075 (8,424,298) (9,313,571) nd 68,729,987 84,452,117 50,807,724 54,652,109 22,502,176 25,035,700 36,909,741 Vehicles (11,714,435) (12,881,079) 207,335,300 100,678,669 122,883,184 144,213,351 169,408,656 Bank

- (495,176) (427,080) (2,124,547) (1,424,821) 47,006,586 68,130,778 43,356,606 68,920,404 90,363,192 83,320,276 36,063,473 11,370,192 22,549,012 21,937,964 171,558,921 103,428,143 Computer & Accessories

- For the year ended 32 Property and Equipment (274,702) (621,702) (4,706,208) (2,410,357) 49,795,608 63,885,918 88,065,518 80,356,845 37,067,910 12,727,698 16,500,667 17,682,388 120,453,440 137,861,126 212,890,061 149,004,143 Leasehold Properties

5,535,877 5,259,084 6,095,887 34,183,175 39,442,258 28,647,297 Building 139,364,847 139,364,847 139,364,847 105,181,672 106,018,476

- - - Land 38,736,100 171,600,000 210,336,100 210,336,100 210,336,100 210,336,100

Particulars

www.sanimabank.com 45

------4.14 163,539 5,882,010 4,367,320 2,071,681 9,936,670 1,514,690 1,215,456 End 2074 12,695,082 15,982,219 15,982,219 11,614,899 10,100,209 Total Ashad Total

------881,400 4,367,320 1,678,229 2,071,681 9,936,670 9,272,238 2,632,848 1,215,456 12,695,082 15,982,219 26,135,857 14,247,747 58,140,309 11,614,899 46,252,200 end 2075 Total Ashad Total

------Other ------Developed Ashad 2075 nd

Software ------Group 881,400 4,367,320 2,071,681 9,936,670 9,272,238 1,678,229 2,632,848 1,215,456 Purchased 12,695,082 15,982,219 26,135,857 14,247,747 58,140,309 46,252,200 11,614,899 For the year ended 32

------Goodwill Goodwill and Intangible Assets

Particulars

Cost 2073 As on Shrawan 1, Year Addition during the Acquisition Capitalization Disposal during the year Adjustment/Revaluation Balance as on Ashad end 2074 Year Addition during the Acquisition Capitalization Disposal during the year Adjustment/Revluation Balance as on Ashad end 2075 Amortization and Impairment 2073 As on Shrawan 1, Year Amortization charge for the Impairment for the year Disposals Adjustment As on Ashad end 2074 Year Amortization charge for the Impairment for the year Disposals Adjustment As on Ashad end 2075 in Progress 2074 Capital Work in Progress 2075 Capital Work Net Book Value As on Ashad end 2074 As on Ashad end 2075

46 www.sanimabank.com

4.14 2,071,681 9,936,670 9,936,670 1,514,690 4,830,093 3,315,403 12,695,082 14,766,763 11,451,360 14,766,763 End 2074 Total Ashad Total

------2,071,681 9,272,238 9,936,670 1,514,690 2,289,301 3,315,403 12,695,082 24,039,000 11,451,360 13,740,661 56,550,539 46,252,200 14,766,763 end 2075 Total Ashad Total ------

Other ------

- Developed Ashad 2075 nd

Software Bank 9,936,670 2,071,681 9,272,238 1,514,690 2,289,301 3,315,403 12,695,082 14,766,763 24,039,000 11,451,360 13,740,661 56,550,539 46,252,200 Purchased

------

For the year ended 32 Goodwill Goodwill and Intangible Assets

Particulars

Cost 2073 As on Shrawan 1, Year Addition during the Acquisition Capitalization Disposal during the year Adjustment/Revaluation Balance as on Ashad end 2074 Year Addition during the Acquisition Capitalization Disposal during the year Adjustment/Revluation Balance as on Ashad end 2075 Amortization and Impairment 2073 As on Shrawan 1, Year Amortization charge for the Impairment for the year Disposals Adjustment As on Ashad end 2074 Year Amortization charge for the Impairment for the year Disposals Adjustment As on Ashad end 2075 in Progress 2074 Capital Work in Progress 2075 Capital Work Net Book Value As on Ashad end 2074 As on Ashad end 2075

www.sanimabank.com 47 Deferred Tax For the year ended 32nd Ashad 2075 4.15 Group Bank Current Year Current Year Deferred Tax Deferred Tax Net Deferred Deferred Tax Deferred Tax Net Deferred Assets Liabilities Tax Assets/ Assets Liabilities Tax 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 18,361,317 - 18,361,317 16,722,585 16,722,585 Property & equipment - 31,561,111 (31,561,111) 31,111,388 (31,111,388) Employees’ defined benefit plan 181,559,394 - 181,559,394 181,559,394 181,559,394 Lease liabilities - - - - Provisions 323,674 - 323,674 - - Other temporory differences 119 - 119 119 119 Deferred tax on temporory differences 200,244,504 31,561,111 168,683,392 198,282,097 31,111,388 167,170,710 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 of 2075 50,605,018 50,151,213 Deferred tax (asset)/liabilities as on shrawan 1, 2074 31,035,758 30,923,343 Origination/(Reversal) during the year (81,640,776) (81,074,556) Deferred tax expense/(income) recognised in profit (56,493,106) (56,418,506) or loss Deferred tax expense/(income) recognised in other (25,147,670) (24,656,051) comprehensive income Deferred tax expense/(income) recognised in directly - - in equity Previous Year Previous Year Deferred Tax Deferred Tax Net Deferred Deferred Tax Deferred Tax Net Deferred Assets Liabilities Tax Assets/ Assets Liabilities Tax Assets/ (Liabilities) (Liabilities) Deferred tax on temporory differences on following items Loan and Advance to B/FIs - - - - - Loans and advances to customers - 148,566,422 (148,566,422) 148,566,422 (148,566,422) Investment properties - - - - Investment securities 10,553,058 - 10,553,058 10,553,058 10,553,058 Property & equipment - 24,348,964 (24,348,964) 23,799,994 (23,799,994) Employees’ defined benefit plan 58,744,046 - 58,744,046 58,744,046 - 58,744,046 Lease liabilities - - - - - Provisions 99,310 - 99,310 - - Other temporory differences - 8,499 (8,499) 8,499 (8,499) Deferred tax on temporory differences 69,396,414 172,923,885 (103,527,471) 69,297,104 172,374,915 (103,077,811) 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 of 2074 (31,035,758) (30,923,343) Deferred tax (asset)/liabilities as on shrawan 1, 2073 16,049,381 15,953,905 Origination/(Reversal) during the year 14,986,378 14,969,439 Deferred tax expense/(income) recognised in profit or loss 17,136,910 17,119,971 Deferred tax expense/(income) recognised in other (2,150,532) (2,150,532) comprehensive income Deferred tax expense/(income) recognised in directly in equity - -

48 www.sanimabank.com Other Assets nd For the year ended 32 Ashad 2075 4.16 Group Bank Current Year Previous Year Current Year Previous Year Assets held for sale - - - - Other non banking assets - - - - Bills receivable - - - - Accounts receivable 12,200,164 2,673,254 - - Accrued income 2,034,385 658,185 - - Prepayments and deposit 56,539,248 27,584,011 56,396,458 26,843,715 Income tax deposit - - - - Deferred employee expenditure 470,926,770 266,191,387 470,926,770 266,191,387 Other 148,251,242 671,763,981 133,751,552 653,269,864 Total 689,951,809 968,870,818 661,074,779 946,304,967

Due to Bank and Financial Institutions nd For the year ended 32 Ashad 2075 4.17 Group Bank Current Year Previous Year Current Year Previous Year Money market deposits - - - - Interbank borrowing - - - - Other deposits from BFIs 1,333,967,155 2,067,439,307 1,333,967,155 2,067,439,307 Settlement and clearing accounts - - - - Other 12,991,884 36,080,001 12,991,884 36,080,001 Total 1,346,959,039 2,103,519,307 1,346,959,039 2,103,519,307

Due to Nepal Rastra Bank nd For the year ended 32 Ashad 2075 4.18 Group Bank Current Year Previous Year Current Year Previous Year Refinance from NRB 358,950,008 611,009,105 358,950,008 611,009,105 Standing Liquidity Facility - - - - Lender of last resort facility from NRB - - - - Securities sold under repurchase agreements - - - - Other payable to NRB - - - - Total 358,950,008 611,009,105 358,950,008 611,009,105 Derivative Financial Instruments For the year ended 32nd Ashad 2075 4.19 Group Bank Current Year Previous Year Current Year Previous Year Held for trading Interest rate swap - - - - Currency swap - - - - Forward exchange contract - - - - Others - - - - Held for risk management Interest rate swap - - - - Currency swap - - - - Forward exchange contract 18,851,134 - 18,851,134 - Other - - - - Total 18,851,134 - 18,851,134 -

www.sanimabank.com 49 Deposits from Customers For the year ended 32nd Ashad 2075 4.20 Group Bank Current Year Previous Year Current Year Previous Year Institutions customers: Term deposits 15,726,516,752 9,254,428,094 15,726,516,752 9,254,428,094 Call deposits 6,650,885,625 7,663,260,645 6,694,943,479 8,106,921,494 Current deposits 4,675,530,880 2,232,057,686 4,675,534,880 2,232,838,357 Other 732,655,104 467,970,034 732,655,104 497,970,034 Individual customers: Term deposits 20,744,492,037 15,069,007,214 20,744,492,037 15,069,007,214 Saving deposits 28,190,732,459 20,686,560,717 28,190,732,459 20,686,560,717 Current deposits 1,007,372,148 263,956,029 1,007,372,148 263,956,029 Other 77,133,197 49,373,922 77,133,197 49,373,922 Total 77,805,318,203 55,686,614,340 77,849,380,056 56,161,055,860

Currency wise analysis of deposit from customers For the year ended 32nd Ashad 2075 4.20.1 Group Bank Current Year Previous Year Current Year Previous Year Nepalese rupee 77,127,774,602 55,089,198,466 77,171,836,455 55,563,639,986 Indian rupee - - - United State dollar 657,224,517 574,304,438 657,224,517 574,304,438 Great Britain pound 1,530,112 1,396,444 1,530,112 1,396,444 Euro 14,414,048 17,384,064 14,414,048 17,384,064 Japenese yen - - - - Chinese yuan - - - - Other 4,374,923 4,330,928 4,374,923 4,330,928 Total 77,805,318,203 55,686,614,340 77,849,380,056 56,161,055,860

Deposits concentration is presented as under: Rs. in '000 Particulars Current Year % Previous Year % Total deposits 77,849,380 56,161,056 Deposits of Top 10 Parties Individual 967,405 1.24 1,124,809 1.93 Institutional 11,603,797 14.9 6,577,893 11.2

Borrowing For the year ended 32nd Ashad 2075 4.21 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 - - - -

50 www.sanimabank.com Provisions For the year ended 32nd Ashad 2075 4.22 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 12,572,748 43,636,197 11,817,943 43,355,931 Total 12,572,748 43,636,197 11,817,943 43,355,931

Movement in Provision For the year ended 32nd Ashad 2075 4.22.1 Group Bank Current Year Previous Year Current Year Previous Year Balance at Shrawan 1 43,636,196 37,306,735 43,355,931 37,171,447 Provisions made during the year 13,408,997 43,942,390 11,817,943 43,355,931 Provisions used during the year (43,346,089) (37,171,447) (43,355,931) (37,171,447) Provisions reversed during the year 1,106,673 441,481 - - Unwind of discount - - - - Balance at Ashad end 14,805,777 44,519,159 11,817,943 43,355,931

Other Liabilities For the year ended 32nd Ashad 2075 4.23 Group Bank Current Year Previous Year Current Year Previous Year Liability for employees defined benefit obligations 106,717,613 28,310,258 106,717,613 28,310,258 Liability for long-service leave 74,841,781 30,433,788 74,841,781 30,433,788 Short-term employee benefits 137,256 - - - Bills payable - - - - Creditors and accruals 81,971,860 444,754,689 58,172,892 46,010,721 Interest payable on deposit 1,476,252 1,973,991 1,476,252 1,973,991 Interest payable on borrowing 473,941 3,353,710 473,941 3,353,710 Liabilities on defered grant income - - - - Unpaid Dividend 5,815,703 33,648,534 5,815,703 6,148,534 Liabilities under Finance Lease - - - - Employee bonus payable 270,583,697 186,706,427 268,370,634 186,706,427 Other 498,288,780 712,447,153 495,945,249 710,989,641 Total 1,040,306,882 1,441,628,552 1,011,814,065 1,013,927,072

Unpaid Dividend As on balance sheet date, total dividend payable amounts to Rs. 5,815,703 (PY Rs. 6,148,534). Details have been presented as under: Dividend Payable of FY Current Year (Rs.) Previous Year (Rs.) Remarks 2070/2071 259,040 277,000 Bagamati Development Bank 2069/2070 126,830 223,860 2068/2069 2,223,331 2,367,134 2067/2068 1,661,564 1,700,351 Sanima Bank 2066/2067 1,544,937 1,580,189 Total 5,815,703 6,148,534

www.sanimabank.com 51 Defined Benefit Obligations For the year ended 32nd Ashad 2075 The amounts recognised in the statement of financial position are as follows: 4.23.1 Group Bank Current Year Previous Year Current Year Previous Year Present value of unfunded obligations - - Present value of funded obligations - - Total present value of obligations - - Fair value of plan assets 65,415,333 36,899,186 65,415,333 36,899,186 Present value of net obligations 106,717,613 28,310,258 106,717,613 28,310,258 Recognised liability for defined benefit obligations 172,132,945 65,209,444 172,132,945 65,209,444

Plan Assets Plan assets comprise For the year ended 32nd Ashad 2075 4.23.2 Group Bank Current Year Previous Year Current Year Previous Year Equity securities - - - - Government bonds - - - - Bank deposit - - - - Other 65,415,333 36,899,186 65,415,333 36,899,186 Total 65,415,333 36,899,186 65,415,333 36,899,186 Actual return on plan assets - - - -

Movement in the Present Value of Defined Benefit Obligations For the year ended 32nd Ashad 2075 4.23.3 Group Bank Current Year Previous Year Current Year Previous Year Defined benefit obligations at Shrawan 1 65,209,444 42,096,467 65,209,444 42,096,467 Actuarial losses 72,187,432 10,872,255 72,187,432 10,872,255 Benefits paid by the plan (1,355,356) (230,878) (1,355,356) (230,878) Current service costs and interest 36,091,426 12,471,600 36,091,426 12,471,600 Defined benefit obligations at Ashad end 172,132,946 65,209,444 172,132,946 65,209,444

Movement in the Fair Value of Plan Assets nd For the year ended 32 Ashad 2075 4.23.4 Group Bank Current Year Previous Year Current Year Previous Year Fair value of plan assets at Shrawan 1 39,519,866 29,763,180 39,519,866 29,763,180 Contributions paid into the plan 27,250,823 7,366,884 27,250,823 7,366,884 Benefits paid during the year (1,355,356) (230,878) (1,355,356) (230,878) Actuarial (losses) gains - - - - Expected return on plan assets - - - - Fair value of plan assets at Ashad end 65,415,333 36,899,186 65,415,333 36,899,186

52 www.sanimabank.com Amount Recognised in Profit or Loss For the year ended 32nd Ashad 2075 4.23.5 Group Bank Current Year Previous Year Current Year Previous Year Current service costs 38,209,989 30,569,531 38,209,989 30,569,531 Interest on obligation 3,227,489 1,469,336 3,227,489 1,469,336 Acturial (gain)/loss 40,672,264 2,159,326 40,672,264 2,159,326 Expected return on plan assets - - - - Total 82,109,742 34,198,193 82,109,742 34,198,193

Amount Recognised in Other Comprehensive Income For the year ended 32nd Ashad 2075 4.23.6 Group Bank Current Year Previous Year Current Year Previous Year Acturial (gain)/loss 74,023,798 7,168,440 Total - - 74,023,798 7,168,440 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. Actuarial Assumptions For the year ended 32nd Ashad 2075 4.23.7 Group Bank Current Year Previous Year Current Year Previous Year Discount rate 5.16% 3.50% Expected return on plan asset 5% 5% Future salary increase 10% 5% Withdrawal rate 12% 35% Debt Securities Issued For the year ended 32nd Ashad 2075 4.24 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 370,000,000 370,000,000 370,000,000 370,000,000 Total 370,000,000 370,000,000 370,000,000 370,000,000 The bank has issued 370,000 units of debentures with Rs. 1000 unit price on 5th August 2015 having maturity period of seven years. The bank appropriated certain sum to redemption reserve as per the direction of central bank and the current Capital Redemption Reserve balance as at 16th July 2018 is Rs. 158,571,429. Subordinated Liabilities For the year ended 32nd Ashad 2075 4.25 Group Bank Current Year Previous Year Current Year Previous Year Redeemable preference shares - - - - Irredemable cumulative preference shares (liabilities component) - - - - Other - - - - Total - - - -

www.sanimabank.com 53 Share Capital nd For the year ended 32 Ashad 2075 4.26 Group Bank Current Year Previous Year Current Year Previous Year Ordinary shares 8,001,255,440 6,897,634,000 8,001,255,440 6,897,634,000 Convertible preference shares (equity component only) - - - - Irredemable preference shares (equity component only) - - - - Perpetual debt (equity component only) - - - - Total 8,001,255,440 6,897,634,000 8,001,255,440 6,897,634,000

Ordinary Shares For the year ended 32nd Ashad 2075 4.26.1 Bank Current Year Previous Year Authorized Capital 90,000,000 Ordinary share of Rs. 100 each 9,000,000,000 9,000,000,000

Issued capital 8,0012,554.4 Ordinary share of Rs. 100 each 8,001,255,440 6,897,634,000

Subscribed and paid up capital 8,0012,554.4 Ordinary share of Rs. 100 each 8,001,255,440 6,897,634,000 Total 8,001,255,440 6,897,634,000

Ordinary Share Ownership For the year ended 32nd Ashad 2075 4.26.2 Bank Current Year Previous Year Percent Amount Percent Amount

Domestic ownership Nepal Government - - - - "A" class licensed institution - - - - Other licensed intitutions - - - - Other Institutions 8.37 669,318,700 8.41 580,091,019 Public 91.63 7,331,936,740 91.59 6,317,542,981 Other - - - - Foreign ownership - - - - Total 100 8,001,255,440 100 6,897,634,000

54 www.sanimabank.com Details of shareholders holding 0.50% or more shares: Name of Shareholder No. of Holding % Shares ARUN KUMAR OJHA 6,351,707 7.94 TEK RAJ NIRAULA 5,673,124 7.09 NIRAJ GOVINDA SHRESTHA 4,975,452 6.22 JIBA NATH LAMICHHANE 4,425,881 5.53 BINAYA KUMAR SHRESTHA 3,749,576 4.69 GHAN SHYAM THAPA 3,432,629 4.29 AMALA INVESTMENT PRIVATE LIMITED 3,176,920 3.97 KHEM RAJ LAMICHHANE 2,877,224 3.6 BIRENDRA PRASAD MAHATO 2,718,835 3.4 JAI GANESH INVESTMENT COM PVT. LTD 2,175,542 2.72 RAM KRISHNA SHAH 2,023,301 2.53 DILIP SHRESTHA 985,952 1.23 DINESH MANI SHRESTHA 623,127 0.78 GEETA CHHETRI 519,124 0.65 TULASI RAM DHAKAL 404,139 0.51 Reserves nd For the year ended 32 Ashad 2075 4.27 Group Bank Current Year Previous Year Current Year Previous Year Statutory General Reserve 1,172,044,000 832,540,000 1,172,044,000 832,540,000 Exchange Equilisation Reserve 9,507,098 6,054,236 9,507,098 6,054,236 Corporate Social Responsibility Fund 21,835,889 13,041,034 21,835,889 13,041,034 Capital Redemption Reserve 158,571,429 105,714,286 158,571,429 105,714,286 Regulatory Reserve 337,775,191 - 335,644,839 - Investment Adjustment Reserve 350,000 2,550,000 350,000 2,550,000 Capital Reserve - - - - Assets Revaluation Reserve - - - - Fair Value Reserve (6,861,239) - (5,714,127) - Dividend Equalisation Reserve - - - - Actuarial Gain/(Loss) (62,478,491) (10,661,832) (62,478,491) (10,661,832) Employee Training Fund - 610,517 - 610,517 Other Reserve Capital Adjustment Reserve 20,187,887 20,187,887 20,187,887 20,187,887 Total 1,650,931,763 970,036,128 1,649,948,523 970,036,128 Capital Redemption Reserve As per provisions in clause 11 of NRB Directive no. 16, Banks are required to maintain a redemption reserve in respect of Debenture liability at least on proportionate basis over its life. NRB has approved of Debenture issuance vide their letter dated 21st May 2015 (2072/02/07 B.S.) and creation of Debenture Redemption Reserve began in financial year 2072/73. Accordingly, in financial year 2074/75, the bank appropriated a further sum of Rs. 52,857,143 to redemption reserve. The current Capital Redemption Reserve balance stands at Rs. 158,571,429.

Exchange Equilisation Fund

Section 45 of BAFIA, requires at least 25% of revaluation gains of such profits (except gain from revaluation of Indian Currency) to be credited to the Exchange Fluctuation Fund. The Bank has earned Rs. 13,811,446 from Exchange Fluctuation during the year. The movement in EFF is presented hereunder: Particulars Amount (Rs.) Opening Balance 6,054,236 Reserve @25% of revaluation amount specified in Schedule 4.34 3,452,862 Closing Balance 9,507,098

www.sanimabank.com 55 Contingent Liabilities and Commitments nd For the year ended 32 Ashad 2075 4.28 Group Bank Current Year Previous Year Current Year Previous Year Contingent liabilities 15,494,649,942 10,419,771,742 15,341,639,462 10,419,771,742 Undrawn and undisbursed facilities 13,461,330,806 10,408,653,532 13,461,330,806 10,408,653,532 Capital commitment 48,348,387 9,520,928 48,348,387 9,520,928 Lease Commitment - - - - Litigation - - - - Total 29,004,329,135 20,837,946,202 28,851,318,655 20,837,946,202

Contingent Liabilities nd For the year ended 32 Ashad 2075 4.28.1 Group Bank Current Year Previous Year Current Year Previous Year Acceptance and documentary credit 4,504,474,909 2,693,585,742 4,504,474,909 2,693,585,742 Bills for collection 133,800,045 111,208,290 133,800,045 111,208,290 Forward exchange contracts - 72,144,290 - 72,144,290 Guarantees 10,692,528,177 7,522,885,142 10,692,528,177 7,522,885,142 Underwriting commitment 153,010,480 Other commitments 10,836,331 19,948,278 10,836,331 19,948,278 Total 15,494,649,942 10,419,771,742 15,341,639,462 10,419,771,742

Undrawn and Undisbursed Facilities nd For the year ended 32 Ashad 2075 4.28.2 Group Bank Current Year Previous Year Current Year Previous Year Undisbursed amount of loans 10,841,652,515 8,493,639,610 10,841,652,515 8,493,639,610 Undrawn limits of overdrafts 2,619,678,291 1,915,013,921 2,619,678,291 1,915,013,921 Undrawn limits of credit cards - - - - Undrawn limits of letter of credit - - - - Undrawn limits of guarantee - - - - Total 13,461,330,806 10,408,653,532 13,461,330,806 10,408,653,532

56 www.sanimabank.com Capital commitments For the year ended 32nd Ashad 2075 Capital expenditure approved by relevant authority of the bank but provision has not been made in financial statements 4.28.3 Group Bank Current Year Previous Year Current Year Previous Year Capital commitments in relation to Property and Equipment Approved and contracted for 38,827,459 - 38,827,459 - Approved but not contracted for - - - - Sub total 38,827,459 - 38,827,459 - Capital commitments in relation to Intangible assets Approved and contracted for 9,520,928 9,520,928 9,520,928 9,520,928 Approved but not contracted for - - - - Sub total 9,520,928 9,520,928 9,520,928 9,520,928 Total 48,348,387 9,520,928 48,348,387 9,520,928

Lease Commitments nd For the year ended 32 Ashad 2075 4.28.4 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

www.sanimabank.com 57 Litigation nd For the year ended 32 Ashad 2075 4.28.5 None Explanatory paragraphs are required for ligitation contingent liabilities as per their own case of each bank

Interest Income For the year ended 32nd Ashad 2075 4.29 Group Bank Current Year Previous Year Current Year Previous Year Cash and cash equivalent 7,653,716 4,049,060 7,653,716 4,049,060 Due from Nepal Rastra Bank - - - - Placement with bank and financial institutions 61,789,984 19,616,851 40,734,779 35,607,660 Loan and advances to bank and financial institutions 96,195,414 43,731,358 96,195,414 43,731,358 Loans and advances to customers 7,512,618,809 4,730,769,029 7,512,618,809 4,730,769,029 Investment securities 387,026,213 250,805,669 387,026,213 250,805,669 Loan and advances to staff 62,813,227 59,991,329 62,812,047 59,991,329 Other 937,867 43,468,906 937,867 1,739,275 Total interest income 8,129,035,230 5,152,432,203 8,107,978,846 5,126,693,380 Interest income on loan and advances to staff Realised interest 25,745,043 46,298,044 25,743,864 46,298,044 Accrued interest 99,161, 33,674 99,161 33,674 Finance expense under NFRS 36,969,022 13,659,611 36,969,022 13,659,611 Total 62,813,227 59,991,329 62,812,047 59,991,329

The weighted average interest rate spread as prescribed by Nepal Rastra Bank as on 16th July 2018 is presented as under:

Particulars Current year rate (%) Previous year rate (%) Average Rate of Return on Risk Assets & Investments 11.63 9.61 Average Rate on Deposits and Borrowings 7.42 5.35 Net Spread 4.20 4.26

Interest Expense For the year ended 32nd Ashad 2075 4.30 Group Bank Current Year Previous Year Current Year Previous Year Due to bank and financial institutions 21,967,040 7,682,403 21,967,040 7,682,403 Due to Nepal Rastra Bank 16,659,637 66,855,083 16,659,637 66,855,083 Deposits from customers 5,025,474,735 2,694,139,360 5,027,857,013 2,717,743,019 Borrowing - - - - Debt securities issued 25,970,959 25,900,000 25,970,959 25,900,000 Subordinated liabilities - - - - Other - - - - Total interest expense 5,090,072,370 2,794,576,846 5,092,454,648 2,818,180,505

58 www.sanimabank.com Fees and Commission Income nd For the year ended 32 Ashad 2075 4.31 Group Bank Current Year Previous Year Current Year Previous Year Loan administration fees 238,263,456 136,225,484 238,263,456 136,225,484 Service fees 2,820,537 2,532,414 - - Consortium fees 95,438,785 32,337,995 95,438,785 32,337,995 Commitment fees 43,883,028 20,649,283 43,883,028 20,649,283 DD/TT/Swift fees 24,730,602 8,636,275 24,730,602 8,636,275 Credit card/ATM issuance and renewal fees 112,511,359 67,686,305 112,511,359 67,686,305 Prepayment and swap fees - - - - Investment banking fees - - - - Asset management fees 15,757,664 - - - Brokerage fees - - - - Remittance fees 14,738,812 11,754,744 14,738,812 11,754,744 Commission on letter of credit 36,936,960 31,492,213 36,936,960 31,492,213 Commission on guarantee contracts issued 65,777,614 62,243,691 65,777,614 62,243,691 Commission on share underwriting/issue 1,991,579 - - - Locker rental 4,991,925 3,504,685 4,991,925 3,504,685 Other fees and commission income 69,842,102 82,271,535 69,116,801 81,213,138 Total fees and Commission Income 727,684,423 459,334,622 706,389,342 455,743,812

Fees and commission expense nd For the year ended 32 Ashad 2075 4.32 Group Bank Current Year Previous Year Current Year Previous Year ATM management fees 1,336,520 1,332,910 1,336,520 1,332,910 VISA/Master card fees 41,553,486 25,330,300 41,553,486 25,330,300 Guarantee commission - - - - Brokerage - - - - DD/TT/Swift fees 6,100,926 4,359,586 6,100,926 4,359,586 Remittance fees and commission 1,161,416 1,021,973 1,161,416 1,021,973 Other fees and commission expense - - - - Total fees and Commission Expense 50,152,348 32,044,769 50,152,348 32,044,769

Net trading income nd For the year ended 32 Ashad 2075 4.33 Group Bank Current Year Previous Year Current Year Previous Year Changes in fair value of trading assets (10,730,357) 39,327,813 (5,057,958) 39,178,487 Gain/loss on disposal of trading assets 2,033,367 1,081,054 1,356,579 - Interest income on trading assets 29,234,186 8,239,184 29,234,186 8,239,184 Dividend income on trading assets 4,208,435 2,760,462 4,208,435 2,760,462 Gain/loss foreign exchange transation 268,669,468 186,821,193 268,669,468 186,821,193 Other - - Net trading income 293,415,099 238,229,707 298,410,710 236,999,326 Interest income from National Saving Bond of Rs. 29.23 million is presented as net trading income.

Difference in fair value of trading assets as compared to previous year's value is recognised as net trading income. Fair value of trading equities as at 16th July 2018 is Rs. 70.69 Million whose cost is Rs. 60.35 Million and as at 16th July 2017, fair value is Rs. 74.43 Million whose cost is Rs. 56.97 Million.

www.sanimabank.com 59 Other Operating Income nd For the year ended 32 Ashad 2075 4.34 Group Bank Current Year Previous Year Current Year Previous Year Foreign exchange revauation gain 13,811,446 8,217,187 13,811,446 8,217,187 Gain/loss on sale of investment securities (669,378) (1,923,389) (669,378) (1,923,389) Fair value gain/loss on investment properties - - Dividend on equity instruments 1,685,906 1,271,599 26,125,000 3,572,494 Gain/loss on sale of property and equipment (1,245,909) (689,272) (1,245,909) (689,272) Gain/loss on sale of investment property - - Operating lease income - - Gain/loss on sale of gold and silver - - Locker rent - - - - Other 1,955,784 1,790,400 940,506 1,755,162 Total 15,537,850 8,666,525 38,961,666 10,932,182

Impairment Charge/(Reversal) for Loan and Other Losses For the year ended 32nd Ashad 2075 4.35 Group Bank Current Year Previous Year Current Year Previous Year Impairment charge/(reversal) on loan and advances to B/FIs 10,437,774 (3,306,609) 10,437,774 (3,306,609) Impairment charge/(reversal) on loan and advances to customer 228,771,151 138,183,495 228,771,151 138,183,495 Impairment charge/(reversal) on financial Investment 8,618 5,256 8,618 5,256 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 239,217,543 134,882,142 239,217,543 134,882,142 Personnel Expense For the year ended 32nd Ashad 2075 4.36 Group Bank Current Year Previous Year Current Year Previous Year Salary 220,744,122 147,637,484 217,012,872 144,617,253 Allowances 199,602,508 139,703,017 196,736,649 137,484,832 Gratuity expense 32,438,243 22,794,660 32,198,620 22,794,660 Provident fund 21,820,752 12,800,241 21,506,213 12,622,128 Uniform 458,995 756,647 458,995 756,647 Training & development expense 13,827,025 7,224,467 13,814,025 7,153,814 Leave encashment 50,135,486 11,479,443 49,911,122 11,403,533 Medical 1,224,574 - 1,224,574 - Insurance 4,216,598 2,383,964 4,176,110 2,359,296 Employees incentive 3,548,116 924,125 200,000 676,125 Cash-settled share-based payments - - - - Pension expense - - - - Finance expense under NFRS 36,969,567 13,659,611 36,969,022 13,659,611 Other expenses related to staff 23,494,763 18,997,388 22,976,828 18,272,484 Subtotal 608,480,749 378,361,046 597,185,029 371,800,383 Employees bonus 270,583,697 186,287,351 268,370,634 186,287,351 Grand total 879,064,446 564,648,398 865,555,664 558,087,735 Staff bonus has been calculated and provided at 10 percent of net profit before tax.

60 www.sanimabank.com Other Operating Expense nd For the year ended 32 Ashad 2075 4.37 Group Bank Current Year Previous Year Current Year Previous Year Directors' fee 2,082,000 1,913,400 1,984,000 1,864,400 Directors' expense 2,163,024 895,608 2,150,422 895,608 Auditors' remuneration 1,413,000 1,413,000 1,300,000 1,300,000 Other audit related expense 5,000 5,000 - - Professional and legal expense 1,491,251 175,850 1,491,251 175,850 Office administration expense 304,263,965 234,773,826 299,261,154 232,541,224 Operating lease expense 63,916,363 46,968,441 62,194,363 45,288,441 Operating expense of investment properties - - - - Corporate social responsibility expense 8,180,178 - 8,180,178 - Onerous lease provisions - - - - Other 7,168,933 7,848,143 7,168,933 7,848,143 Total 390,683,713 293,993,268 383,730,300 289,913,667 The bank has a Corporate Social Responsibility policy in line with Nepal Rastra Bank circulars to create CSR reserve of 1% on Net profit of current Fiscal Year. Accordingly, in financial year 2074-75, the bank appropriated Corporate Social Responsibility Reserve of amount Rs.16,975,032.

CSR reserve fund Amount (Rs.) Opening Balance as at Shawan 1 2074 13,041,034 Less: CSR activities for FY 2074-75 (8,180,178) Add: Reserve @1% on Net Profit 16,975,032 Closing Balance as at Ashad end 2075 21,835,889

Depreciation & Amortisation nd For the year ended 32 Ashad 2075 4.38 Group Bank Current Year Previous Year Current Year Previous Year Depreciation on property and equipment 104,900,757 82,214,471 103,166,143 80,330,351 Depreciation on investment property - - - - Amortisation of intangible assets 2,632,848 1,678,229 2,289,301 1,514,690 Total 107,533,605 83,892,700 105,455,444 81,845,041

Non Operating Income nd For the year ended 32 Ashad 2075 4.39 Group Bank Current Year Previous Year Current Year Previous Year Recovery of loan written off - 41,800 - 41,800 Other income 914,061 41,166,986 895,458 41,165,601 Total 914,061 41,208,786 895,458 41,207,401 Bargain purchase gain of Rs. 38,674,500 arose from the acquisition of Bagmati Development Bank which was booked as other income in the previous year.

www.sanimabank.com 61 Non Operating Expense nd For the year ended 32 Ashad 2075 4.40 Group Bank Current Year Previous Year Current Year Previous Year Loan written off 415,500 280,973 415,500 280,973 Redundancy provision - - Expense of restructuring - - Other expense 318,865 - 318,865 - Total 734,365 280,973 734,365 280,973

Income Tax Expense nd For the year ended 32 Ashad 2075 4.41 Group Bank Current Year Previous Year Current Year Previous Year Current tax expense Current year 777,526,986 572,657,812 774,250,990 562,158,566 Adjustments for prior years - - - - Deferred tax expense Origination and reversal of temporary differences (56,493,106) 17,136,911 (56,418,506) 17,119,971 Changes in tax rate - - - - Recognition of previously unrecognised tax losses - - Total income tax expense 721,033,880 589,794,723 717,832,485 579,278,537

Reconciliation of Tax Expense and Accounting Profit nd For the year ended 32 Ashad 2075 4.41.1 Group Bank Current Year Previous Year Current Year Previous Year Profit before tax 2,415,335,708 1,956,341,270 2,415,335,708 1,956,341,270 Tax amount at tax rate of 30% 724,600,713 586,902,381 724,600,713 586,902,381 Add: Tax effect of expenses that are not deductible for tax purpose 94,628,077 33,958,109 94,628,077 33,958,109 Less: Tax effect on exempt income (44,977,799) (58,701,924) (44,977,799) (58,701,924) Add/less: Tax effect on other items (56,418,506) 17,119,971 (56,418,506) 17,119,971 Total income tax expense 774,250,990 562,158,566 717,832,485 579,278,537 Effective tax rate 29.7% 29.6%

62 www.sanimabank.com Statement of Distributable Profit or Loss For the year ended 32nd Ashad 2075 (As per NRB Regulation)

Bank Current Year Previous Year Net profit or (loss) as per statement of profit or loss 1,697,503,224 1,377,062,733 Appropriations: a. General reserve 339,504,000 260,823,854 b. Foreign exchange fluctuation fund 3,452,862 1,860,595 c. Capital redemption reserve 52,857,143 52,857,143 d. Corporate social responsibility fund 16,975,032 13,041,034 e. Employees’ training fund - 610,517 f. Capital Adjustment Reserve - - g. Investment Adjustment Reserve - (204,994) h. Other - 3,388,459 Profit or (loss) before regulatory adjustment 1,284,714,187 1,044,686,125 Regulatory adjustment : a. Interest receivable (-)/previous accrued interest received (+) (217,301,008) b. Short loan loss provision in accounts (-)/reversal (+) - c. Short provision for possible losses on investment (-)/reversal (+) - d. Short loan loss provision on Non Banking Assets (-)/resersal (+) - e. Deferred tax assets recognised (-)/ reversal (+) (50,151,213) f. Goodwill recognised (-)/ impairment of Goodwill (+) - g. Bargain purchase gain recognised (-)/revsersal (+) - h. Actuarial loss recognised (-)/reversal (+) (62,478,491) i. Fair value reserve (+/-) (5,714,127) Distributable profit or (loss) 949,069,348 1,044,686,125

www.sanimabank.com 63 Sanima Bank Ltd Disclosure and Additional Information Year ended 16 July 2018

5.1. FINANCIAL RISK MANAGEMENT Introduction and Overview

Risk is inherent in the Bank’s activities but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is mainly exposed to;

1. Credit Risk 2. Liquidity Risk 3. Market Risk 4. Operational Risk

Risk Management Framework

The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. Chief Risk Officer (CRO), along with his team, is responsible for overall risk management of the Bank which includes managing, assessing, identifying, monitoring and reducing pertinent global, macro and micro-economic level business risks that could interfere with Banks objective and goals and whether the Bank is in substantial compliance with its internal operating policies and other applicable regulations and procedures, external, legal, regulatory or contractual requirements on a continuous basis. Further, CRO ensures integration of all major risk in capital assessment process. The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor adherence to established limits. Risk management policies and systems are reviewed annualy to reflect changes in market conditions, products and services offered. The Bank , through its training and management standards and procedures, continuously updates and maintains a disciplined and constructive control environment, in which all employees are assigned and made to understand their respective roles and responsibilities. Risk management structure is depcited below:

Board of Directors

Risk Management Committee

Chief Risk Integrated Risk Officer Managemant

Operational Credit Risk Liquidity & Market Risk

Treasury Middle Office

64 www.sanimabank.com 5.1.1. Credit Risk

Risk is an inherent feature of any business and it drives an entity towards income generation. Likewise, Risk management objective of the Bank is to strike balance between risk and return, and ensure optimum Risk-adjusted return on capital. A reasonable level of return is essential for sustainability of the business. However, taking higher risk in search of higher earnings may have chances to result in failure of business. Thus effective risk management is a must for business success. Towards this end Sanima Bank has implemented robust risk management architecture as well as policies and processes approved by the Board of Directors. These encompass independent identification, measurement and management of risks across various facets of banking operation.

Board level risk management committee has been set up under NRB Directive for ensuring/reviewing bank's risk appetite are in line with the policies and CRO acts as member secretary. CRO closely monitors and report on credit related risks in RMC meeting.

Credit Risk Mitigation (CRM)

The Bank has extensive policy and guidelines to mitigate credit risks. The Bank’s credit policy has strengthened minimizing credit risk and provided support to make qualitative analysis based on sound credit principles and procedures. Bank has a policy to consider as security for pledge, hypothecated or mortgage which have value considering physical control and legal title. Bank has considered eligible CRM as prescribed by Capital Adequacy standard. Collateral taken as Deposit with own Bank, Deposit with other BFIs, National Saving & Development Bonds, and Gold & Silver have been considered as CRM and adjusted on overall risk weighted exposure on credit risk in line with the standard.

The Bank has developed a risk assessment culture and has in place the required reports for assessing concentration of risks. Periodic performance reporting based on Balanced Scorecard, in line with capital strength, to the Board is also in place. These reports are periodically put up to the board. Board also reviews the same and issues instructions, as appropriate, to the Bank’s management.

During the current financial year, the Bank has availed the benefits of credit risk mitigation as under:

Particulars 2018 2017 Rs Rs Deposits with own bank 1,230,908,316 996,062,102 Deposit with other banks and financial institutions - - Securities issued by Nepal Government and Nepal - - Rastra Bank Gold & Silver 149,209,889 488,531,464 1,380,118,205 1,484,593,565

Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are in place covering the acceptability and valuation of each type of collateral. The general creditworthiness of customers tends to be the most relevant indicator of credit quality of a loan. However, collateral provides additional security and the Bank generally requests large borrowers to provide same. The Bank may take collateral in the form of a first charge over real estate and residential properties, floating charges over all corporate assets and other liens and guarantees. The Bank’s policy is to pursue timely realisation of the collateral in an orderly manner. The proceeds are used to reduce or repay the outstanding claim. The Bank generally does not use non-cash collateral for its own operations.

Definition of Past Due Bank consider that any amounts uncollected one day or more beyond their contractual due date are ‘past due’

Past due but not impaired loans

Past due but not impaired loans are those for which contractual interest or principal payments are past due, but the Bank believes that impairment is not appropriate on the basis of the stage of collection of amounts owed to the Bank.

www.sanimabank.com 65 5.1.2. Market Risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates, commodity prices and equity prices. The bank classifies exposures to market risk into either trading or non–trading portfolios and manages each of those portfolios separately.The bank has separate market risk management policy in place as a guiding document.

Market Risks are discussed at Asset Liability Management Committee (ALCO) of the Bank and even discussed at respective division level on open position on daily basis. The limits for open position are controlled, level wise which ensures in-depth knowledge of the market and movement before taking decision (by choice). The monthly reports on such aspects are well discussed and dealt in ALCO. The committee ensures functioning of the jobs in line with the policies and procedures and suggests/recommends for necessary steps collectively to address the risk on interest rate movement, exchange rate movement and equity price changes. Most of the market operations (investments) are done from the Treasury Front Office which reports to the Chief Financial Officer and exposure accounting including booking of income/expense is done fromT reasury Back Office which reports to the Chief Operating Officer. The Bank assesses the open position on daily basis and calculates risk exposure for allocation of required capital in line with Basel provisions. Likely impact on earnings due to change in the market condition and change in the standing of the counterparty are well assessed periodically and necessary actions are taken as appropriate. TFO is equipped with advanced dealing platform for timely and effectively concluding the deals. Similarly the unit is equipped with modern and advanced information system on global news, market movements and any incidents so that bank can manage and maintain the position favorably.

5.1.3. Liquidity Risk & Funding management

Liquidity risk is the risk that the Bank will encounter difficulties in meeting its financial commitments that are settled by delivering cash or another financial asset. Hence the bank may be unable to meet its payment obligations when they fall due under both normal and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of continuously managing assets with liquidity in mind and of monitoring future cash flows and liquidity on a daily basis. The bank has formulated seperate liquidity risk management policy, developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if required.

The Bank maintains a portfolio of highly marketable and diverse assets assumed to be easily liquidated in the event of an unforeseen interruption of expected cash flow. The Bank also has committed lines of credit that could be utilized to meet liquidity needs. Further, the Bank maintains a statutory deposit with the Nepal Rastra Bank equal to approx. 7.22% of customer local deposits. In accordance with the bank’s policy, the liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specific to the Bank. The most important of these is to maintain the required ratio of liquid assets to liabilities, to meet the regulatory requirement . Liquid assets consist of cash, short–term bank deposits and liquid debt securities available for immediate sale. Further the Statutory Liquid Assets Ratio of the Bank for the month of Ashad 32 2075 is as follows.

Statutory Liquidity Ratio

For the Month of Ashad 2075 24.72

Analysis of financial assets and liabilities by remaining contractual maturities

The table below summarises the maturity profile of the undiscounted cash flows of the Bank’s financial assets and liabilities as at Ashad 32, 2075. Repayments which are subject to notice are treated as if notice were to be given immediately. However, the Bank expects that many customers will not request repayment on the earliest date it could be required to pay and the table does not reflect the expected cash flows indicated by its deposit retention history.

66 www.sanimabank.com Contractual maturities & undiscounted cashflows of financial assets & liabilities Figure in Rs. 16 July 2018 On Demand Up to3 months 3 to 12 months More than 1 year Total

Financial Assets Cash & Cash Equivalent 1,082,295,735 3,447,856,599 - - 4,530,152,334 Due from Banks - 6,047,994,810 209,333,548 - 6,257,328,358 Loans & Advances (Gross) 217,301,008 12,972,188,851 18,577,319,386 37,476,547,920 69,243,357,165 Investment Securities - 70,690,809 407,357,338 8,935,395,627 9,413,443,775 Investment in susidiaries - - - 250,000,000 250,000,000 Total undiscounted Assets 1,299,596,743 22,538,731,069 19,194,010,272 46,661,943,547 89,694,281,632 Financial Liabilities Due to Banks - 1,615,004,231 90,904,816 - 1,705,909,047 Due to Customers 579,258,474 11,051,118,912 19,195,851,077 47,023,151,593 77,849,380,056 Debts Issued & Other Borrowed Funds - - - 370,000,000 370,000,000 Trade Payables - - - Unclaimed Dividend 5,815,703 5,815,703 Total Undiscounted Liabilities 585,074,177 12,666,123,143 19,286,755,893 47,393,151,593 79,931,104,806 Net Financial Assets/(Liabilities) 714,522,566 9,872,607,926 (92,745,620) 731,208,045 9,763,176,826

5.1.4. Fair value of Financial instruments

Financial instruments are recorded at fair value. The following is a description of how fair values are determined for financial instruments that are recorded at fair value using valuation techniques. These incorporate the bank’s estimate of assumptions that a market participant would make when valuing the instruments.

For all financial instruments where fair values are determined by referring to externally quoted prices or observable pricing inputs to models, independent price determination or validation is obtained. In an inactive market, direct observation of a traded price may not be possible. In these circumstances, the Bank uses alternative market information to validate the financial instrument’s fair value, with greater weight given to information that is considered to be more relevant and reliable. Financials assets measured at fair value (either through PL or OCI), primarily consisting of quoted equities and Quoted Mutual Fund units, are valued using the quoted market price in active markets as at the reporting date. If unquoted, those are carried at cost.

Financial investments – Measured through OCI

Financials assets measured through OCI, primarily consist of quoted equities and Quoted Mutual Fund units ,are valued using the quoted market price in active markets as at the reporting date. For unquotes securities those are carried at cost.

5.1.5 Operational Risk

Operational risk is the risk of losses arising from failed internal processes, systems failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. Strategic and Reputational Risks are not covered in Operational Risk.

Effective operational risk management systems aims to minimizing losses and customer dissatisfaction due to failure in processes, focusing on flows in products and their design that can expose the Bank to losses due to fraud, analyzing the impact of failures in technology / system, developing plans to meet external shocks that can adversely impact continuity in the Bank’s operations. Bank has introduced a “comprehensive operational risk monitoring and reporting framework as well as “output checking” at all branches covering all transactions on daily basis to minimize operational risk.

One of the growing risks among others these days is Operations Risk that arises out of inefficient processes and people inside and outside the Bank. Asset Liability Management Committee (ALCO) is the management committee where operating risk, market risk and other risks are discussed, in line with ALM Policy. Banking System (BS) is another area of concern where it has witnessed growing threat from outside. Information and Technol- ogy Division in the Bank reviews and checks the security aspects in line with IT Policy of the Bank. Bank has conducted an IS Audit of the Bank’s system and suggestions given by the audit with respect to safety and security standards are being put in place.

www.sanimabank.com 67

"Bank has separate division to oversee operation risk including Compliance of KYC and AML. The division is headed by senior level staff with adequate access to the daily report, operational processes and right to recommend the changes in the system and procedures. The head of operation risk directly reports to the Chief Risk Officer. Bank has SIMs (Standing Instruction Manuals) for all businesses of the Bank. All the activities are undertaken in line with the set criteria in the Standing Instruction Manual, policies and guidelines including Di- rectives and circulars from central bank (the regulatory authority). Similarly daily functions at operations are independently reported through separate reporting line other than business generation and credit risk where independence of checking and control is complied with.

Processes are reviewed periodically so that their perfection can be weighed and any shortcoming can be addressed. Most of the functions like line approval, bill payment, loan disbursement are centralized which controls activities that can cause mistake due to inadequate knowledge on the part of staff. Similarly awareness to the public is made on our services and products periodically by placing the notices in the website of the Bank, or in branches or publishing notices as appropriate. Staffs are given orientation on the job including that of system of the Bank before they are placed for the job and are guided to follow the SIMs for the job. Any staff for the first time in any job is put under the supervision of an experienced staff and is allowed to work independently after attaining required skills."

Bank has Whistle Blowing Policy to report to senior or management directly on anyone’s suspicious conduct outside and inside the Bank. Skill development and skill enhancement programs are conducted on periodic basis and staffs identified for the program get the opportunity for training, seminar and workshop. Adequate numbers of trainings are conducted and staffs required with training are given the opportunity for skill enhancement. Knowledge sharing is one of the core methods of skill development. If a staff gets any training, s/he is encouraged to share the same among the peers in the division/branch. In operations, the Bank has put in place a maker and checker concept in which a transaction has to compulsorily go through two individuals from a control standpoint with proper transaction right to capture deviations, if any. Similarly MIS Reports are generated to check correctness of transactions and any mistakes are promptly addressed and rectified. The activities of a personnel and division / branch can be viewed and monitored centrally through an integrated system, which helps in minimizing the risk of misconduct, if any. The Bank has an on-line replication Disaster Recovery Site (DRS) which captures the record of each transaction that takes place at the Production Server. Both the sites (Production Server and Disaster Recovery – Back up site) are housed in well-conditioned and high shock resistant buildings and are at different seismic zone, far from each other. DRS is outsourced to a professionally managed company having expertise in the sector. Drill is being done periodically and is being tested occasionally to assess the functioning of DRS.

Each desktop is implemented with Active Directory System (ADS) which does not allow user to take away the data in devices like data trav- eler (pen drive) or bring in data for processing or any other purposes posing threat to the repository. Similarly individual data in desk are also stored and backed up in periodic interval at data center so that any loss of data in desktop can be retrieved from data center. The Bank has a separate Legal division which is adequately manned by qualified and experienced staff. All legal agreements, deeds and documents including claims and charges are thoroughly studied prior to making any decision involving such documents. Compliance with existing rules and regulations and business practices globally and locally are taken into account before arriving at the decision. The cases where the Bank needs expert's opinion on any of the issues the same is done through the expert in the respective field.

5.1.6 Currency Risk Currency risk arises as a result of fluctuations in the value of a financial instruments due to changes in foreign exchange rates. The Bank’s Board has set limits on positions by currency in line with NRB directives (maximum position for all currency excluding INR is 30% of core capital). In accordance with the bank’s policy, positions are monitored on a daily basis and also reviewed in ALCO meeting and hedging strategies are used to ensure positions are maintained within established limits. Market risk management policy and Treasury Manual of the bank are the guiding documents for the management and mitigation of currency risk.

The table below indicates the currencies to which the bank had significant exposures as at 16 July 2018 and the effect to the Gain/Loss in case of a market exchange rates up/drop by 5 %. The analysis calculates the effect of a reasonably possible movement of the currency rate against the NPR, with all other variables held constant, on the income statement (due to the fair value of currency sensitive non–trading monetary assets and liabilities) and equity (due to the change in fair value of currency swaps and forward foreign exchange contracts used as cash flow hedges). A negative amount in the table reflects a potential net reduction in income statement or equity, while a positive amount reflects a net potential increase. An equivalent decrease in each of the below currencies against NPR would have resulted in an equivalent but opposite impact.

Currency Code If Market rates dropped by 5%, the effect of the same tothe exchange gain/(loss) All Currencies (2,180,280)

68 www.sanimabank.com 5.2. CAPITAL MANAGEMENT

The Bank's capital management policies and practices support its business strategy and ensure that it is adequately capitalised to withstand even in severe macroeconomic downturns. Sanima Bank is a liscened institution provides financial services therefore it must comply with capital requirement of central bank so called Nepal Rastra Bank. The Bank's capital consists of Tier I capital and Tier II capital.

5.2.1.Qualitative Disclosures

Nepal Rastra Bank has directed the Banks to develop own internal policy, procedures and structures to manage all material risk inherent in business for assessing capital adequacy in relation to the risk profiles as well as strategies for maintaining capital levels. This includes basic requirements of having good governance, efficient process of managing all material risks and an effective regime for assessing and maintaining adequate capital. The Bank has various BODs approved risk management policies for proper governance. The Bank has developed a comprehensive ICAAP document which is subject to review every year. The ICAAP has two major components; first is an internal process to identify, measure, manage and report risks to which the bank is exposed or could be exposed in the future; and second is an internal process to plan and manage a bank’s capital so as to ensure adequate capital. The Bank prepares the ICAAP report annually complying with the NRB requirement. The report is reviewed and analyzed by Risk Management Committee and Board. The report is prepared as per BASEL III norms considering various adverse scenarios. The Bank also conducts the stress testing on thirty two different unfavorable scenarios on quarterly basis and is reviewed by senior management, Risk Manage- ment Committee and Board. The Bank in line with BASEL provisions and ICAAP document assesses risk exposures and allocated sufficient capital/ cushion for perceived risks. The adequacy of capital is main agenda of any ALCO, Man-Com and Board Meetings.

5.2.2. Quantitative disclosures 1 Capital structure and capital adequacy • Tier 1 Capital and a breakdown of its Components:

Particulars Amount (Rs.) Paid up Equity Share Capital 8,001,255,440 Irredeemable Non-cumulative preference shares Share Premium Proposed Bonus Equity Shares - Statutory General Reserves 1,172,044,000 Retained Earnings 1,136,681,538 Un-audited current year cumulative profit Special Reserve Fund - Capital Adjustment Reserve 20,187,887 Dividend Equalization Reserves Capital Redemption Reserves Fund 158,571,429 Deferred Tax Reserve Less: Goodwill Less: Intangible assets (10,309,906) Less: Fictitious Assets Less: Deferred Tax Assets Less: Investment in equity of licensed Financial Institutions Less: Investment in equity of institutions with financial interests (702,500,000) Less: Investment in equity of institutions in excess of limits Less: Investments arising out of underwriting commitments Less: Purchase of Land & Building in excess of limit & utilized Less: Reciprocal crossholdings Less: Other Deductions Total Tier 1 Capital 9,775,930,387

www.sanimabank.com 69 • Tier 2 Capital and Breakdown of its Components:

Particulars Amount (Rs.) Cumulative and/or Redeemable Preference Share - Subordinated Term Debt 296,000,000 Hybrid Capital Instruments - General loan loss provision 807,297,321 Exchange Equalization Reserves 9,507,098 Investments Adjustment Reserves 350,000 Assets Revaluation Reserves - Special Reserve Fund - Total Tier 2 Capital 1,113,154,419

• Details of Subordinated Term Debt:

The Bank has issued “7% Sanima Debenture 2079” of face value Rs.1,000 per unit for Rs. 370,000,000 on 20th Shrawan 2072. The debentures have maturity of 7 years from issue i.e. 19th Shrawan 2079. The bank has created debenture redemption reserve starting from FY 2072-73. The Current balance of Capital Redemption Reserve stands at Rs.158, 571,429. As at the year end, the outstanding amount of debenture is Rs 370,000,000 whereas Rs 296,000,000 is only eligible to be recognized as supplementary Capital (Tier II).

• Deductions from Capital:

The Bank has invested Rs. 250,000,000 in its merchant banking subsidiary 'Sanima Capital', Rs. 280,000,000 in 'Sanima Life Insurance', Rs. 25,000,000 in Swet Ganga Hydropower and Construction Ltd (Lower Likhu Hydro Power Project), Rs 25,000,000 in Tamor Sanima Energy Pvt Ltd (Sanima Middle Tamor Hydro Power Project), Rs 22,500,000 in Mathillo Mailun Khola Jalvidhyut Ltd. and Rs 100,000,000 in Sanima Insurance Co. Ltd. Accordingly, Rs. 702,500,000 has been deducted from Core Capital. • Total Qualifying Capital: Particulars Amount (Rs.) Core Capital (Tier 1) 9,775,930,378 Supplementary Capital (Tier 2) 1,113,154,419 Total Capital Fund 10,889,084,806

• Capital Adequacy Ratio:

The capital adequacy ratio of the bank as on 16th July, 2018 is 12.41%. • Summary of the bank’s internal approach to assess the adequacy of its capital to support current and future activities, if applicable:

Sanima Bank adopts healthy risk management framework. The bank follows Internal Capital Adequacy Assessment Process (ICAAP)and Risk Man- agement Guideline while taking decision on any business. It has always taken note of ICAAP and has taken steps accordingly in ensuring soundness of capital position and sustainability of the business. The bank’s policies and procedures are approved by the Board of Directors and these documents provide guidance on independent identification, measurement and management of risks across various businesses. Bank’s different committees like Audit Committee, Risk Management Committee review the business and risks periodically and take account of stress test results, scenario analysis so as to align risk, return and capital in sustainable manner.

The bank also defines risk aspects, considering domestic economic scenario, and puts in place the system to minimize and remove such risk. The risk appetite and approach towards risk taking is well discussed in management level and board level. It is always aligned with the business, its return and capital. Basel disclosures have been complied with, addressing the risks and adopting measures to minimize their impact. Increasing complexities in risks, weakness of businesses and fast changing world with intense competition pose a threat to sustainability.

Capital planning is an integral part of the bank’s medium term strategic planning and annual budget formulation process. Total risk weighted exposures for the projected level of business operations is calculated, the required capital level is projected, and a plan is formulated to retain the required capital. The bank is well capitalized and able to maintain the required capital through internal generation, and equally through capital markets if needed.

70 www.sanimabank.com • Summary of terms, conditions and main feature of all capital instrument, especially in case of subordinated term debts including hybrid capital instrument:

The Bank has issued “7% Sanima Debenture 2079” of face value NRs.1,000 per unit for Rs 370,000,000 on 20th Shrawan 2072. The main features of this capital instrument are as follows: Instrument: 7% Sanima Debenture 2079 Interest Rate: 7% Maturity period: 7 Years Interest Payment Frequency: Half yearly 2 Risk exposures • Risk weighted exposures for credit Risk, Market Risk and Operational Risk: RISK WEIGHTED EXPOSURES Amount (Rs.) Risk Weighted Exposure for Credit Risk 79,558,665,604 Risk Weighted Exposure for Operational Risk 3,350,734,475 Risk Weighted Exposure for Market Risk 1,425,432,178 Total Risk Weighted Exposures (Before Bank's adjustment of Pillar II) 84,334,832,257

• Risk Weighted exposures under each 11 categories of Credit Risk: Categories Amount (Rs.) Claims on Government and Central Bank - Claims on Other Financial Entities - Claims on Banks 1,732,666,508 Claims on Domestic Corporate and Securities Firms 32,349,787,743 Claims on Regulatory Retail Portfolio & Other Retail Portfolio 12,996,212,087 Claims secured by residential properties 2,951,588,204 Claims secured by Commercial real estate 2,739,664,607 Past due claims 1,574,345,527 High Risk claims 12,923,257,636 Other Assets 2,300,832,590 Off Balance Sheet Items 9,980,000,794 Total 79,548,355,697

•Total Risk Weight Exposures calculation Table: RISK WEIGHTED EXPOSURES Amount (Rs.) Risk Weighted Exposure for Credit Risk 79,548,355,697 Risk Weighted Exposure for Operational Risk 3,350,734,475 Risk Weighted Exposure for Market Risk 1,425,432,178 Add: 3% of the total RWE added by Supervisory Review 885,900,000 Add: RWE equivalent to reciprocal of capital charge of 3% of Gross Income 2,529,735,671 Total Risk Weighted Exposures (After Bank's adjustment of Pillar II) 87,740,158,022 Total Core Capital 9,775,930,387 Total Capital 10,889,084,806

• Amount of Non-Performing Assets (both Gross and Net): Particulars Gross Amount (Rs) Loan Loss Provision (Rs) Net NPL (Rs) Restructured - - - Sub-Standard 11,463,109 2,865,777 8,597,332 Doubtful 1,728,277 864,138 864,138 Loss 6,844,322 6,844,322 - Total 20,035,708 10,574,238 9,461,470

www.sanimabank.com 71 5.2.3. Compliance with external requirement

The bank, at all times, has complied the externally imposed capital rqeuirements. In the capital adequacy calculation of 16th July 2018 (presented above), the bank has added 3% of total risk weighted exposures to its risk weighted exposures as per the direction from Nepal Rastra Bank as part of supervisory review. 5.3. Classification of financial assets and financial liabilities Analysis of financial instruments by measurement basis- as at 16 July 2018 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 analyses the carrying amounts of the financial instruments by category as defined in NAS 39 and by headings of the Statement of Financial Position. Jul-18 Fair Value Amortized Cost Measured at FVTOCI Total Through PL Financial Assets Cash & Cash Equivalents 4,530,152,334 4,530,152,334 Due from Nepal Rastra Bank 5,608,171,848 5,608,171,848 Placement with Bank and Financial Institutions 649,156,510 649,156,510 Derivative Financial Assets - - Loan and Advances to B/FIs 1,645,223,405 1,645,223,405 Loans & Advances to Customers 67,598,133,761 67,598,133,761 Financial Investments - Measured at Fair Value through PL 478,048,147 478,048,147 Financial Investments - Measured at Fair Value through OCI 615,639,562 615,639,562 Financial Invstments - Measured at Amoritized cost 9,047,804,213 9,047,804,213 Other Financial Assets - - Total Financial Assets 478,048,147 89,078,642,070 615,639,562 90,172,329,779 Financial Liabilities Due from Customers 77,849,380,056 77,849,380,056 Other Financial Liabilities 2,172,872,981 2,172,872,981 Other Liabilities 515,868,816 515,868,816 Total Financial Liabilities - 80,538,121,853 - 80,538,121,853

72 www.sanimabank.com Jul-17 Held for Trading Amortized Cost Measured at FVTOCI Total Financial Assets Cash & Cash Equivalents 2,948,780,102 2,948,780,102 Due from Nepal Rastra Bank 5,265,301,643 5,265,301,643 Placement with Bank and Financial Institutions 982,243,177 982,243,177 Derivative Financial Assets 17,734,529 17,734,529 Loan and Advances to B/FIs 603,938,195 603,938,195 Loans & Advances to Customers 51,038,471,540 51,038,471,540 Financial Investments - Measured at Fair Value through PL 406,239,582 406,239,582 Financial Investments - Measured at Fair Value through OCI 2,652,600 2,652,600 Financial Invstments - Measured at Amoritized cost 6,536,501,580 6,536,501,580 Other Financial Assets - - Total Financial Assets 423,974,111 67,375,236,237 2,652,600 67,801,862,948 Financial Liabilities Due from Customers 56,161,055,860 56,161,055,860 Other Financial Liabilities 3,127,884,343 3,127,884,343 Other Liabilities 302,937,431 302,937,431 Total Financial Liabilities - 59,591,877,634 - 59,591,877,634

5.4. Segment wise information

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

2. The segmental information about profit or loss, assets and liabilities is presented below: Rs in ‘000’ Particular Treasury Card Remittance Banking Total a Revenues from external customers 765,439 116,469 14,739 8,255,990 9,152,636 b Intersegment revenues (170,562) (8,699) (2,004) 181,264 - c Net Revenue 594,877 107,770 12,735 8,473,254 9,152,636 d Interest Revenue 427,761 3,957 - 7,676,261 8,107,979 e Interest Expense 38,627 - - 5,053,828 5,092,455 f Net interest revenue (b) 389,134 3,957 - 2,622,433 3,015,524 g Depreciation and amortisation 2,109 8,436 1,055 93,855 105,455 h Segment profit/(loss) 287,198 24,034 2,274 1,383,997 1,697,503 i Entity's interest in the profit or loss of associates accounted for using equity method - - - - - j Other material non-cash items: - - - - - k Impairment of assets - - - 817,872 817,871 l Segment assets 19,925,493 162,932 22,906 71,710,621 91,821,953 m Segment liabilities 390,793 73,714 2,358 80,567,202 81,034,067

3. Measurement of operating segment profit or loss, assets and liabilities

(a) The bank has used Fund Transfer Pricing (FTP) method to recognise income/expense for any transactions between reportable segments. (b) Reportable segment's profit or loss and the entity's profit or loss before income tax has been computed on similar basis. (c ) Reportable segment's assets and the entity's assets has been measured on similar basis

www.sanimabank.com 73 44 ReconciliationReconciliation of of reportable reportable segment segment revenues, revenues, profit profit oror loss, loss, assetsassets andand liabilities: liabilities:

(a)(a) RevenueRevenue Total revenues for reportable segments 9,333,900 Other revenues - Elimination of intersegment revenues (181,264) Entity's revenue 9,152,636 (b) Profit or Loss Total profit or loss for reportable segments 1,878,767 Other Profit or loss - Elimination of intersegment Profit (181,264) Unallocated amounts: - Entity's revenue 1,697,503 (c) Assets Total Assets for reportable segments 91,821,953 Other assets - Unallocated amounts: - Entity's Assets 91,821,953 (d) Liabilities Total Liabilities for reportable segments 81,034,067 Other Liabilities - Unallocated amounts: 10,787,886 Entity's Liabilities 91,821,953

5 Information about products and services Revenue from each type of product and services: Treasury 765,439 Card 116,469 Remittance 14,739 Banking 8,255,990 Total Revenue 9,152,636

6 Information about geographical areas Revenue from following geographical areas: a Domestic 9,152,636 Province -1 617,990 Province -2 248,146 Province -3 7,970,209 Province -4 157,169 Province -5 72,291 Province -6 41,002 Province -7 45,829 b Foreign - Total 9,152,636

7 Information about major customers Revenue from any customers does not amounts to 10 percent or more of the entity's revenue.

5.5. Share options and share based payments The bank has no any share options and share based payments.

74 www.sanimabank.com 5.6. Contingent liabilities and commitment

Litigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Bank has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Bank makes adjustments to account for adverse effects which the caims may have on its financial standing. There were no pending litigation against the Bank as at 16th July 2018 which would have a material impact on the Financial Statements.

5.7. Related Party Disclosures

The Bank has carried out transactions in the ordinary course of business on an arm's length basis at commercial rates with parties who are defined as related parties as per the Nepal Accounting Standard - NAS 24 - ‘Related Party Disclosures’, except for the transactions that Key Management Personnel (KMPs) have availed under schemes uniformly applicable to all staff at concessionary rates. Those transactions include lending activities, acceptance of deposits, Off-Balance Sheet transactions and provision of other banking and finance services.

5.7.1. Parent and Ultimate Controlling Party

The Bank does not have an identifiable parent of its own.

5.7.2. Transactions with Key Managerial Personnel (KMPs)

As per NAS 24 – Related Party Disclosures’, Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the entity. According to the definition a person cannot be considered as a KMP unless such person have both the authority and responsibility to carry out all the three activities mentioned in the above definition, (i.e. planning, directing and controlling the activities of the entity). Accordingly the Board of Directors of the Bank and Management Committee are considered as KMP of the Bank.

5.7.3. Compensations of KMP Rs’ 000 2018 2017 To Directors: Sitting fees & expenses 3,825 2,760 Total 3,825 2,760 To CEO: Short term employee benefits 9,672 8,988 Employee Bonus 5,857 6,215 Festival Allowance and payment against annual leave 1,263 1,225 Post-employment benefits 605 571 Other Allowances - - Total 17,398 16,999 To Other Senior Management Personnel: Short term employee benefits 21,870 18,392 Employee Bonus 11,981 11,716 Festival Allowance and payment against annual leave 3,356 2,927 Post-employment benefits 3,994 4,479 Other Allowances 234 641 Total 41,434 38,154 Grand Total 62,657 57,914

In addition to the above, the Bank has also paid non-cash benefits such as fuel, medical benefits to KMP who are employees of the Bank in line with the approved benefit plans of the Bank.

5.7.4. Transactions, Arrangements and Agreements involving KMP and Close Family Members (CFM)

CFMs of the KMP are those family members who may be expected to influence, or to be influenced by, that individual in their dealings with the entity. They may include individual’s domestic partner and children, children of the individual’s domestic partner and dependents of the individual or the individual’s domestic partner.

www.sanimabank.com 75 5.7.5. Loans & receivables to KMPS and their CFMs: Rs '000

2018 2017 Limit Closing Balance Limit Closing Balance

Loans and Receivables 94,064 94,546 96,898 97,256 Credit Cards 1,651 64 1,651 - Total 95,715 94,610 98,549 97,256 5.7.6. Deposits and Investments from KMPs and their CFMs: Rs' 000 2018 2017 Limit Closing Balance Limit Closing Balance

Deposits & Investments 13,663 13,663 9,488 9,488 Total 13,663 13,663 9,488 9,488

5.7.7. Transactions, Arrangements and Agreements involving Entities which are controlled and / or jointly controlled by the KMPs or their CFMS Rs' 000 Nature of Nature of Related Party 2018 2017 Relation Transaction Kantipur Television Pvt. Ltd. 13 13 Medicare National Hospital & Research Centre 1,813 1,768 Sanima Hydro & Engineering Pvt. Ltd. 1,539 3,352 Sanima Life Insurance Company Ltd. 14,570 662 Sanima Insurance Company Ltd. - 108 Sanima Foundation 2,952 3,422 Sanima Mai Hydropower Ltd. Deposits 461,719 85,457 Sanima Pvt. Ltd. 754 3,469 TamorSanima Energy Pvt. Ltd. 3,510 8,021 Sopan Multiple Company Ltd. 14 - Fund for Hydro Investment 1,394 2,731 Sanima Hydropower Ltd. Common 10,371 98,890 Bavari Construction Pvt. Ltd. Promoters 1,127 786 Sanima Hydro & Engineering Pvt. Ltd. Sanima Mai Hydropower Ltd. Rental income - 1,321 Sanima Hydropower Pvt. Ltd. Independent Power Producers’ Association, Nepal 233 222 Family Service Supermarket Pvt. Ltd. Deposits 1 1 Bhrikuti Trading Company Pvt. Ltd. 2 2 Sanima Life Insurance Company Ltd. (14% holding) 280,000 350 Sanima Middle Tamor Hydropower (2.13% holding) 25,000 - Investment in Mathillo Mailun Khola Jalvidyut (2.25% holding) 22,500 Shares Swet Ganga Hydro Power and Construction (2.50% holding) 25,000 Sanima Insurance Company Ltd. (10% holding) 100,000 SLA Income 1,349 1,200 RTS Expense 350 2,625 Sanima Capital Ltd. (100% holding) Subsidiary Investment in 250,000 110,000 Shares Deposit 44,062 474,442 The Bank has entered into Service Level Agreement with its subsidiary (Sanima Capital Ltd.) to provide operational and technical assistance for a fee of Rs. 1.2 million for base year and annual increment of 10% on base year fee.

76 www.sanimabank.com 5.7.8. Interest Income & Expense to KMP and their CFMs and Entities which are controlled and / or jointly controlled by the KMPs or their CFMs Rs’ 000 2018 2017

Interest Income Interest Expenses 1,305 827 Total 1,305 827

5.7.9 Investment in mutual fund

Bank has sponsored sanima equity fund by initial investment of Rs. 169 million (13%) with its subsidiary (Sanima Capital) has total investment of Rs. 202.93 million (15.61%). Similarly, Sanima equity fund has appointed Sanima Capital as a fund manager with an annual fee 1.75% of net assets value (NAV) managed and depository with an annual fee 0.5% of NAV.

5.8. Events after the reporting date

No circumstances have arisen since the reporting date which would require adjustments to, or disclosure in the financial statements.

5.9. Merger & Accquisition

The Bank has acquired Bagmati Development Bank Ltd. at the SWAP ratio of 100:41 after obtaining approval from the central bank on 16th December 2016 and has operated transactions jointly since 13th January 2017. At the time of acquisition, Bagmati Development Bank Ltd. has paid up of Rs. 6,555,000.00, deposits of Rs. 446,526,296.00 and loan and advances of Rs. 425,738,035.00.

5.10. Additional disclosures of non consolidated entities The Bank has no any substantial interest in other entities, except consolidated.

5.11. Disclosure effect of transition from previous GAAP to NFRSs 5.11.1. Reconciliation of equity

Explanatory As at 01.04.2073 As at 31.03.2074 Note Total equity under Previous GAAP 5,352,251,266 9,060,833,497 Prior period error 91,787 Restated equity 5,352,343,053 9,060,833,497 Adjustments under NFRSs: Impairment on loan and advances - - Fair value & employee benefit accounting of staff loan i (16,830,914) (30,490,525) Lease accounting Measurement of investment securities at fair value ii 91,146,755 8,499 Revaluation of property & equipment Recognition of investment property Amortisation of debt securities issued - - Deferred tax iii (18,961,916) (39,470,343) Defined benefit obligation of employees iv (16,237,710) (22,025,012) Goodwill/Bargain purchase gain Interest income v 104,423,441 179,056,947 Other: Proposed cash dividend vi 36,240,253 - Total adjustment to equity 179,871,696 87,079,566 Total equity under NFRSs 5,532,122,961 9,147,913,063

www.sanimabank.com 77 i. Finance expense recognised under NFRS (staff loans measured at fair value). ii. Increase in value of investment (measured at fair value). iii. Recognistion of deferred tax liability due to increse in profit. iv. Increase in obligation against employee benefits as per actuary valuation. v. Interest income is recognised in accrual basis. vi. Reversal of proposed cash dividend.

5.11.2. Reconciliation of profit or loss

Explanatory Note As at 31.03.2074 Previous GAAP 1,304,103,406 Adjustments under NFRSs: Interest income i 29,482,944 Impairment on loan and advances ii (5,405,988) Employee benefit amortization under staff loan iii 31,490,951 Defined benefit obligation of employees iv (769,393) Operating lease expense - Amortisation expense of debt securities - Other operating income - Interest expense - Depreciation & Amortisation - Other: Provision for investment v (5,256) Deferred tax expense vi (20,508,430) Bargain purchase gain vii 38,674,500 Total adjustment to profit or loss 72,959,327 Profit or loss under NFRSs 1,377,062,733 i. Interest income recognised in accrual basis and staff loan measured at fair value. ii. Additional loan loss provision recognised on accquisition of Bagmati Development Bank. iii. Finance expense recognised under NFRS (staff loan measured at fair value). iv. Increase in employee benefit expenses as per actury valuation. v. Impairment on investment (amortisation of premium at fair value). vi. Recognition of deferred tax expense due to increase in profit. vii. Recognition of bargain purchase gain that arose on accqusition of Bagmati Development Bank.

78 www.sanimabank.com

------3,315,403 17,734,529 17,139,730 43,355,931 30,923,343 406,239,582 603,900,000 110,000,000 713,080,633 946,305,449 370,000,000 970,063,128 982,243,177 611,009,105 6,429,154,180 2,103,519,307 9,147,913,063 2,948,780,102 1,013,927,072 6,897,634,000 1,280,242,935 9,147,913,063 5,265,301,643 NFRSs 56,161,055,860 51,038,509,253 69,481,703,681 60,333,790,619 69,481,703,681 Amount as per ------8,499 (6,396,470) (8,792,991) 87,079,565 30,923,343 87,079,565 (11,896,208) 377,741,086 (873,654,670) (632,200,670) (514,197,762) (601,277,326) (514,197,761) 1,303,473,516 1,199,493,997 (1,303,473,516) (1,103,621,440) NFRSs As at 31.03.2074 of Transition to of Transition Cumulative Effect ------3,315,403 6,396,470 17,139,730 43,355,931 80,748,938 29,630,736 406,239,582 110,000,000 713,080,633 611,009,105 603,900,000 370,000,000 978,829,119 GAAP 1,645,306,586 1,819,960,119 2,103,519,307 9,060,833,497 1,646,127,742 8,001,255,440 2,285,716,693 6,429,145,681 9,060,833,497 5,265,301,643 69,995,901,443 60,935,067,945 69,995,901,442 56,161,055,860 50,660,768,166 Previous ------2,758,412 11,003,478 95,398,304 11,766,488 22,701,864 15,953,905 837,797,583 927,473,014 110,000,000 646,548,160 478,653,480 370,000,000 788,338,825 721,752,437 481,138,842 2,994,663,379 4,981,671,102 5,532,122,961 5,532,122,961 7,676,014,824 4,022,031,700 3,060,479,578 2,574,787,981 41,664,487,644 39,761,690,794 50,596,432,936 56,128,555,897 56,128,555,897 cial position Opening NFRSs statement of finan ------(2,591,740) 15,953,905 82,897,336 91,146,755 (12,149,344) (12,149,344) (19,678,059) 234,076,991 785,539,160 179,871,695 179,871,695 163,998,198 163,998,198 (15,873,498) (146,484,463) (688,564,800) tion to NFRSs Effect of Transi ------As at 01.04.2073 2,591,740 2,799,665 2,758,412 23,152,822 95,398,304 11,766,488 12,149,344 22,701,864 837,797,583 927,473,014 110,000,000 646,548,160 625,137,943 500,816,901 370,000,000 638,855,101 2,994,663,379 7,584,868,069 4,981,671,102 4,710,596,500 5,352,251,266 5,352,251,266 3,060,479,578 2,574,787,981 39,527,613,803 41,664,487,644 55,964,557,699 50,612,306,433 55,964,557,699 GAAP Previous

i ii v x iii vi ix vii i ii x viii iii ix iv viii Note Explanatory

Due from Nepal Rastra Bank Assets Total Liabilities liabilities Total Liabilities and Equity Total Due to Nepal Rastra Bank Equity Share premium Assets Cash and cash equivalent Placement with Bank and Financial Institutions Derivative financial instruments Other trading assets Loan and advances to B/FIs Loans and advances to customers Investment securities Current tax assets Investment in subsidiaries Investment in associates Investment property Property and equipment Goodwill and Intangible assets Deferred tax assets Other assets Due to Bank and Financial Instituions Derivative financial instruments Deposits from customers Borrowing Liabilities Tax Current Provisions Deferred tax liabilities Other liabilities Debt securities issued Subordinated Liabilities Share capital Retained earnings Reserves equity attributable to holders Total Non-controlling interest Equity Total Particulars 5.11.3. Effect of NFRSs adoption for the statement financial position 5.11.3.

www.sanimabank.com 79 i. Placements upto 3 months are reclassified as cash and cash equivalents. ii. Net off of derivative financial assets with liabilities. iii. Staff loan and advances remeasured at fair value and reclassified. iv. Change in value of investments due to remeasurement at fair value and amortised cost. v. NFRS transition resulting deferred tax liabilities hence reversal of deferred tax assets done. vi. Net off of accounts receivable with payable and recognition of prepaid employee benefits (staff loan being measured at fair value). vii. NFRS transition resulting deferred tax liabilities. viii. Net off of accounts receivable with payable and increase in defined employee benefit obligation as per actuary valuation. ix. Reversal of proposed bonus share issue as per NFRS. x. Recomputation of retained earnings and reserves as per the remeasurement of net assets done as per NFRS. xi. Reclassification of items has been done in previous GAAP wherever required to match with the presentation of line items under NFRS.

5.11.4. Effect of NFRSs adoption for statement of profit or loss and other comprehensive income

For the year ended 31.03.2074 Particulars Explanatory Note Previous GAAP Effect of Transition to NFRSs Amount as per NFRSs Interest income i 5,052,059,875 29,482,944 5,081,542,818 Interest expense 2,818,180,505 - 2,818,180,505 Net interest income 2,233,879,369 29,482,944 2,263,362,313 Fee and commission income 452,239,127 3,504,685 455,743,812 Fee and commission expense 32,044,769 - 32,044,769 Net fee and commission income 420,194,359 3,504,685 423,699,044 Net interest, fee and commission income 2,654,073,728 32,987,629 2,687,061,357 Net trading income 236,999,326 - 236,999,326 Other operating income 14,436,867 - 10,932,182 Total operating income 2,905,509,921 32,987,629 2,939,992,865 Impairment charge/(reversal) for loans and other losses ii 129,470,898 5,411,244 134,882,142 Net operating income 2,776,039,023 27,576,385 2,800,110,723 Operating expense Personnel expenses iii 543,658,730 (30,721,557) 512,937,173 Other operating expenses 289,913,667 - 289,913,667 Depreciation & Amortisation 81,845,041 - 81,845,041 Operating Profit 1,860,621,586 58,297,942 1,915,414,843 Non operating income iv iv 2,532,901 38,674,500 41,207,401 Non operating expense 280,973 - 280,973 Profit before income tax 1,862,873,513 96,972,442 1,956,341,270 Income tax expense Current Tax v 562,158,566 - 562,158,566 Deferred Tax v (3,388,459) 20,508,430 17,119,971 Profit for the period 1,304,103,406 76,464,012 1,377,062,733 Other comprehensive income vi - (5,017,908) (5,017,908) Total Comprehensive Income 1,304,103,406 71,446,104 1,372,044,825 i.Interest income recognised in accrual basis and staff loan measured at fair value. ii. Additional loan loss provision recognised on accquisition of Bagmati Development Bank and impairment on investment. iii. Increase in expenses due to actuary valuation and finance expense recognised under NFRS (staff loan measured at fair value). iv. Recognisation of bargain purchase gain. v. Recognistion of deferred tax expense due to increse in profit. vi. Actuary loss on gratuity recognised as other comprehensive income/(loss). vii. Reclassification of items has been done in previous GAAP wherever required to match with the presentation of line items under NFRS.

5.11.4. Effect of NFRSs adoption for statement of cash flows

For the year ended 31.03.2074 Particulars Explanatory Note Previous GAAP Effect of Transition to NFRSs Amount as per NFRSs Net cash flows from operating activities 2,425,103,249 (3,775,358,681) (1,350,255,433) Net cash flows from investing activities i 1,102,841,298 (92,424,328) 1,010,416,970 Net cash flows from financing activities (120,580,863) 2,280,742,863 2,160,162,000 Net increase/(decrease) in cash and cash equivalent 3,407,363,684 (1,587,040,146) 1,820,323,538 Cash and cash equivalent at the beginnning of the period 3,503,244,545 (2,374,787,981) 1,128,456,564 Cash and cash equivalent at the end of the period 6,910,608,229 (3,961,828,127) 2,948,780,102 i. Difference resulting from effect of reclassification and remeasurement of items of statement of financial position and statement of comprehensive income as per NFRS.

80 www.sanimabank.com 5.12 Earnings Per Ordinary Share Earnings Per Share- Basic (Rs.)

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

2018 2017 Amount used as a Numerator Profit Attributable to ordinary Shareholders 1,697,503,224 1,377,062,733 Amount used as the Denominator Weighted average number of Ordinary Shares 80,012,554 65,207,500 Basic Earnings per Ordinary Share (Rs) 21.22 21.22

Weighted average number of Ordinary Share 2018 2017 Outstanding Weighted Average Outstanding Weighted Average Weighted average number of ordinary shares for Basic EPS Number of Shares held as at 1st Shrawan 68,976,340 68,976,340 40,220,317 40,220,317 Add: Number of shares in issue due to bonus 2074 - - 6,885,648 6,885,648 Add: Number of shares in issue due to bonus 2075 11,036,214 11,036,214 11,036,214 11,036,214 Add: Calls in Advance 2074 - - - - Add: Business Combination (BDBL) - - 268,755 268,755 Add.: Adjustment of Right Shares 2074 - - 21,601,620 6,796,566 Add: Deemed Bonus considered in Right Shares - - 5,076,101 5,076,101 Add: Number of Right shares issued at Fair Value - - 16,525,519 1,720,465 Number of Shares held as at Ashad end 80,012,554 80,012,554 80,012,554 65,207,500

Step. 1 Calculation of Theoretical Ex Rights Price No. of Shares before issue of Rights 80,012,554 47,374,720 Right Shares Issued - 21,601,620 Total No. of Shares after issue of Rights 80,012,554 68,976,340 Value of Sanima Bank prior to issue of Rights - 27,193,089,280 Cash Collected from issue of Rights - 2,160,162,000 Value of Sanima Bank after issue of Rights - 29,353,251,280 Theoretical Ex Rights Price - 425.56 Step. 2 Calculate the fair value Element Cash Collected from issue of Rights - 2,160,162,000 Theoretical Ex Rights Price per Share - 425.56 Number of shares deemed to be issued at fair value - 5,076,101 Step.3 Calculate Bonus Element Number of shares deemed to be issued at fair value - 5,076,10 Total number of shares issued - 21,601,620 Number of Deemed Bonus Shares - 16,525,519

Earnings Per Share- Diluted (Rs.)

The calculation of Diluted Earnings Per Share as at reporting date was based on the profit attributable to equity holders of the Bank by the weighted average number of ordinary shares outstanding.

www.sanimabank.com 81 2018 2017 Amount used as a Numerator Profit Attributable to ordinary Shareholders 1,697,503,224 1,377,062,733 Amount used as the Denominator Weighted average number of Ordinary Shares used for Basic EPS 80,012,554 65,207,500 Weighted average number of potential ordinary shares outstanding - - Weighted average number of potential ordinary shares that would have been issued at average market price - - Weighted average number of potential ordinary shares that would have been issued for no consideration - - Weighted average number of ordinary shares used for Diluted EPS 80,012,554 65,207,500 Diluted Earnings per Ordinary Share (Rs) 21.22 21.12

Dividend Paid and Proposed

Provision for final dividend is recognized at the time the dividend is recommended and declared by the Board of Directors, and is approved by the shareholders. Interim dividend payable is recognised when the Board approves such dividend in accordance with the Companies Act. Rs 2018 2017 Gross Dividend Dividend Tax Net Dividend Gross Dividend Dividend Tax Net Dividend Final dividend paid for the years 2018 & 2017 respectively 1,120,175,762 - 1,120,175,762 1,103,621,440 - 1,103,621,440 Cash Dividend 1,120,175,762 - 1,120,175,762 - - - Bonus Shares - - - 1,103,621,440 - 1,103,621,440 Out of dividend received - free of tax - Out of normal profit 1,120,175,762 - 1,120,175,762 1,103,621,440 - 1,103,621,440 Scrip / cash dividend paid 1,120,175,762 - 1,120,175,762 1,103,621,440 - 1,103,621,440 Dividend per Ordinary Share (Rs) 14.00% 14.00% 16.00% 16.00%

The Board of Directors of the Bank has recommended the distribution of 14% of Paid up capital as Cash dividend vide board resolution dated 31st October 2018 for the year ended 16th July 2018, a distribution of Rs 1,120.17 Million.

In accordance with Nepal Accounting Standard - NAS 10 (Events after the Reporting Period), above proposed final dividend not been recognised as a liability as at the year end. Necessary disclosures have been made under Note 39 to the Financial Statements, “Events after the reporting period” as required by the said standard.

82 www.sanimabank.com Sanima Bank Ltd. Comparison Unaudited and Audited Financial Statements as of FY 2074/75 Rs. in ‘000’

Statement of Financial Position As per unaudited As per Audited Variance Financial Financial Reasons for Variance Assets Statement Statement In amount In % Cash and cash equivalent 4,530,152 4,530,152 - Due from NRB and placements with BFIs 6,257,328 6,257,328 - Loan and advances 70,026,333 69,243,357 (782,976) Due to change in profit and loan loss provision Investments Securities 9,891,492 9,891,492 - Investment in subsidiaris and associates 250,000 250,000 - Property and equipment 881,846 881,846 - Goodwill and intangible assets 56,551 56,551 - Other assets 664,383 711,226 46,843 Deferred tax adjustment Total Assets 92,558,086 91,821,953 Capital and Liabilities Paid up Capital 8,001,255 8,001,255 - Reserves and surplus 3,301,430 2,786,630 (514,800) (15.59) Due to change in profit and loan loss provision Deposits 79,196,339 79,196,339 - Borrowings 358,950 358,950 - Bond and Debenture 370,000 370,000 - Other liabilities and provisions 1,330,111 1,108,778 (221,333) (16.64) Due to change in profit Total Capital and Liabilities 92,558,086 91,821,953 Statement of Profit or Loss Interest income 8,053,306 8,107,979 54,673 Interest expense 5,092,455 5,092,455 - Net interest income 2,960,851 3,015,524 54,673 Fee and commission income 701,397 706,389 4,992 Fee and commission expense 50,152 50,152 - Net fee and commission income 651,245 656,237 4,992 Other operating income 341,424 337,372 (4,051) Total operating income 3,953,520 4,009,134 55,614 Impairment charge/(reversal) for loans and other losses (3,431) 239,218 242,648 Net operating income 3,956,951 3,769,916 (187,035) Personnel expenses 806,910 865,556 (58,645) (7.27) Due to change in staff bonus rate and fair value measurement Other operating expenses 481,469 489,186 (7,717) (1.60) Booking CSR and other additional expenses Operating profit 2,668,571 2,415,175 (253,397) (9.50) Non operating income/expense 161 161 - Profit before tax 2,668,732 2,415,336 (253,397) (9.50) Due to changes in loan loss provision and staff bonus rate Income tax 802,074 717,832 84,241 10.50 Impact of above adjustments & deferred tax adjustment Profit /(loss) for the period 1,866,659 1,697,503 (169,155) (9.06) Other comprehensive income (82,101) (57,531) 24,570 (29.93) Due to change in acturial gain/(loss) and net off Total comprehensive income 1,784,558 1,639,972 (144,585) (8.10) Distributable Profit Net profit/(loss) as per profit or loss 1,866,659 1,697,503 (169,155) (9.06) Add/Less: Regulatory adjustment as per NRB Directive (172,996) (335,645) (162,649) 94.02 Deferred tax adjustment Profit/(loss) after regulatory adjustments 1,693,663 1,361,858 (331,805) (19.59)

www.sanimabank.com 83 Sanima Bank Ltd. Unaudited Financial Results (Quarterly) 4th Quarter ended of Fiscal Year 2017/18 (32nd Ashad 2075) As Per Nepal Financial Reporting Standards (NFRS) Rs. in ‘000’

This Quarter Ending Previous Quarter Ending Corresponding Previous Quarter Ending Statement of Financial Position Bank Group Bank Group Bank Group Assets Cash and cash equivalent 4,530,152 4,531,852 2,683,106 2,684,914 2,948,780 2,952,472 Due from NRB and placements with BFIs 6,257,328 6,257,328 5,640,234 5,640,234 6,247,545 6,247,545 Loan and advances 70,026,333 70,026,333 65,483,834 65,483,834 52,190,082 52,190,082 Investments Securities 9,891,492 10,110,591 10,142,960 10,390,877 6,835,394 6,878,125 Investment in subsidiaris and associates 250,000 - 250,000 - 110,000 - Property and equipment 881,846 891,092 858,929 868,714 713,081 723,523 Goodwill and intangible assets 56,551 56,551 10,807 10,807 3,315 3,315 Other assets 664,383 688,224 635,272 652,643 981,180 993,246 Total Assets 92,558,086 92,561,971 85,705,143 85,732,024 70,029,377 69,988,308 Capital and Liabilities Paid up Capital 8,001,255 8,001,255 8,001,255 8,001,255 6,897,634 6,897,634 Reserves and surplus 3,288,277 3,307,057 2,845,435 2,860,643 2,619,558 2,652,674 Deposits 79,196,339 79,152,277 71,613,793 71,598,050 58,264,575 57,790,134 Borrowings 358,950 358,950 1,803,500 1,803,500 611,009 611,009 Bond and Debenture 370,000 370,000 370,000 370,000 370,000 370,000 Other liabilities and provisions 1,343,264 1,372,432 1,071,159 1,098,575 1,266,600 1,666,857 Total Capital and Liabilities 92,558,086 92,561,971 85,705,143 85,732,024 70,029,377 69,988,308

This Quarter Ending Previous Quarter Ending Corresponding Previous Quarter Ending Statement of Profit or Loss Bank Group Bank Group Bank Group Interest income 8,053,306 8,074,362 5,705,331 5,721,077 5,085,826 5,111,565 Interest expense 5,092,455 5,090,072 3,611,871 3,609,931 2,818,181 2,794,577 Net interest income 2,960,851 2,984,289 2,093,460 2,111,146 2,267,646 2,316,988 Fee and commission income 701,397 724,387 500,114 514,335 452,239 458,527 Fee and commission expense 50,152 50,152 35,190 35,190 32,045 32,045 Net fee and commission income 651,245 674,235 464,924 479,145 420,194 426,482 Other operating income 341,424 311,310 236,375 207,721 251,436 248,038 Total operating income 3,953,520 3,969,834 2,794,760 2,798,013 2,939,276 2,991,509 Impairment charge/(reversal) for loans and other losses (3,431) (3,431) 5,640 5,640 29,746 29,746 Net operating income 3,956,951 3,973,264 2,789,119 2,792,372 2,909,530 2,961,763 Personnel expenses 806,910 820,219 534,389 544,570 512,937 519,499 Other operating expenses 481,469 490,485 331,002 337,004 371,759 377,882 Operating profit 2,668,571 2,662,560 1,923,729 1,910,798 2,024,834 2,064,382 Non operating income/expense 161 180 298 316 40,926 40,928 Profit before tax 2,668,732 2,662,740 1,924,027 1,911,115 2,065,761 2,105,309 Income tax 802,074 805,323 571,137 574,440 622,838 633,448 Profit /(loss) for the period 1,866,659 1,857,417 1,352,890 1,336,675 1,442,923 1,471,862 Other comprehensive income (82,101) (83,740) - - (7,168) (7,168) Total comprehensive income 1,784,558 1,773,677 1,352,890 1,336,675 1,435,754 1,464,693 Distributable Profit Net profit/(loss) as per profit or loss 1,866,659 1,857,417 1,352,890 1,336,675 1,442,923 1,471,862 Add/Less: Regulatory adjustment as per NRB Directive (172,996) (172,996) (147,210) (147,210) (138,819) (138,819) Free profit/(loss) after regulatory adjustments 1,693,663 1,684,421 1,205,680 1,189,464 1,304,103 1,333,042 Ratios Capital fund to RWA (As per NRB Directive) 12.91 13.20 13.15 13.46 15.57 15.74 Non performing loan (NPL) to toal loan (As per NRB Directive) 0.03 0.03 0.17 0.17 0.01 0.01 Total loan loss provision to Total NPL (As per NRB Directive) 4,082.07 4,082.07 689.32 689.32 11,578.19 11,578.19 Cosft of Funds 7.42 7.42 7.32 7.32 5.35 5.35 Credit to Deposit Ratio ( As per NRB Directive) 76.99 76.99 78.18 78.18 71.66 71.66 Base Rate 10.66 10.66 10.63 10.63 10.20 10.20 Basic Earning Per Share (As per NFRS) 23.33 23.21 22.69 22.42 23.81 24.28 Diluted Earning Per Share (As per NFRS) 23.33 23.21 22.69 22.42 23.81 24.28

84 www.sanimabank.com Sanima Bank Ltd. Principal Indicators Particulars Indicators FY 2070/71 FY 2071/72 FY 2072/73 FY 2073/74 FY 2074/75 (NFRS) Percent of Net Profit/Gross Income Percent 18.67 26.63 26.63 22.84 18.55 Earning Per Share Rs. 19.28 24.47 32.55 26.31 21.22 Market Value Per Share Rs. 638 555 750 431 324 Price Earning Ratio Times 33.09 22.68 23.04 16.38 15.27 Dividend (Including Bonus) on Share Capital Percent 15.79 21.05 15.79 16.00 14.00 Cash Dividend on Share Capital Percent 0.79 1.05 0.79 - 14.00 Interest Income/Loan & Advances Percent 9.79 8.92 7.98 9.76 11.71 Staff Expenses/Total Operating Expenses Percent 39.44 39.83 44.09 44.55 63.89 Interest Expenses / Total Deposit and Borrowing Percent 4.66 3.94 3.10 4.79 6.40 Exchange Gain/Total Income Percent 6.41 6.14 4.11 3.40 3.09 Staff Bonus/Total Staff Expenses Percent 45.85 48.58 54.72 54.94 31.01 Net Profit/Loan and Advances Percent 2.07 2.18 2.44 2.52 2.45 Net Profit/Total Assets Percent 1.46 1.55 1.78 1.86 1.85 Total Credit/Deposit Percent 82.90 83.97 88.10 89.03 87.43 Total Operating Expenses/Total Assets Percent 1.16 1.14 1.05 1.09 1.53 Adequacy of Capital Fund on Risk Weighted Assets a) Core Capital Percent 11.52 10.13 10.69 14.07 11.14 b) Supplementary Captial Percent 1.02 0.97 1.67 1.50 1.27 c) Total Capital Fund Percent 12.54 11.08 12.36 15.57 12.41 Liquidity Percent 26.68 22.32 24.24 26.08 24.72 Non-Performing Loan/Total Credit Percent 0.017 0.070 0.019 0.01 0.03 Weighted Average Interest Rate Spread Percent 4.01 3.83 4.63 4.26 4.20 Book Net-Worth Rs. 2,833,397,025 3,430,693,691 5,352,251,266 9,060,833,497 10,787,885,501 Total Number of Shares Nos. 22,176,000 25,502,400 30,602,880 68,976,340 80,012,554 Total Staff Nos. 311 415 470 601 862 No. of Branches (including Head Office) Nos. 28 38 40 46 74 Base Rate Percent 8.22 7.50 6.07 10.20 10.66 Return on Equity Percent 15.09 18.19 22.69 14.39 15.74 Return on Assets Percent 1.46 1.55 1.78 1.86 1.85 Total Assets to Shareholders Fund Times 10.30 11.66 14.97 7.73 8.51

www.sanimabank.com 85 Sanima Bank Limited Capital Adequacy Table At the month end of Ashadh, 2075 Form no 1 (Rs. in million) Particulars Current Year Previous Year a Common Equity Tier 1 Capital 9,775.93 8,921.83 b Tier 1 Capital 9,775.93 8,921.83 c Tier 2 Capital 1,113.15 948.35 d Total Capital 10,889.08 9,870.19 e Risk Weighted Exposures 87,740.16 63,388.48

Regulatory Ratios a Leverage Ratio (Regulatory Requirement >= 4%) 8.48% 10.37% b Common Equity Tier 1 to Risk Weighted Exposure Ratios 11.14% 14.07% c Tier 1 to Risk Weighted Exposure Ratios 11.14% 14.07% d Total Capital to Risk Weighted Exposure Ratio 12.41% 15.57%

86 www.sanimabank.com Sanima Bank Limited

Capital Adequacy Table Form no 1 A

At the month end of Ashadh, 2075 (Rs. in million) 1. 1 RISK WEIGHTED EXPOSURES Current Year Previous End a Risk Weighted Exposure for Credit Risk 79,548.36 58,025.51 b Risk Weighted Exposure for Operational Risk 3,350.73 2,424.80 c Risk Weighted Exposure for Market Risk 1,425.43 1,259.05 Total Risk Weighted Exposures (Before adjustments of Pillar II) 84,324.52 61,709.36 Adjustments under Pillar II SRP 6.4a (5) ALM policies & practices are not satisfactory, add 1% of net interest income to RWE - SRP 6.4a (6) Add .....% of the total deposit due to insufficient Liquid Assets - SRP 6.4a (7) Add RWE equvalent to reciprocal of capital charge of 3 % of gross income. 885.90 444.93 SRP 6.4a (9) Overall risk management policies and precedures are not satisfactory. Add 3% of RWE 2,529.74 1,234.19 SRP 6.4a (10) If desired level of disclosure requirement has not been achieved, Add .....% of RWE - Total Risk Weighted Exposures (After Bank’s adjustments of Pillar II) 87,740.16 63,388.48

1.2 CAPITAL Current Year Previous End (A) Tier 1 Capital [Core Capital (CET 1 + AT 1)] 9,775.93 8,921.83 Common Equity Tier 1 (CET 1) 9,775.93 8,921.83 a Paid up Equity Share Capital 8,001 6,897.63 b Equity Share Premium - c Proposed Bonus Equity Shares - 1,103.62 d Statutory General Reserves 1,172 832.54 e Retained Earnings 1,136.68 80.75 f Unaudited current year cumulative profit/(loss) - g Capital Redemption Reserve 158.57 105.71 h Capital Adjustment Reserve 20.19 11.92 i Dividend Equalization Reserves - j Other Free Reserve - 6.40 k Less: Goodwill - l Less: Intangible Assets 10.31 - m Less: Deferred Tax Assets - 6.40 n Less: Fictitious Assets - o Less: Investment in equity in licensed Financial Institutions - p Less: Investment in equity of institutions with financial interests 702.50 110.35 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 Contniued...

www.sanimabank.com 87 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) 1,113 948 a Cumulative and/or Redeemable Preference Share b Subordinated Term Debt 296.00 370.00 c Hybrid Capital Instruments d Stock Premium e General Loan Loss Provision 807.30 569.75 f Exchange Equalization Reserve 9.51 6.05 g Investment Adjustment Reserve 0.35 2.55 h Assets Revaluation Reserve i Other Reserves Total Capital Fund (Tier I and Tier II) 10,889.08 9,870.19

1.3 CAPITAL ADEQUACY RATIOS Current Year Previous End Common Equity Tier 1 Capital to Total Risk Weighted Exposures (After Bank’s adjustments of Pillar II) 11.14% 14.07% Tier 1 Capital to Total Risk Weighted Exposures(After Bank’s adjustments of Pillar II) 11.14% 14.07% Tier 1 and Tier 2 Capital to Total Risk Weighted Exposures(After Bank’s adjustments of Pillar II) 12.41% 15.57%

88 www.sanimabank.com Sanima Bank Limited

Risk Weighted Exposure for Credit Risk Form no 2 At the month end of Ashadh, 2075 Rs in million

Specific Eligible Risk Risk Weighted Book Value Net Value Previous Year Provision CRM Weight Exposures A. Balance Sheet Exposures Risk a b c d=a-b-c e f=d*e Net Value Weight Amount Cash Balance 1,082.30 1,082.30 0% - 907.60 -

Balance With Nepal Rastra Bank 5,597.47 5,597.47 0% - 5,265.30 -

Gold - 0% - - -

Investment in Nepalese Government Securities 9,311.60 9,311.60 0% - 6,695.51 -

All Claims on Government of Nepal 27.85 27.85 0% - 28.85 -

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) - - - - -

Claims on Foreign Government and Central Bank (ECA -7) - - - - -

Claims On BIS, IMF, ECB, EC and MDB’s recognized by the framework - 0% - - -

Claims on Other Multilateral Development Banks ------

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) - - - - -

Claims on Public Sector Entity (ECA 7) - - - - -

Claims on domestic banks that meet capital adequacy requirements 2,341.39 - 2,341.39 20% 468.28 1,240.61 248.12 Claims on domestic banks that do not meet capital adequacy require- - - - - 3.60 3.60 ments Claims on foreign bank (ECA Rating 0-1) 784.08 - 784.08 20% 156.82 1,566.03 313.21

Claims on foreign bank (ECA Rating 2) 2,145.86 - 2,145.86 50% 1,072.93 877.38 438.69

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 173.21 - 173.21 20% 34.64 402.05 80.41 buffer of 1% above their respective regulatory capital requirement

Claims on Domestic Corporates 32,394.39 44.60 32,349.79 100% 32,349.79 25,109.32 25,109.32

Claims on Foreign Corporates (ECA 0-1) - - 20% - - -

Claims on Foreign Corporates (ECA 2) - - 50% - - -

Claims on Foreign Corporates (ECA 3-6) - - - - -

Claims on Foreign Corporates (ECA 7) - - - - -

Regulatory Retail Portfolio (Not Overdue) 17,986.83 658.55 17,328.28 75% 12,996.21 13,664.28 10,248.21

Claims fulfilling all criterion of regularity retail except granularity - - - - -

Claims secured by residential properties 4,918.35 - 4,918.35 60% 2,951.01 3,995.99 2,397.59

Claims not fully secured by residential properties - - - - -

Claims secured by residential properties (Overdue) 0.58 - 0.58 100% 0.58 4.95 4.95

Claims secured by Commercial real estate 2,739.66 - 2,739.66 100% 2,739.66 364.14 364.14

Past due claims (except for claims secured by residential properties) 1,066.31 10.57 6.17 1,049.56 150% 1,574.35 28.24 42.37

High Risk claims 8,697.64 82.13 8,615.51 150% 12,923.26 6,491.57 9,737.35 Investments in equity and other capital instruments of institutions listed in 70.69 - 70.69 100% 70.69 74.43 74.43 stock exchange Contniued...

www.sanimabank.com 89 Investments in equity and other capital instruments of institutions not 171.30 - 171.30 150% 256.95 2.30 3.45 listed in the stock exchange

Staff loan secured by residential property 700.50 700.50 60% 420.30 412.87 247.72

Interest Receivable/claim on government securities 143.68 143.68 0% - 62.79 -

Cash in transit and other cash items in the process of collection - - - 20% - - - Other Assets (as per attachment) 3,719.69 2,166.80 - 1,552.89 100% 1,552.89 2,174.61 2,174.61 TOTAL (A) 94,073.38 2,177.38 791.45 91,104.55 69,568.35 69,372.43 51,488.19

Risk Specific Eligible Risk Risk Weighted B. Off Balance Sheet Exposures Book Value Net Value Net Value Weight Provision CRM Weight Exposures Amount Revocable Commitments - 0% - - -

Bills Under Collection 133.80 133.80 0% - 111.21 -

Forward Exchange Contract Liabilities - - 10% - 72.14 7.21 LC Commitments With Original Maturity Upto 6 months domestic 2,409.54 98.97 2,310.57 20% 462.11 1,489.39 297.88 counterparty 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 1,414.44 35.40 1,379.05 50% 689.52 663.06 331.53 counterparty 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 counter- 7,072.15 526.75 401.20 6,144.20 50% 3,072.10 4,696.75 2,348.37 party 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 3,597.11 53.10 3,544.01 100% 3,544.01 1,954.52 1,954.52

Financial Guarantee - - 100% - - -

Acceptances and Endorsements 680.49 - 680.49 100% 680.49 399.40 399.40

Unpaid portion of Partly paid shares and Securities - - 100% - - -

Irrevocable Credit commitments (short term) 7,371.97 - 7,371.97 20% 1,474.39 5,842.33 1,168.47

Irrevocable Credit commitments (long term) - - 50% - - - Claims on foreign bank incorporated in SAARC region operating with a - 20% - - - buffer of 1% above their respective regulatory capital requirement Other Contingent Liabilities 10.84 - 10.84 100% 10.84 19.95 19.95

Unpaid Guarantee Claims 23.27 - 23.27 200% 46.53 5.00 10.00

TOTAL (B) 22,713.61 526.75 588.67 21,598.19 9,980.00 15,253.75 6,537.33

Total RWE for credit Risk Before Adjustment (A) +(B) 116,786.98 2,704.13 1,380.12 112,702.74 79,548.36 84,626.18 58,025.51

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 116,786.98 2,704.13 1,380.12 112,702.74 79,548.36 84,626.18 58,025.51

90 www.sanimabank.com Sanima Bank Limited Form no 3 Eligible Credit Risk Mitigants At the month end of Ashadh, 2075 Rs. in Million Deposits Deposits with Govt.& NRB G'tee of Govt. Sec/G'teeof Other G'tee of domestic G'tee of Sec/G'tee of Gold Total Credit exposures with Bank Other Banks / Fi Securities of Nepal Sovereigns banks MDBs Foreign Banks (a) (b) (c) (d) (e) (f) (g) (h) (i) Balance Sheet Exposures Claims on Foreign government and Central Bank (ECA -2) - Claims on Foreign government and Central Bank (ECA -3) - Claims on Foreign government and Central Bank (ECA-4-6) - Claims on Foreign government and Central Bank (ECA -7) - Claims on Other Multilateral Development Banks - Claims on Public Sector Entity (ECA 0-1) - Claims on Public Sector Entity (ECA 2) - Claims on Public Sector Entity (ECA 3-6) - Claims on Public Sector Entity (ECA 7) - Claims on domestic banks that meet capital adequacy requirements - Claims on domestic banks that do not meet capital adequacy requirements - Claims on foreign bank (ECA Rating 0-1) - Claims on foreign bank (ECA Rating 2) - Claims on foreign bank (ECA Rating 3-6) - Claims on foreign bank (ECA Rating 7) - Claims on foreign bank incorporated in SAARC region operating with a buffer of 1% above their respective regulatory capital requirement - Claims on Domestic Corporates 44.60 44.60 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) 516.62 141.92 658.55 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) 6.17 6.17 High Risk claims 81.01 1.12 82.13 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 642.24 - 149.21 ------791.45

Off Balance Sheet Exposures Forward Exchange Contract Liabilities - LC Commitments With Original Maturity Upto 6 months domestic counterparty 98.97 98.97 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 35.40 35.40 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 401.20 401.20 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 53.10 53.10 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 588.67 ------588.67 Grand Total 1,230.91 - 149.21 ------1,380.12

www.sanimabank.com 91 Sanima Bank Limited Other Assets At the month end of Ashadh, 2075 Form no 5 Rs. in million Assets Gross Amount Specific Provision Net Balance Cash and Cash Items in Transit - - Miscellaneous Expenditure not written off 56.55 10.31 Fixed Assets 881.85 929.70 Interest Receivable on Other Investment 6.31 6.31 Interest Receivable on Loan 217.30 217.30 - Non Banking Assets - - Reconciliation Account - - Draft Paid Without Notice - - Sundry Debtors 1.42 1.42 Advance payment and Deposits 2,083.42 1,949.50 133.92 Staff Loan and Advance 132.79 132.79 Stationery 19.98 19.98 Other 328.76 328.76 TOTAL 3,730.00 2,166.80 1,563.20

Sanima Bank Limited Risk Weighted Exposure for Operational Risk At the month end of Ashadh, 2075 Form no 6 Rs. in million Fiscal Year S.N. Particulars Previous Year 2071/072 2072/073 2073/074 1. Net Interest Income 1,139.39 1,722.30 2,242.12 2. Commission and Discount Income 53.47 88.54 155.19 3. Other Operating Income 131.30 234.76 300.55 4. Exchange Fluctuation Income 178.75 153.62 194.26 5. Addition/Deduction in Interest Suspense during the period 20.81 25.43 60.97 6. Gross income (a) 1,523.71 2,224.65 2,953.10 7. Alfa (b) 15% 15% 15% 8. Fixed Percentage of Gross Income [c=(a×b)] 228.56 333.70 442.96 9. Capital Requirement for operational risk (d) (average of c) 335.07 242.5 10. Risk Weight (reciprocal of capital requirement of 10%) in times (e) 10 10 11. Equivalent Risk Weight Exposure [f=(d×e)] 3,350.73 2,424.8

S.N. 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 - - 2. Capital Requirement for Operational Risk (5% of net credit and 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] 3,350.73 2,424.80

92 www.sanimabank.com Sanima Bank Limited Risk Weighted Exposure for Market Risk Form no 7

At the month end of Ashadh, 2075 Rs. in full figure

S.N. Currency Open Position (FCY) Exchange Rate Open Position (NPR) Relevant Open Position Previous Year 1. INR 1,738,827,658.72 1.60 2,783,428,375 2,783,428,375 2,497,192,767 2. USD (115,269.20) 109.70 (12,645,031) 12,645,031 6,048,031 3. GBP 22,168.67 145.70 3,229,975 3,229,975 298,156 4. EUR 289,055.69 128.60 37,174,007 37,174,007 1,466,520 5. THB 11,190.00 3.27 36,591 36,591 38,011 6. CHF 940.00 109.88 103,287 103,287 232,863 7. AUD 3,315.85 81.45 270,093 270,093 4,328,721 8. CAD 6,082.74 83.49 507,848 507,848 27,603 9. SGD 921.00 80.63 74,265 74,265 53,118 10. JPY 7,073,632.19 0.98 6,910,939 6,910,939 4,398,019 11. HKD 11,190.00 13.99 156,548 156,548 108,183 12. DKK 34,400.00 17.33 595,980 595,980 271,256 13. SEK - - - - - 14. SAR 72,102.00 29.18 2,103,936 2,103,936 1,791,608 15. QAR 23,105.00 30.09 695,114 695,114 422,316 16. AED 27,370.00 29.67 811,931 811,931 605,270 17. MYR 17,641.00 27.30 481,688 481,688 197,972 18. KRW 720,000.00 0.10 69,876 69,876 25,466 19. CNY 84,380.56 16.30 1,375,403 1,375,403 59,925 20. KWD 323.00 362.73 117,160 117,160 411,453 21. BHD 263.50 289.60 76,310 76,310 125,655 (a) Total Open Position 2,825,574,294 2,850,864,357 2,518,102,916 (b) Fixed Percentage 5% 5% (c) Capital Charge for Market Risk (=a×b) 142,543,217.83 125,905,145.82 (d) Risk Weight (reciprocal of capital requirement of 10%) in times 10 10 (e) Equivalent Risk Weight Exposure (=c×d) 1,425,432,178 1,259,051,458

Sanima Bank Limited Net Liquid Assets to Form no 8

At the month end of Ashadh, 2075 Rs. in million

Particulars Amount A. Total Deposit & Borrowing 79,542.30 1. Total Deposits (as per NRB Ni. Fa. 9.1) 79,183.35 2. Total Borrowings (as per NRB Ni. Fa. 9.1) 358.95 B. Liquid Assets 19,577.99 1. Cash(as per NRB Ni. Fa. 9.1) 1,082.30 2. Bank Balance (as per NRB Ni. Fa. 9.1) 6,016.87 3. Money at call and short notice (as per NRB Ni. Fa. 9.1) - 4. Investments in government securities (as per NRB Ni. Fa. 9.1) 9,311.60 5. Placements upto 90 days 3,167.23 C. Borrowings payable upto 90 days D. Net Liquid Assets (B-C) 19,577.99 E. Net Liquid Assets to Total deposit (D/A1) 24.72% F. Shortfall in Ratio No Shortfall G. Percentage of deposit to be added to RWE 0.00% H. Amount to be added to risk weighted exposures - Note (if any): Borrowing payable upto 90 days does not inclued refinance.

www.sanimabank.com 93 Sanima Bank Ltd Disclosure under Basel III As at Mid July 2018 (4th Quarter End of FY 2017/18)

A. Capital Structure and Capital Adequacy

• Tier 1 Capital and a breakdown of its Components Particulars Amount Paid up Equity Share Capital 8,001,255,440 Irredeemable Non-cumulative preference shares Share Premium Proposed Bonus Equity Shares - Statutory General Reserves 1,172,044,000 Retained Earnings 1,136,681,538 Un-audited current year cumulative profit Special Reserve Fund - Capital Adjustment Reserves 20,187,887 Dividend Equalization Reserves Capital Redemption Reserves Fund 158,571,429 Deferred Tax Reserve Less: Goodwill Less: Intangible Assets 10,309,906 Less: Fictitious Assets Less: Deferred Tax Assets Less: Investment in equity of licensed Financial Institutions Less: Investment in equity of institutions with financial interests 702,500,000 Less: Investment in equity of institutions in excess of limits Less: Investments arising out of underwriting commitments Less: Purchase of Land & Building in excess of limit & utilized Less: Reciprocal crossholdings Less: Other Deductions Total Tier 1 Capital 9,775,930,387 • Tier 2 Capital and Breakdown of its Components Particulars Amount (Rs) a. Cumulative and/or Redeemable Preference Share - b. Subordinated Term Debt 296,000,000 c. Hybrid Capital Instruments - d. General loan loss provision 807,297,321 e. Exchange Equalization Reserves 9,507,098 f. Investments Adjustment Reserves 350,000 g. Assets Revaluation Reserves - h. Other Reserves - Total Tier 2 Capital 1,113,154,419

94 www.sanimabank.com • Details of Subordinated Term Debt:

• Deductions from Capital:

• Total Qualifying Capital: Particulars Amount (Rs) Core Capital (Tier 1) 9,775,930,387 Supplementary Capital (Tier 2) 1,113,154,419 Total Capital Fund 10,889,084,806

• Capital Adequacy Ratio: 12.41%

Risk Exposures

• Risk weighted exposures for credit Risk, Market Risk and Operational Risk:

RISK WEIGHTED EXPOSURES Amount (Rs) Risk Weighted Exposure for Credit Risk 79,548,355,697 Risk Weighted Exposure for Operational Risk 3,350,734,475 Risk Weighted Exposure for Market Risk 1,425,432,178 Total Risk Weighted Exposures (Before Bank's adjustment of Pillar II) 84,324,522,351

• Risk Weighted exposures under each 11 categories of Credit Risk: S.N. Categories Amount (Rs) 1. Claims on Government and Central Bank - 2. Claims on Other Financial Entities - 3. Claims on Banks 1,732,666,508 4. Claims on Domestic Corporate and Securities Firms 32,349,787,743 5. Claims on Regulatory Retail Portfolio & Other Retail Portfolio 12,996,212,087 6. Claims secured by residential properties 2,951,588,204 7. Claims secured by Commercial real estate 2,739,664,607 8. Past due claims 1,574,345,527 9. High Risk claims 12,923,257,636 10. Other Assets 2,300,832,590 11. Off Balance Sheet Items 9,980,000,794 Total 79,548,355,697

www.sanimabank.com 95 • Total Risk Weight Exposures calculation Table: RISK WEIGHTED EXPOSURES Amount (Rs) Risk Weighted Exposure for Credit Risk 79,548,355,697 Risk Weighted Exposure for Operational Risk 3,350,734,475 Risk Weighted Exposure for Market Risk 1,425,432,178 Add: 3% of the total RWE added by Supervisory Review 885,900,000 Add: RWE equivalent to reciprocal of capital charge of 3% of Gross Income 2,529,735,671 Total Risk Weighted Exposures (After Bank's adjustment of Pillar II) 87,740,158,022 Total Core Capital 9,775,930,387 Total Capital 10,889,084,806

• Amount of Non-Performing Assets(both Gross and Net): Particulars Gross Amount (Rs) Loan Loss Provision (Rs) Net NPL (Rs) Restructured - - - Sub-Standard 11,463,109 2,865,777 8,597,332 Doubtful 1,728,277 864,138 864,138 Loss 6,844,322 6,844,322 - Total 20,035,708 10,574,238 9,461,470

• NPA Ratios:

NPA Ratios (%) Gross NPA to Gross Advances 0.03 Net NPA to Net Advances 0.01

• Movement in Non-Performing Assets:

Particulars This Year (Rs) Previous Year (Rs) Change (%) Non-Performing Assets 20,035,708 4,990,732 301.46 Non-Performing Assets (%) 0.03 0.01 200.00

• Write off Loans and Interest Suspense:

Particulars Amount Write off loans during the quarter 415,499.96 Write off Interest Suspense quarter 8,098.45 Total 423,598.41

• Movement in Loan Loss Provision and Interest Suspense:

Particulars This Year (Rs) Previous Year (Rs) Change (%) Loan Loss Provision (Total) 817,871,559 578,662,633 41.34 Interest Suspense 217,301,008 148,566,422 46.27

96 www.sanimabank.com • Details of Additional Loan Loss Provision (Net) during the year:

Particulars Amount (Rs) Pass 169,336,090 Watch List 61,314,806 Restructured - Sub-Standard 2,179,088 Doubtful 680,026 Loss 5,698,915 Total 239,208,925

• Segregation of Investment Portfolio: Particulars Amount (Rs) Held for Trading 470,590,809 Held to Maturity 12,286,879,382 Available for sale 873,802,600 Total Investment 13,631,272,791

• Eligible Credit Risk Mitigates (CRM) as on Ashadh End 2075 (16th July 2018)

Particulars Amount (Rs.) Deposits with Bank 1,230,908,316 Gold 149,209,889 Total 1,380,118,205

• Summary of term conditions and main feature of all capital instrument, especially in case of subordinated term debts including hybrid capital instrument : The Bank has issued “7% Sanima Debenture 2079” of face value NRs.1,000 per unit for Rs 370,000,000 on 20thShrawan 2072. The main features of this capital instrument are as follows: Instrument: 7% Sanima Debenture 2079 Interest Rate: 7% Maturity period: 7 Years Interest Payment Frequency: Half yearly • Summary of the bank’s internal approach to assess the adequacy of its capital to support current and future activities, if applicable: Sanima Bank adopts healthy risk management framework. The bank follows Internal Capital Adequacy Assessment Process (ICAAP) and Risk Man- agement Guideline while taking decision on any business. It has always taken note of ICAAP and has taken steps accordingly in ensuring soundness of capital position and sustainability of the business. The bank’s policies and procedures are approved by the Board of Directors and these documents provide guidance on independent identification, measurement and management of risks across various businesses. Bank’s different committees like Audit Committee, Risk Management Committee review the business and risks periodically and take account of stress test results, scenario analysis so as to align risk, return and capital in sustainable manner. The bank also defines risk aspects, considering domestic economic scenario, and puts in place the system to minimize and remove such risk. The risk appetite and approach towards risk taking is well discussed in management level and board level. It is always aligned with the business, its return and capital. Basel disclosures have been complied with, addressing the risks and adopting measures to minimize their impact. Increasing complexities in risks, weakness of businesses and fast changing world with intense competition pose a threat to sustainability. Capital planning is an integral part of the bank’s medium term strategic planning and annual budget formulation process. Total risk weighted exposures for the projected level of business operations is calculated, the required capital level is projected, and a plan is formulated to retain the required capital. The bank is well capitalized and able to maintain the required capital through internal generation, and equally through capital markets if needed.

www.sanimabank.com 97 B. Risk Management Functions & BASEL Disclosure

Chief Risk Officer (CRO) Chief Risk Officer (CRO), along with his team, is responsible for overall risk management of the Bank which includes managing, assessing, identifying, monitoring and reducing pertinent global, macro and micro-economic level business risks that could interfere with Banks objective and goals and whether the Bank is in substantial compliance with its internal operating policies and other applicable regulations and procedures, external, legal, regulatory or contractual requirements on a continuous basis. Further, CRO ensures integration of all major risk in capital assessment process. Risk Management Committee (RMC) Board level risk management committee has been set up under NRB Directive for ensuring/reviewing bank's risk appetite are in line with the policies and CRO acts as member secretary. CRO closely monitors and report on credit related risks in ALCO & RMC meeting.

Operational Risk

Board and senior management of the bank places high priority on effective operational risk management and adherence to sound operating controls.

• Policies/Guidelines explicitly supports the identification, assessment, control and reporting of key risks. • Emphasizes on dual controls, • Effective monitoring and internal reporting, • Contingency and business continuity plans, • High standards of ethics and integrity, • Commitment to good corporate governance and • Segregation of duties and clear lines of management responsibility, accountability and reporting.

Market Risk

Sanima has Market Risk Management Policy developed in line with Risk Management Guidelines issued by NRB to assess and actively manage all material market risks, wherever they arise throughout the bank and a capital charge is provided for such risks. Stress testing technique also covers the capital requirement on market shock. Foreign Currency peak position, interest rate risk, stock position is discussed in ALCO meetings on monthly basis.

For interest risk management, appropriate assets and liability mismatch (GAP analysis) is measured as per policy so as to minimize sudden fall in NII. Investments in stock are revalued at the end of every month and Open positions in foreign currencies are monitored daily. Prompt Action is taken to keep open positions and foreign currency exchange risk to a minimum level. Regulatory limits are ensured at all time.

Adequate care is taken to ensure the maturity of deposits to match with assets maturity. Adequate liquidity is ensured even in stressed scenarios. Various ratios as per liquidity risk management policy are assessed. Treasury department plays the vital role for monitoring same and report to ALCO. Compliance Compliance officer has been entrusted with the responsibility of assessment, identification and reporting to CRO the Operational, Liquidity & Market Risk in conformity with risk management policies of Sanima.

Assets and Liability Committee (ALCO) The ALCO, chaired by Chief Executive Officer, ensures functioning of the banking business in line with the set procedures and processes and recommends for necessary steps to address the risk associated with liquidity, movement in interest rate, exchange rate and equity price and other risks.

Stress Testing Stress Testing is a risk management technique used to evaluate the potential effects on an institution’s financial condition, of a set of specified changes in risk factors, corresponding to exceptional but plausible events. The Bank conducts the stress test on quarterly basis and reports to senior management as well as to Nepal Rastra Bank.

98 www.sanimabank.com Internal Capital Adequacy Assessment Process (ICAAP) The Bank has developed a comprehensive ICAAP document. The ICAAP has two major components; first is an internal process to identify measure, manage and report risks to which the bank is exposed or could be exposed in the future; and second is an internal process to plan and manage a bank’s capital so as to ensure adequate capital. The Bank also conducts the stress test on quarterly basis and reports to senior management. The Bank in line with BASEL provisions and ICAAP document assesses risk exposures and allocated sufficient capital/cushion for perceived risks. The adequacy of capital is main agenda of any ALCO, Man-Com and board meetings.

Maker-Checker Policy The Bank has adopted Maker-Checker Policy in all of the transactions. Each and every transaction is entered and authorized in CBS by two different individuals for better control and any deviations are closely monitored. The activities of any personnel can be monitored centrally through an integrated system which helps in minimizing the risk of misconduct

Information Technology The Bank has maintained in-house cold site for disaster recovery. The disaster recovery site and production server site have been kept in well-maintained separate buildings. Periodic drill is conducted to assess the functioning of DRS. Also, the desktops are implemented with Active Directory System (ADS) which does not allow users to replicate or bring the data in/from any unauthorized removable devices.

Internal Audit Internal audit of the Bank is independent from the management and directly reports to Audit Committee, a board level committee. Audit functions are carried out by experienced staffs and regular observations are being communicated to the related departments/branches/staffs.

www.sanimabank.com 99 100 www.sanimabank.com Sanima Capital Limited Statement of Financial Position As at 16 July 2018 In NPR. Particulars Note 2018 2017 2016 Assets Cash and Cash Equivalents 1 45,810,161 448,132,932 79,125,273 Financial Investments - Held for Trading 2 16,811,305 27,731,096 27,143,425 Financial Investments - Available for Sale 3 32,288,068 - - Financial Invstments - Held to Maturity 4 170,000,000 45,000,000 - Other Financial Assets 5 14,326,195 4,271,757 488,399 Other Assets 6 373,404 787,739 36,069 Property & Equipment 7 7,655,464 9,390,078 8,326,347 Intangible Assets 8 1,589,770 1,051,917 - Current Tax Assets 9 10,890,580 7,097,203 130,466 Deffered Tax Assets 10 453,805 - - Total Assets 300,198,752 543,462,722 115,249,979

Liabilities Due to Public 11 22,132,930 395,604,045 - Other Financial Liabilities 12 1,783,484 3,850,140 530,187 Other Liabilities 13 4,778,137 924,965 259,360 Deferred Tax Liabilities 10 - 112,415 95,476 Other Provision 14 563,297 99,310 23,400 Total Liabilities 29,257,848 400,590,875 908,423

Equity Share Capital 15 250,000,000 110,000,000 110,000,000 Retained Earnings 16 22,088,017 32,871,847 4,341,556 Other Reserves 17 (1,147,113) - - Total Equity 270,940,904 142,871,847 114,341,556 Total Liabilities and Equity 300,198,752 543,462,722 115,249,979

Manish N. Joshi Tej Bahadur Chand As per our report on even date CEO Chairman Sunir K. Dhungel Shree Prasad Poudel Nischal Raj Pandey Managing Partner Independent Director Director SAR Associates

Bala Ram Parajuli Pawan Kumar Acharya Chartered Accountants Independent Director Director

Date: September 13, 2018 Saroj Guragain Place: Naxal, Kathmandu Director

www.sanimabank.com 101 Sanima Capital Limited Statement of Profit or Loss Year ended 16 July 2018 In NPR. Particulars Note 2018 2017 2016 Income Income from Merchant Banking Activity 18 6,636,467 47,473,390 - Income From Portfolio Management Services 19 595,607 214,247 - Income From Mutual Fund 20 15,757,664 - - Interest Income 21 23,438,117 7,612,850 576,099 Other Income 22 1,034,426 36,623 4,050 Net Trading Income 23 (3,309,705) 2,059,791 7,531,773 44,152,577 57,396,900 8,111,922 Expense Personnel Expense 24 13,508,782 6,560,663 633,824 Interest Expense 25 - - - Depreciation on Property and Equipment 7 1,734,614 1,884,120 249,374 Amortization of Intangible Assets 8 343,547 163,539 - Other Operating Expenses 26 8,648,070 6,442,101 1,428,994 Total Expenses 24,235,013 15,050,423 2,312,192 Profit Before Tax from Continuing Operations 19,917,565 42,346,477 5,799,730 Income Tax Expense 3,201,395 10,516,186 1,458,174 Profit For the Year 16,716,169 31,830,291 4,341,556

Manish N. Joshi Tej Bahadur Chand As per our report on even date CEO Chairman Sunir K. Dhungel Shree Prasad Poudel Nischal Raj Pandey Managing Partner Independent Director Director SAR Associates

Bala Ram Parajuli Pawan Kumar Acharya Chartered Accountants Independent Director Director

Date: September 13, 2018 Saroj Guragain Place: Naxal, Kathmandu Director

102 www.sanimabank.com Sanima Capital Limited Statement of Other Comprehensive Income

Year ended 16 July 2018 In NPR. 2018 2017 2016 Profit for the year 16,716,169 31,830,291 4,341,556 Gains /(losses) on re-measuring available for sale financial assets (1,638,732) - - Gain/(loss) on Actuarial valuation of defined benefit liability Total other comprehensive income /(loss) (1,638,732) - - Income tax income /(expense) relating to components of other comprehensive income 491,620 - - Other comprehensive income for the year, net of tax (1,147,113) - - Total comprehensive income for the year, net of tax 15,569,057 31,830,291 4,341,556

Manish N. Joshi Tej Bahadur Chand As per our report on even date CEO Chairman Sunir K. Dhungel Shree Prasad Poudel Nischal Raj Pandey Managing Partner Independent Director Director SAR Associates

Bala Ram Parajuli Pawan Kumar Acharya Chartered Accountants Independent Director Director

Date: September 13, 2018 Saroj Guragain Place: Naxal, Kathmandu Director

www.sanimabank.com 103 Sanima Capital Limited Statement of Cash Flows

Year ended 16 July 2018 In NPR. Particulars Note 2018 2017 2016 Operating Activities (a) Cash Flow from Operating Activities 1. Cash Received from Income 27,693,275 53,242,456 580,149 1.1 Income from Merchant Banking Operation 6,636,467 3,034,733 - 1.2 Income From Portfolio Management Services 595,607 214,247 - 1.3 Income From Mutual Fund 15,757,664 - - 1.4 Interest Income 2,173,650 49,868,904 576,099 1.5 Other Income 1,033,881 36,623 4,050 1.6 Dividend Receipt 1,496,006 87,950 2. Cash Payment 19,943,244 14,435,483 3,373,870 2.1 Personnel Expenses 11,295,174 6,560,663 551,712 2.2 Office Operating Expenses 8,648,070 6,431,301 1,328,994 2.3 Interest Expenses - - - 2.4 Income Tax Paid - 1,443,519 1,493,164 Cash Flow before changes in Working Capital 7,750,031 38,806,973 (2,793,721) (Increase)/Decrease in Current Assets (6,208,920) (18,378,919) (20,136,120) 1. Proceed from Sale of Held for Trading Investments 20,066,514 11,356,071 (19,611,652) 2. Additional Investment in Held for Trading Investments (13,826,537) (11,415,184) 3. (Increase)/Decrease in Other Current Assets (12,448,897) (18,319,806) (524,468) Increase/(Decrease) in Current Liabilities (372,747,951) 399,187,701 630,835 1. Increase/(Decrease) in Public Dues (6,746,720) 25,533,882 - 2. Increase/(Decrease) in Other Current Liabilities (366,001,231) 373,653,820 630,835 (b) Cash Flow from Investment Activities (143,615,931) (47,308,096) (8,575,721) 1. (Increase)/Decrease in HTM Investment (125,000,000) (45,000,000) - 2. Additional Investment in AFS Investment (33,926,800) - - 3. Interest Received on FDs (HTM Investment) 16,400,181 1,855,212 4. Purchase of Fixed Assets (1,089,312) (4,163,308) (8,575,721) (c) Cash Flow from Financing Activities 112,500,000 (3,300,000) 110,000,000 1. Increase/(Decrease) in Share Capital 140,000,000 - 110,000,000 2. Share Premium - - - 3. Payment of Dividend (27,500,000) (3,300,000) - (d) Net increase/(decrease) in cash and cash equivalents (402,322,771) 369,007,660 79,125,273 (e) Cash and cash equivalents at the beginning of the 448,132,932 79,125,272 - year (f) Cash and cash equivalents at the end of the year 45,810,161 448,132,932 79,125,273

Manish N. Joshi Bala Ram Parajuli Tej Bahadur Chand As per our report on even date CEO Independent Director Chairman Sunir K. Dhungel Nischal Raj Pandey Shree Prasad Poudel Managing Partner Director Independent Director SAR Associates Date: September 13, 2018 Pawan Kumar Acharya Chartered Accountants Place: Naxal, Kathmandu Director

Saroj Guragain Director

104 www.sanimabank.com Sanima Capital Limited Statement of Changes in Equity

Year ended 16 July 2018 In NPR.

Particulars Share Capital Retained Earnings Available for Sale Other Reserves Total Shareholders' (Share Premium) Funds Balance as at July 17, 2015 110,000,000 - 110,000,000 Adjustments - Dividend Declared - - Net profit for the year - 4,341,556 - 4,341,556 Transfers during the year - - - Balance as at July 16, 2016 110,000,000 4,341,556 - - 114,341,556 Balance as at July 17, 2016 110,000,000 4,341,556 - - 114,341,556 Adjustment for Previous Year Adjustments - Issue of Share Capital - Dividend Declared & Paid - (3,300,000) - (3,300,000) Net profit for the year - 31,830,291 - 31,830,291 Transfers during the year - - - Balance as at 16 July 2017 110,000,000 32,871,847 - - 142,871,847 Balance as at July 17, 2017 110,000,000 32,871,847 - - 142,871,847 Adjustment for Previous Year Adjustments - Issue of Share Capital 140,000,000 140,000,000 Dividend Declared & Paid - (27,500,000) - (27,500,000) Net profit for the year - 16,716,170 - 16,716,170 Adjustmet to AFS Reserve - (1,147,113) (1,147,113) Transfers during the year - - - - Balance as at 16 July 2018 250,000,000 22,088,017 (1,147,113) - 270,940,904

Manish N. Joshi Bala Ram Parajuli Tej Bahadur Chand As per our report on even date CEO Independent Director Chairman Sunir K. Dhungel

Shree Prasad Poudel Nischal Raj Pandey Managing Partner Independent Director Director SAR Associates Chartered Accountants Date: September 13, 2018 Pawan Kumar Acharya Place: Naxal, Kathmandu Director

Saroj Guragain Director

www.sanimabank.com 105 Sanima Capital Limited Notes to the Financial Statements Year ended 16 July 2018 In NPR. 1 Cash & Cash Equivalents 2018 2017 2016 Cash Balance - - - Bank Balance 45,810,161 448,132,932 w79,125,273 Bankers to the Issue Account - - - Total 45,810,161 448,132,932 79,125,273

2 Financial Investments - Held For Trading 2018 2017 2016 Investments in Quoted Equities 16,603,096 23,275,209 15,471,128 Investments in Unquoted Equities - - ; - Investment in Mutual Fund Units 208,208 4,455,887 11,672,297 Total 16,811,305 27,731,096 27,143,425

2018 2017 2016 2.1 Investment in Quoted Equities Fair Value Cost Fair Value Fair Value NMB Bank Limited - 981,062 784,073 Nepal Bangladesh Bank Limited - 1,120,827 947,033 Siddhartha Bank Limited 45,693 954,336 734,781 Chilime Hydropower Company Limited - 101,016 68,045 2,318,682 Nepal Investment Bank Limited 4,503,627 6,563,922 10,005,841 13,152,446 Citizen Bank International Limited 530,725 1,285,544 1,156,768 Shangrila Development Bank Limited 177,862 - - Nepal SBI Bank Limited 1,490 10,310 16,508 Samata Microfinance Bittiya Sanstha Limited 16,485 1,000 3,996 Synergy Power Development Ltd. - - Nepal Life Insurance Co. Ltd. 3,229,900 2,480,925 4,634,319 Forward Community Microfinance Bittiya Sanstha Ltd. 722,673 2,600 83,034 Nepal Doorsanchar Comapany Limited 358,878 638,295 669,263 OM Development Bank Limited 157,687 - - Standard Chartered Bank Limited - 2,102,700 3,709,053 Swadeshi Laghubitta Bittiya Sanstha Ltd. - 1,200 1,200 Laxmi Laghubitta Bittiya Sanstha Ltd. - 477,813 461,295 Janata Bank Nepal Limited-Si 268,200 Chhimek Laghubitta Bikas Bank Limited _ Si 208,660 Sana Kishan Bikas Bank Ltd _ Si 396,090 Nirdhan Utthan Bank Ltd. _ Si 169,219 Nabil Bank Limited Promoter Share 1,846,553 First Micro Finance Development Bank Ltd. _ Si 482,200 Swabalamban Laghubitta Bittiya Sanstha Limited - Si 2,688,567 Life Insurance Co. Nepal - Si 364,922 Gandaki Bikash Bank Limited-Si 433,665 Total 16,603,096 16,721,549 23,275,209 15,471,128

106 www.sanimabank.com 2018 2017 2016 2.2. Investment in Quoted Mutual Fund Fair Value Cost Fair Value Fair Value NMB Sulav Investment Fund-1 - 180,869 181,073 1,252,761 Nabil Balance Fund 1 - - - 4,081,273 Laxmi Value Fund-1 - 338,405 360,732 2,187,844 Siddhartha Investment Growth Scheme-1 - 3,533,063 3,695,469 4,150,419 Nabil Equity Fund 55,282 56,320 55,841 - NMB Hybrid Fund L-1 76,081 78,870 77,730 - NIBL Pragati Fund 76,846 85,770 85,041 - Total 208,208 4,273,297 4,455,887 11,672,297

3. Financial Investments - Available For Sale 2018 2017 2016 Investment in Seed Capital 32,288,068 - - Total 32,288,068 - -

4. Financial Investments - Held To Maturity 2018 2017 2016 Fixed Deposits with Banks 170,000,000 45,000,000 - Investment in Debentures - - - Total 170,000,000 45,000,000 -

5. Other Financial Assets 2018 2017 2016 Account Receivables 12,200,164 2,673,254 - Less: Impairment - - - Other Current Assets - - - Accrued Income 2,034,385 657,873 - Sundry Debtors - - 485,399 IPO Advance - - - Security Deposit 3,000 3,000 3,000 Application Money Deposit - 937,630 - Deposit for Telephone - - - Staff Loan Advance 88,646 - - Total 14,326,195 4,271,757 488,399

6. Other Assets 2018 2017 2016 Advance Salary 86,400 - - Stock of Stationery 140,019 50,443 - Prepaid Employee Benefits 7,194 - - Prepayments 139,791 737,296 36,069 Total 373,404 787,739 36,069

www.sanimabank.com 107 Buildings Furniture and Computer and An- Office Motor Leasehold Total 7 Property, Plant And Eqipment Fixtures cillary Equipments Equipments Vehicles Assets Cost: At 17 July 2016 368,924 602,200 1,304,252 2,651,500 3,648,844 8,575,721 Additions - 963,140 586,917 1,324,000 73,795 2,947,852 Disposals - At 16 July 2017 - 368,924 1,565,340 1,891,169 3,975,500 3,722,639 11,523,572 Additions Disposals At 16 July 2018 - 368,924 1,565,340 1,891,169 3,975,500 3,722,639 11,523,572 Accumulated Depreciation At 17 July 2016 11,624 12,479 47,613 131,673 45,985 249,374 Additions - Disposals - Depreciation charge for the year 89,325 318,103 437,032 668,649 371,010 1,884,120 At 16 July 2017 - 100,949 330,582 484,645 800,322 416,996 2,133,494 Additions ------Disposals ------Depreciation charge for the year 66,994 308,690 351,631 635,036 372,264 1,734,614 At 16 July 2018 - 167,943 639,271 836,276 1,435,358 789,260 3,868,108 Net book value: At 16 July 2016 - 357,301 589,721 1,256,639 2,519,827 3,602,858 8,326,347 At 16 July 2017 - 267,976 1,234,758 1,406,524 3,175,178 3,305,643 9,390,078 At 16 July 2018 - 200,982 926,069 1,054,893 2,540,142 2,933,379 7,655,464

8. Intangible Assets Softwares Cost: At 17 July 2016 - Additions 1,215,456 Disposals Amortizations At 16 July 2017 1,215,456 Additions 881,400 Disposals - Amortizations At 16 July 2018 2,096,856 Accumulated Amortization At 17 July 2016 - Additions Disposals Amortisation (163,539) At 16 July 2017 (163,539) Additions - Disposals - Amortisation (343,547) At 16 July 2018 (507,086) Net book value: At 16 July 2016 - At 16 July 2017 1,051,917 At 16 July 2018 1,589,770

108 www.sanimabank.com 9 Current Tax Assets 2018 2017 2016 Advance Tax (Instalment) - 1,489,195 1,493,164 Advance TDS 14,166,575 16,107,254 - Provision for Tax (3,275,995) (10,499,246) (1,362,698) Total 10,890,580 7,097,203 130,466

10 Deferred tax assets/liabilities 2018 2017 2016 Deferred Tax Assets 491,620 - - Deferred Tax Liabilities (37,815) (112,415) (95,476)

Total 453,805 (112,415) (95,476)

11 Due To Public 2018 2017 2016 Refundable to Investors- Ipo _ Synergy Ipo Collection Payable 18,787,161 25,533,882 - Citizens Right Share Auction Collection 3,345,768 370,070,163 - Total 22,132,930 395,604,045 -

12 Other financial liabilities 2018 2017 2016 Short Term Loan - - - Creditors and Accounts Payable 1,699,671 3,471,038 497,223 Comission Payable- PMS - - - Other Payables 83,812 379,102 32,964 Total 1,783,484 3,850,140 530,187

13 Other liabilities 2018 2017 2016 Employee PF Payable 137,256 - 58,712 Outstanding Expenses & Provisions 377,558 183,973 119,993 Advance Income 933,836 472,293 - Provision for Staff Bonus 2,213,063 - - Salary Payable 693 30,163 - Sebon Commission Payable 1,047,860 152,562 - Dividend Payable - - - TDS Payable 67,871 85,974 80,655 Total 4,778,137 924,965 259,360

14 Other provisions 2018 2017 2016 Provision for Leave Encashment 323,674 99,310 23,400 Provision for Gratuity 239,623 - - Total 563,297 99,310 23,400

www.sanimabank.com 109 15 Share Capital 2018 2017 2016 Ordinary Shares as at 1st Shrawan 110,000,000 110,000,000 - Issue of Share Capital 140,000,000 - 110,000,000 Total 250,000,000 110,000,000 110,000,000

16 Reserves & Surplus 2018 2017 2016 Retained Earnings 22,088,017 32,871,847 4,341,556 Total 22,088,017 32,871,847 4,341,556

17 Other Reserves 2018 2017 2016 Gain/Loss on Fair Value Measurement-AFS (1,147,113) - - Securities Premium - - Total (1,147,113) - -

18 Income from Merchant Banking Activity 2018 2017 2016 Issue Management Income 3,360,724 4,060,000 Income from Underwriting 1,991,579 - Auction Management Income - 250,000 Interest Income (Net) - 44,438,657 DP Commission Income 725,301 618,858 RTS Income 558,863 370,667 Other Merchant Banking Income - 773,939 Other Related Expenses : Merchant Banking Activity - (3,038,731) Total 6,636,467 47,473,390 -

19 Income From Portfolio Management Services 2018 2017 2016 Annual Management Fee 569,786 214,247 - Performance Fee 25,821 - - Exit Load Fee - - - Total 595,607 214,247 -

20 Income From Mutual Fund 2018 2017 2016 Fund Management Fee 12,255,961 - - Depositary Fee 3,501,703 - - Total 15,757,664 - -

21 Interest Income 2018 2017 2016 Interest from FDs 21,264,468 2,182,603 Interest from Call Deposit 1,794,425 4,121,155 576,099 Interest from Others 379,225 1,309,093 Interest from Merchant Banking Activity Interest from IPO Application Refund Total 23,438,117 7,612,850 576,099

110 www.sanimabank.com 22 Other Income 2018 2017 2016 Income from Valuation & Analysis Service - - - De-mat A/c Open Charge - - 4,050 Other Miscellaneous Income 1,015,278 35,238 - Other Non Operating Income 17,969 1,385 - Interest On Staff Loan - Advance 1,180 - - Total 1,034,426 36,623 4,050

23 Net trading income 2018 2017 2016 Net gain/(loss) on financial investments-HFT (5,672,399) 149,326 7,531,773 Income from Sale of Securities 676,788 1,081,054 - Dividend Income 1,685,906 829,410 - Total (3,309,705) 2,059,791 7,531,773

24 Personnel expenses 2018 2017 2016 Basic Salary 3,731,250 3,020,232 300,616 Allowances 2,686,667 2,091,335 271,077 Employer’s Contribution to P.F. 314,539 178,112 29,356 Overtime Payment 614 274,498 - Staff Training & Development Expenses 13,000 70,653 - Dashain Allowance 336,738 248,000 - Medical Allowance - - - Gratuity Expenses 239,623 - - Staffs Insurance Premium Expenses 40,488 24,668 - Leave Fare Expenses 179,193 126,850 - Leave Encashment 224,364 75,910 23,400 Other Retirement Benefits - - - Staff’s Lunch Expenses 517,321 450,406 9,375 Staff Incentives 3,011,378 - - Amortisation of Prepaid Employee Benefit 545 - - Staff Bonus Provision 2,213,063 - - Total 13,508,782 6,560,663 633,824

25 Interest on Borrowings 2018 2017 2016 Interest Expenses - - - Total - - -

www.sanimabank.com 111 26 Other Operating Expenses 2018 2017 2016 Advertisement & Business Promotions (incl. PMS Marketing) 162,455 277,333 8,516 AGM Expenses 20,572 12,426 - AMC Expenses 132,383 35,595 - Audit Fees & Expenses 113,000 118,000 100,000 Bank Charges 3,300 54,190 180 Cleaning Expenses 16,893 15,620 11,767 Commission Expenses 1,131,886 181,295 - Communication - Telephone (Incl. Mobile) & Internet 136,418 132,301 27,604 Credit rating expenses 679,000 Electricity Expenses 208,618 25,250 - Fuel Expenses 160,122 154,011 15,345 HR - Recruitment Expenses 9,605 HR Outsource Contract Expenses 1,156,335 1,040,173 57,823 Insurance Expenses 65,297 74,339 9,423 License Fees 164,075 250,000 - Meeting Fees 110,602 49,000 14,000 Membership Fees 655,000 434,468 25,000 Miscellaneous Expenses 42,855 68,512 7,905 Registration Fees 77,185 - 74,000 Rent Expenses 1,722,000 1,680,000 420,000 Repairs & Maintainence 41,522 18,487 1,065 SLA Fees 1,348,603 1,224,657 246,575 Sponsership 5,000 Stationery & Printing 114,006 343,803 - Staff Refreshment And Entertainment Expenses 81,900 - Subscription : Newspapers, Books & Periodicals 11,607 10,531 Tea, Coffee & Snax 195,260 67,075 - Travelling Expenses - 24,900 - Travelling Allowance 3,290 3,740 - Uncapitalized Equipments/Assets Charged to Revenue 10,800 16,556 376,827 Guest Enteretainement 61,203 Vehicle Registration Tax & Rates 42,700 21,545 - Local Convey 400 Water 46,080 26,395 - Expenses Recognised in later year 32,964 Total 8,648,070 6,442,101 1,428,994

112 www.sanimabank.com