Annual Report 2017-18.Pdf

Financial Highlights

Deposits (NRs. In Billion) Loans and Advances (NRs. In Billion) 79.18 69.24 58.23 51.84 46.42 40.90 34.05 28.59 24.87 20.62

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 As at Mid July As at Mid July

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

91.82 10.73 10.79 70.00 9.16 55.96 7.74 40.30 3.72 29.38

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 As at Mid July As at Mid July

Shareholders Fund (NRs. In Billion) Net Interest Income (NRs. In Million) 3,015.52 10.79 2,242.12 9.06 1,722.30 5.35 1,139.39 8,18.72 2.83 3.43

2014 2015 2016 2017 2018 2013/14 2014/15 2015/16 2016/17 2017/18 As at Mid July Fiscal Year

Operating Profit (NRs. In Million) Net Profit (NRs. In Million) 2,415.17 1,697.50 1,998.09 1,304.10 1,478.54 996.05 925.69 624.14 654.89 427.60

2013/14 2014/15 2015/16 2016/17 2017/18 2013/14 2014/15 2015/16 2016/17 2017/18 Fiscal Year Fiscal Year Financial Highlights

Non Performing Loans (%) CAR (%)

15.57 12.54 12.36 11.08 12.41

0.017 0.073 0.019 0.010 0.030

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 As at Mid July As at Mid July

ROE (%) DPS (%) No. of Branches No. of ATM 74

22.69 53 69 21.05 47 40 15.79 16.00 15.74 28 46 18.19 38 40 15.09 15.79 14.39 14.00 4

2013/14 2014/15 2015/16 2016/17 2017/18 2014 2015 2016 2017 2018 As at Mid July As at Mid July

Composition of Income Interest Composition of Expenses Interest Forex Personnel Others Others

3% 13%

89% 8% 77%

10% Contents

S.N. Particulars Page No.

1 Profile 1

2 Chairman's Speech 2

3 Director's Report 3

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

5 Disclosure Related to Sub Rule (2) of Rule 26 as per annexure 11

15 of Securities Registration and Issuance Regulation, 2073

6 Independent Auditor's Report 12

7 Consolidated Statement of Final Position 14

8 Consolidated Statement of Profit or Loss 15

9 Consolidated Statement of Other Comprehensive Income 16

10 Consolidated Statement of Changes in Equity 17

11 Consolidated Statement of Cash Flows 19

12 Notes to the Financial Statements and Significant Accounting Policies 20

13 Disclosure and Additional Information 73

14 Disclosure under BASEL III 101

15 Unaudited Financial Results 105

16 Sanima Capital's Financial Statements 107 Profile

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

Sanima Bank offers a wide range of banking products and financial services to corporate and retail customers through 74 full-fledged branches and 1 extension counter spread across the geography of Nepal. The bank is actively exploring alternative channels and also expects to add more Annual Report 2017/18

Chairman's Speech

Respected Shareholders, in the areas of health & education and is also aiming to give continuity to the same. It gives me immense pleasure to welcome our shareholders and guests to the 14th Annual General Meeting of Sanima Bank Achievements and activities of the bank till date have been Limited. The Bank is in its seventh year of operation after being disclosed in detail in the ‘Annual Report of Board of Directors’. upgraded to a commercial bank. Despite huge competition in the As the chairman of the bank, I would like to assure you that banking industry, you all are aware that Sanima Bank has been Sanima Bank shall continuously attempt to provide better able to maintain successful identity in financial sector. For this returns to investors by operating as a leading bank in the achievement, I would like to thank all shareholders, customers, banking sector. As it is only customer satisfaction that will lead well-wishers, employees, other stakeholders and all associated to good returns for shareholders, employees, society and the organizations for their valuable contribution. nation, Sanima will pay continuous attention to Technology, Services, Human Resource Management, Risk Management etc. The Bank (inclusive of Sanima Capital) has been able to increase for higher customer satisfaction. Also the bank is in final stage to net profit by 20.08% in fiscal year 2017/18 on y-o-y basis implement advanced Core Banking Software. generating the net profit of NRs. one billion six hundred and eighty eight million. It has been proposed to distribute 14% cash I express my sincere gratitude to all our shareholders and dividend from the retained earnings. guests for your continued support and cooperation. We would like to assure that your suggestions and recommendations will Sanima Bank has opened 28 new branches in local levels and be guiding factors for us and shall be given due consideration other locations during this fiscal year in order to support the as appropriate. I look forward to continuous guidance from the Government of Nepal’s policy to provide financial access by Board of Directors, dedication and hard work from our staff opening branches in local levels without banking reach and with members, and valuable advice, trust & support from all our an objective to expand network as well. shareholders and stakeholders.

Bearing on corporate social responsibility, Sanima Bank has Once again, I welcome you all to this 14th Annual General been contributing to deprived communities through activities Meeting and wish you prosperity and progress.

Thank you! Binaya Kumar Shrestha Chairman

2 www.sanimabank.com Annual Report 2017/18

Director’s Report

Respected Shareholders, percent of paddy field, suggesting a good summer harvest this year. As Sanima is performing well under proper guidance aligned with appropriate strategy, we have been continued to provide With a turnaround of paddy production from a negative reasonable returns to our shareholders. Sanima’s position has growth of 1.5 percent in 2017/18, a pickup in agricultural been upgrading in terms of financial indicators and we are growth is likely to underpin the sustained in overall GDP making efforts to be in the frontline. Sanima Bank has been growth in 2018/19 also. able to generate profits since its inception and despite of various adversities in the banking sector, it has been able to strengthen In the review year, credit to the agriculture sector increased business and profitability. by 50.8 percent, industrial production sector by 20.6 percent, construction sector by 19.3 percent, wholesale and A. Current Year Vs Previous Year retail trade sector by 22.4 percent, service sector industries by 26.3 percent and transport, communication and public Rs. In Million sector by 26.7 percent.

Details Mid July Mid July Change 2018 2017 (%) Of the total outstanding credit of Bank and Financial Loans and Advances (Net) 69,243 51,642 34.08 Institutions as on mid July 2018, 61.7 percent is against the Investments 10,791 7,928 36.11 collateral of land and building and 14.4 percent against the Deposits 79,183 58,228 35.99 collateral of current assets (such as agricultural and non- Bonus Share and Cash Dividend 1,120 1,104 1.50 agricultural products). Such ratios were 60.9 percent and FY FY Change 13.9 percent respectively in the previous year. Profit/ Loss 2017/18 2016/17 (%) Net Interest Income 3,016 2,309 30.63 The growth in hire purchase lending was at 14.5 percent Operating Profit 2,415 1,915 26.09 and overdraft at 14.4 percent in the review year. Similarly, Net Profit 1,698 1,377 23.27 residential personal home loan (up to Rs.15 million) Capital Fund and Non- Mid July Mid July Change increased 20.2 percent and real estate loan (including Performing Loans 2018 2017 (%) residential personal home loan) grew 17.0 percent. Capital Fund (%) 12.41 15.57 (3.16) Non-Performing Loans (%) 0.03 0.01 0.02 Despite much hyped liquidity pressure, credit disbursement increased by 22.5 percent in 2017/18 compared to 18.2 During the review year, loans and advances of the bank percent of the preceding year. Compared to credit-offtake increased by 34.08 percent whereas deposit mobilization of 22.5 percent, deposit growth remained relatively lower at increased by 35.99 percent, operating profit increased by 19.2 percent in the review year, reflecting a tighter financial 26.09 percent and net profit by 23.27 percent. condition. The growth in inward remittances and the pace of capital spending are likely to shape the financial conditions B. Country's Macroeconomic Situation going forward.

In the fiscal year 2017/18 real Gross Domestic Product In the review year, unit value export price index based (GDP) growth rate at producer’s price was estimated to be on customs data increased by 10.3 percent while import 6.3 percent which was 7.9 percent in previous year. During price index increased by 12.5 percent in mid-July 2018. the review year national, international and monsoon related Consequently, the Terms of Trade index decreased by 2 developments portend a mixed macro-financial outlook for percent compared to a decrement of 1.2 percent in the 2018/19. On the domestic front, successful conclusion of corresponding period of the previous year. Increase in price elections, formation of governments and the formulation of of export items such as carpet, pashmina, cardamom, black budget at all three levels of governments have the potential tea, catechu, among others caused the rise in export price to create a conducive environment for economic activities index whereas scramble in the price of petroleum products, going forward. As a consequence of favorable monsoon, vehicles, tyres, refrigerator, laptop, among others resulted paddy plantation has been completed in more than 95 an increase in import price index.

www.sanimabank.com 3 Annual Report 2017/18

During the review year, growth in merchandise imports other financial institutions increased to 5.40 percent in the elevated by 25.5 percent (28 percent in the previous year) to review period, compared to 4.47 percent in FY 2016/17. Rs. 1242.83 billion and exports increased by 11.1 percent (4.2 percent in the previous year). Total trade deficit during Weighted average deposit rate of commercial banks stood the review year amplified by 26.7 percent to Rs. 1,161.64 at 6.49 percent and lending rate at 12.47 percent in the billion. The export-import ratio declined to 6.5 percent in the review period which were 6.15 percent and 11.33 percent review year from 7.4 percent a year ago. respectively a year ago. Likewise, average base rate of commercial banks inflated to 10.47 percent in the review The number of Nepalese workers leaving for foreign period from 9.89 percent a year ago. employment decreased by 10.1 percent in the review year (it was 4.7 percent in the previous year). Workers' Refinance and Productive sector Loan remittance grew by 8.6 percent to NRs. 755.06 billion in the review year compared to a growth of 4.6 percent in Banks and Financial Institutions effectively utilize refinance the previous year. The ratio of remittance to GDP decreased facility obtained from NRB. The outstanding refinance to 25.1 percent in review year from 26.3 percent in the amount reached Rs.12.23 billion in mid-July 2018 previous year. compared to Rs.6.94 billion in mid-July 2017.

The current account was in deficit of NRs. 245.22 billion Nepal Rastra Bank has been providing refinance facility to in the review year in comparison to narrow deficit of NRs. banks & financial institutions at zero percent interest rates 10.13 billion in previous year. Similarly, the overall Balance for financing earthquake victims for the reconstruction of of Payment (BOP) recorded surplus of NRs. 960.2 million in residential home at nominal interest rate of 2 percent only. the review year compared to surplus of NRs. 82.11 billion Under the said scheme refinance facility of NRs. 1.79 billion in the previous year. was approved till mid July 2018 which was only NRs. 0.80 billion in the previous fiscal year. The number of earthquake In the review year, capital transfer was NRs. 17.72 billion victims utilizing such loans reached 1067. and Foreign Direct Investment (FDI) was NRs. 17.51 billion. Previous year’s figures were NRs. 13.36 billion and NRs. Government Debt 13.50 billion respectively. Out of total outstanding loan of Government of Nepal Inflation amounting to NRs. 894.53 billion, outstanding foreign loan stood at NRs. 503.63 billion and domestic debt is NRs. The annual average consumer price inflation was 4.2 390.90 billion as of mid-July 2018. Total outstanding loan percent (previous year’s 4.5 percent) in the review period. In of the government stood at 29.7 percent of GDP which was terms of ecological regions, the Mountain region witnessed 26.4 percent in the previous fiscal year. a relatively higher annual average rate of inflation at 5.9 percent followed by Hilly region at 4.6 percent, Terai region at 4.4 percent and Kathmandu Valley at 3.3 percent in Capital Market the review year. Such increments were 4.1 percent in the Mountain region, 6.4 percent in Hilly region, 4.4 percent The NEPSE index fell to 1,212.4 points in mid-July 2018 in Terai region and 3.1 percent in Kathmandu Valley in the which had remained at 1,582.7 points in the corresponding previous year. period of the previous year. Securities market capitalization reached Rs. 1,435.14 billion in mid-July 2018 as the Interest Rate annualized capital index fell by 22.7 percent. Banks, The weighted average interest rate of 91-days Treasury Financial Institutions and Insurance companies contributes Bill increased to 3.74 percent in FY 2017/18, compared to 80.5 percent of market capitalization, likewise hydropower 0.71 percent in FY 2016/17. Weighted average Inter-bank contributed 4.7 percent, manufacturing and processing transaction rate among commercial banks reached 2.96 sector contributed 2.8 percent, hotel industry contributed percent in FY 2017/18 as compared to 0.64 percent in FY 1.7 percent, trade institutions contributed 0.1 percent and 2016/17. The weighted average inter-bank lending rate of remaining 10.2 percent was contributed by other segments.

4 www.sanimabank.com Annual Report 2017/18

196 companies have been listed in Nepal Stock Exchange b. Profit/Loss Statement of Previous Five Years Ltd. as of mid-July 2018, which was 208 in mid-July 2017. Total listed companies comprise of 147 Banks & NRs. Million financial institutions (including insurance companies), Particulars FY FY FY FY FY 18 Manufacturing and Processing companies, 19 Hydro 2013/14 2014/15 2015/16* 2016/17* 2017/18* Power companies, 4 Hotels, 4 Trade institutions and 4 other Interest Income 2,018.51 2,548.88 3,263.02 5,044.31 8,129.04 institutions. Interest Expenses 1,199.79 1,409.49 1,540.14 2,794.58 5,090.07 (Source: Nepal Rastra Bank) Net Interest Income 818.72 1,139.39 1,722.88 2,249.73 3,038.96 C. Financial Summary Commission and Discount 39.82 53.47 88.55 155.20 677.53 a. Balance Sheet of Previous Five years: Other Operating Income 85.44 131.30 235.37 348.16 26.47 NRs. In Million Exchange Fluctuation Income 146.89 178.75 153.62 194.26 282.48 Mid July Particulars Total Operating 2014 2015 2016* 2017* 2018* Income 1,090.87 1,502.90 2,200.42 2,947.35 4,025.44 Capital & Liabilities Employees Expenses 134.38 182.32 259.44 345.21 608.48 Share Capital 2,550 3,060 4,711 8,001 8,001 Other Overhead Expenses 206.38 275.45 329.61 428.65 498.22 Reserves and Funds 301 397 682 1,093 2,808 Exchange Fluctuation Debentures and Bonds - - 370 370 370 Loss - - - - - Borrowings 898 1,687 3,282 611 359 Operating Profit Deposit Liabilities 24,874 34,045 46,344 57,754 79,139 Before Provision 750.11 1,045.13 1,611.38 2,173.49 2,918.75 for Possible Loss Bills Payables - - - - - Provision for Possible 95.21 119.44 134.54 132.86 246.82 Income Tax Liabilities - - - - 70 Losses Other Liabilities 754 1,111 502 2,126 1,085 Operating Profit 654.89 925.69 1,476.84 2,040.63 2,671.93 Total Capital & Non-operating 29,377 40,301 55,891 69,955 91,831 21.57 7.34 70.69 44.76 0.18 Liabilities Income/Expenses Assets Provision Written- Back 1.53 41.86 16.00 3.39 7.60 Cash Balance 538 691 683 908 3,465 Profit from Regular Balance with NRB 2,811 687 2,575 5,265 5,608 Operations 677.99 974.90 1,563.53 2,088.78 2,679.71 Balance with Banks/ 162 393 155 741 467 Profit/Loss from Financial Institutions extraordinary (0.31) (0.61) - (0.24) - activities Money at Call and - - - - 600 Short Notice Net Profit after considering all 677.68 974.29 1,563.53 2,088.54 2,679.71 Investments 3,716 7,744 10,652 9,097 10,760 activities Loans Advances and Provision for Staff 20,371 28,264 40,455 51,265 69,243 61.61 88.57 141.61 186.28 270.58 Bills Purchase Bonus

Fixed Assets 502 615 655 727 948 Provision for Income Tax 188.48 261.58 421.49 569.38 721.03 Non-Banking Assets - - - - - Net Profit/(Loss) 427.60 624.14 1,000.43 1,332.88 1,688.09 Other Assets 1,276 1,907 716 1,952 741

Total Assets 29,377 40,301 55,891 69,955 91,831 *Including Sanima Capital and figures of FY 2017/18 are During the previous four years, net assets of the bank presented as per Nepal Financial Reporting Standards (NFRS). have increased from Rs. 29.38 billion to Rs. 91.83 billion. Similarly, net worth of the bank has increased from Rs. 2.85 During the last four years, net profit has increased from NRs. billion to Rs. 10.81 billion during the said period. 427.60 million to NRs. 1,688.09 million.

www.sanimabank.com 5 Annual Report 2017/18

D. Infrastructure aimed to extend the said service through various other branches and locations as per business prospects. 1. Branch expansion e. Bank has introduced EMV based chip card to make transactions more secure and reliable. The Bank has been operating its services by continuously f. Apart from this, the bank has planned to facilitate expanding its branch network from Mechi to Mahakali. customers with new technologies by adopting The Bank has been operating from 74 branches and has advanced technologies by optimally utilizing resources. established additional 28 branches at various locations g. Bank has been operating advanced technology to like Gausala within valley and Mai, Amargadhi, Tikapur, facilitate customers with share trading through the Tansen, Illam, Tulshipur, Amarsingh chowk, Bagar, Biruta, Bank's official website. Rajbiraj, Gaighat, Kispang, Dungeshwor, Shivapuri, Bagmati, Parsagadhi, Paterwasugauli, Kailash, Konjoysom, E. Human Resource Development Udayapurgadhi, Phakfokthum, Chingad, Bhageswor, Diprung, Melung, Sannitriveni and Himali outside valley As on mid July 2018, 862 staffs were working in Sanima during the review period. Bank has also established an Bank. The Bank has been adopting a policy for managing extension counter at Bhaktpur. The Bank has planned to staffs appropriately as per its requirement. In order to continue its branch expansion on a selective basis inside develop and upgrade skills of its human resource, the and outside valley during the fiscal year 2075-76. Bank has marked participation of all employees in various seminars, in-house and external trainings. Staffs have 2. Information Technology already participated in various skill based training, seminar and conference within and outside the country like India, The bank is in the final stage of implementing the new America, China and Germany. Employee remuneration advanced Core Banking System (CBS) in order to fulfill has been hiked in line with the increment in the profit and the requirement for advanced and scientific data analysis market scenario, a part from this; staff’s perk has been and MIS so as to manage the inherent risks associated increased by considering inflation as well. The Bank has with expansion of business. An Information Security officer managed to provide lump sum gratuity to employees at has already been appointed for this purpose. We are in the the time of retirement by contributing in the gratuity plan of process of redesigning our website. IT staffs have been Citizen Investment Trust. attending various training programs and seminars. IT risk in banking industry is identified as huge risk; to mitigate F. Remittance which, the bank has been implementing various security measures. In order to provide better and more reliable remittance services and to serve a wide array of customers living in Furthermore, the Bank has implemented the following Nepal and abroad, the Bank has started its own remittance measures to enhance IT facility; service "Sanima Xpress".

a. The Bank has extended its ATM service and is With continuous effort to expand its services, the Bank facilitating customers from 69 ATM booths as on mid has entered into an agreement with AL Fardan Exchange, July 2018. Also the bank has planned to extend the Al Ansari Exchange, Joyalukkas Exchange & Economics said service in various business locations and new Exchange Center of Dubai, SIGUE Global Services and X branches. Press Money Services Ltd. situated in UK, KEB HANA Bank b. The Bank has facilitated its customer with Priority Pass and VP INC Company (via Mobile App) situated in South for an access to business class lounge in more than Korea, CBL Money Transfer situated in Malyasia, Axis Bank twelve hundreds international airports. Limited situated in India, SHIFT Financial Services located c. Mobile Application has been upgraded to an App that in golf countries and INSTAREM PTY Limited situated in can be operated via internet by improving mobile Australia, Singapore, Hongkong, United States and South banking system. Korea to facilitate customers with remittance service. With d. Sanima bank is the first bank to launch KIOSK machine this, Nepalese staying in Dubai, UK, Malyasia, Australia, in Nepal and facilitating customers through such Singapore, Hongkong, United States, Europe and South service at five branches. In the future the bank has Korea can remit money easily and safely via Sanima Xpress.

6 www.sanimabank.com Annual Report 2017/18

The bank aims to broaden its reach by building additional The Bank has conducted other Corporate Social relations in remittance sector. responsibility activities such as organization of free health checkup camp and blood donation program, distribution of G. Industrial and Business Relationship food, stationeries and water to several organizations, and similar other activities through various branches during the Sanima has maintained an excellent industrial and business review year. relationship, nationally and internationally. The Bank is committed towards putting continuous efforts to strengthen I. Corporate Governance the relationship with its experienced and skillful staff and customers at all levels. We are pleased to announce that Corporate Governance has been considered as an integral a wide range of business customers of Nepalese market part of sustainable success of the Bank. Various committees are banking with us. The Bank has also been successful and sub-committees are actively functioning in the Bank as in maintaining excellent international trade relationship with prescribed by Nepal Rastra Bank. The committees are highly Banks of India, China, Japan, America, Europe, Australia, committed and focused to mitigate and manage various Dubai, Korea and so on. risks through the implementation of Corporate Governance. The Bank is committed through time to deepen long-term H. Corporate Social Responsibility relationship with regulatory authorities, customers and all stakeholders through Corporate Governance. Corporate Social Responsibility has been prioritized as a long-standing commitment at Sanima Bank. The Bank’s J. Grievance Handling contribution to the social sector with special focus on education and health sectors has benefited the deprived The Bank has handled all the 19 grievances that were category. Currently 74 deserving students are benefiting received from customers during fiscal year 2017/18, as per with our scholarship program through outside valley the provisions under point no. 19 (Gha) of Directive 22 of branches. Unified Directive 2074 issued by NRB.

Details of Corporate Social Responsibility activities K. Internal Control System conducted via head office and various branches of the Bank during the review year are as follows: The Bank has adequate internal control framework and processes in place with respect to financial activities which a. Financial aid for shortfall amount (NPR 2.1 Million) provide reasonable assurance in line with prevailing laws provided to “Dhurmus Suntali Foundation” for and directives issued by the Central Bank. Both the Audit construction of “Santapur Integrated Model Settlement” committee and Risk Management sub-committee have for benifit of flood victims. been taking appropriate actions to control and mitigate b. Cash assistance of NPR One million to "Teach for overall risks after reviewing relevant reports on a regular Nepal" with an objective to contribute in education. basis. Similarly, Board of Directors has been analyzing c. Cash assistance of NPR. Five Hundred Thousands to the effectiveness of internal control system by reviewing "Hindu Samrakshyan Samiti" for construction of the reports issued by external auditor and regulators (on Kriya Ghar situated in Kageshwori Shiva Panchanga inspection) and implementing appropriate actions for Temple, Kathmandu. effective internal control. Apart from this, several committees of the Bank such as Management committee, Assets- d. Cash assistance to "Fellowship Society Nepal" Liabilities Management committee, Risk Management for conducting "Leather Money Guide" training in committee, Internal Audit department and Compliance Sanchetana Primary School of Lalitpur. department are also actively involved for the effectiveness e. Plantation of fruit trees in the remaining garden of under of Internal Control System. construction building situated at Inaruwa, Sunsari on the occasion of International Environment day. L. Achievement of Current Fiscal Year and Future f. Joint Organization of one day free health checkup camp Prediction at Bahati Pokhari, Nayabazar by Nayabazar Branch and Kumari Yuwa Club. Sanima Bank has been able to generate operating profit

www.sanimabank.com 7 Annual Report 2017/18

& net profit of NRs. 740.9 million & NRs. 518.9 million N. Issuance of Debenture respectively in the first quarter of current fiscal year. Similarly, in the coming period, our efforts will be on a The Bank is under process to issue "10% Sanima Debenture balanced growth guided by the core principles of liquidity 2085" of NRs. 2 billion with 10 percent interest per annum & capital and managing risks in a disciplined way. In this with maturity period of 10 years with an objective of year also, the Bank will be continuously focusing to solicit business growth. individual & other deposits, retail banking and providing a complete financial solution. Despite the intense competition O. Appointment of Auditor in the banking sector, we are hopeful to mark this financial year also as a successful year in our record. M/s S.A.R. Associates, Chartered Accountants has been appointed as statutory auditor through previous annual M. Changes in Board of Directors and Election general meeting on recommendation of audit committee. It will be proposed to appoint statutory auditor for current fiscal Three representatives of promoter shareholders (Group year in this general meeting as per the recommendation of ‘Ka’) have been elected in Board of Directors during the audit committee. review year. Likewise, after completion of tenure of Mr. Bharat Bahadur Thapa, Mr. Uttam Kumar Bhattarai has been Lastly, on behalf of the Board of Directors, I would like appointed as an independent director by Board of Directors to extend my heartfelt gratitude to all the stakeholders, for coming 4 years in his place. Government Entities, Nepal Rastra Bank, Securities Board, Office of Company Registrar, Nepal Stock Exchange Limited, The election will be held for appointing two directors from External Auditors, Media and all well-wishers for their representatives of public shareholders for next four years as valuable suggestions, feedbacks and continued support. We the tenure of existing representatives of public shareholders expect similar support, suggestions and cooperation in the in Board of Directors is ending soon. coming days ahead.

Thank you! On behalf of Board of Directors Binaya Kumar Shrestha Chairman November 20, 2018

8 www.sanimabank.com Annual Report 2017/18

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

(a) Response of Board of Directors on remarks made, if S.N. Name of Director Designation No. of Shares any, in the Audit Report 3 Mr. Shamba Lama Member 97,296 4 Mr. Bharat Kumar Pokhrel Member 5,933 The Board has directed management to improve/implement the general observations stated in the preliminary audit 5 Mr. Mahesh Ghimire Member 1,246 report. The Bank is committed to improve the same. 6 Mr. Uttam Kumar Bhattarai Member 100

(b) Dividend (g) Details of disclosure made about the personal interest of any Director and his/her close relative in The Board has proposed 14 percent cash dividend to its any agreements related with the company during the shareholders from the profit of the financial year 2017/18. previous financial year

(c) Details of shares forfeited (number of shares, face During the fiscal year, no such information has been made value, amount received by the Company prior to available to the Bank. forfeiture, amount received by the Company after putting such forfeited shares into subscription and (h) Buyback of shares of the company, reasons thereof the amount refunded on account of refunded shares for buy back, number of shares bought back, face value of the shares and the amount paid during the The Bank has not forfeited any shares till date. buy back

(d) Progress of transactions of the company and its The Bank has not bought back any share. subsidiary company in the previous financial year and review of the situation existing at the end of that (i) Details of Operating Expenses of the previous year financial year Operating expenses of the previous year is depicted below: Progress of business transactions of the company during current year was made in the Directors Report and attached i) Staff Expenses NRs. 865,555,664 financial statements. (Including Staff Bonus) ii) Other Operating Expenses NRs. 489,185,744 (e) Information furnished to the company by its principal shareholders during the previous year (j) Name list of the members of Audit Committee, remuneration, allowances and facilities received During the previous year, no such information provided. by them, details of the functions performed by that committee and of suggestions, if any, made by that (f) Details of the shareholding taken by the Directors committee. and officials of the company in the previous financial year and, in the event of their involvement in share Members of the committee are as follows: transaction of the company, details of information received by the company from them in that respect Director Mr. Tuk Prasad Poudel Coordinator Director Mr. Mahesh Ghimere Member Bank's board of directors and high officials were not involved Head Internal Audit Mr. Niraj Dhakal Member Secretary in share trading of the Bank. Detail of shareholding of board of directors is depicted below: Remuneration has not been provided to coordinator and members of the committee except sitting fees of NRs. 8,000 per meeting. S.N. Name of Director Designation No. of Shares Audit Committee had met sixteen times during the financial year 2017/18. The committee had extensively reviewed internal 1 Mr. Binaya Kumar Shrestha Chairman 3,749,576 control system, audit procedures, techniques and programs, 2 Mr. Tuk Prasad Poudel Member 66,782 audit observations, risk management of the Bank and status of

www.sanimabank.com 9 Annual Report 2017/18 corporate governance, and provided appropriate directions to 2. Salary, allowances and benefits paid to Chief Executive the management and to the Board as well. Apart from this, the officer and others Chief Officials committee has discussed extensively on the reports submitted NPR in thousands by the Central Bank and Statutory Auditor, while also providing Chief Executive Other Chief Particulars appropriate recommendations and suggestions to the Board Officer Officials during the fiscal year. Salary and allowances 10,421 26,814 Provident Fund (k) Amount, if any, outstanding and payable to the contributions and post- 1,119 5,640 company by any Director, managing Director, Chief employment benefits Executive, substantial shareholder or his/her close relative, or by any firm company, corporate body, in Bonus and welfare 5,857 11,981 which he/she is involved Total 17,398 41,434

No such information has been made available to the Bank. Facilities have been provided as per Employees Bylaws and Bonus as per the Bonus Act. (m) Amount of remuneration, allowances and facilities paid to the Directors, Managing Director, Chief (n) Amount of dividends remaining unclaimed by Executive and Officials shareholders

1. Board of directors has been benefitted by fees, Amount of unclaimed dividend amounts to NRs. 5,815,703. allowances and other facilities as depicted below: (o) Details of sale and purchase of properties pursuant Sitting fees of NRs. 10,000 and NRs. 8,000 per board to Section 141 meeting is being provided to chairman and other board members respectively. Apart from this, maximum of The Bank has not purchased any properties pursuant to this NRs. 10,000 is being provided to board members for section. newspaper, magazine, periodicals, telephone, internet and other services on monthly basis. No any other (p) Details of transactions carried on between the facility has been provided except as mentioned. associated companies pursuant to Section 175

During the financial year 2017/18, NRs. 1,984,000 Such information has been disclosed in point number 7 has been paid to board of directors after deduction of “Related Party Disclosures” of annexure 5 "Disclosures and applicable tax as per prevailing laws. Additional Information" of this Annual Report.

10 www.sanimabank.com Annual Report 2017/18 Disclosure Related to Sub Rule (2) of Rule 26 as per annexure 15 of Securities Registration and Issuance Regulation, 2073 1. Report of the Board of Directors: Disclosed in the statutory regulations or criminal offence. “Director’s Report” part of this report. c. The Bank has not noticed any information regarding 2. Auditor’s Report: Disclosed in the appropriate part of this law suit, if any, filed against the promoter and director Report and Financial Statements. for committing economic crimes. 3. Audited Financial Reports: Disclosed in the appropriate part of this Report and Financial Statements. 5. Analysis of stock performance of the Body Corporate 4. Legal Proceedings: a. Management’s view on the performance of the a. No mentionable law suits have been filed by the Bank stock of the body corporate: or against the Bank, except for regular law suit in normal course of banking business. The Bank’s share price is guided by the market b. The Bank has not noticed any law suit filed by or operations of the capital market. against the promoter or director of the Bank involving b. High, low and closing price of the stocks of the Bank, during each quarter of the preceding year along with total volume of trading shares and number of days traded are depicted below:

No. of Trading Total no. of Total no. of Quarter Max. Price Min. Price Last Price Days Transactions Shares Traded First 450 326 347 56 8,285 2,120,428 Second 369 331 340 57 4,317 1,025,496 Third 380 324 358 56 7,605 1,701,558 Fourth 386 317 324 63 4,885 1,244,005 6. Problems and Challenges of the Banks and Financial Institutions Act, 2073, directives, circulars and notification circulated by the Central Bank. a. Internal Problems and Challenges Corporate Governance has been always prioritized and all the relevant policies, provisions and directives have been Diversification of Income sources compiled with no compromise. Increase in cost of fund Audit committee has been formed for the effective b. External Problems and Challenges implementation of internal control system. The said committee has been analyzing the effectiveness of internal Rigorous competition between Banks and control system by reviewing the reports issued by external Financial Institutions auditor and regulators (on inspection) and implementing Mismatch between increasing demand for loans appropriate actions and advising management for effective and deposits collection internal control. Lack of fertile investment sectors Apart from this, several committees of the Bank such as c. Strategy Management Committee (MANCOM), Assets- Liabilities Diversification of deposits and risk assets Management Committee (ALCO), Risk Management Exploration of new avenues for revenue generation Committee and Credit Review Committee are also actively and deposits mobilization involved for making banking business effective, reliable and Development of advance technological services scientific and also for intervening strategies on need basis. Capital Increment Up-gradation of Core Banking System The Bank is continuously adhering all directions of Nepal Rastra Bank, directions and recommendations stated in NRB 7. Corporate Governance inspection report and independent auditor's report. Board of directors and management of the Bank are committed Bank fully adheres to all the relevant policies and provisions to improve further by adhering corporate governance fully.

www.sanimabank.com 11 Annual Report 2017/18

12 www.sanimabank.com Annual Report 2017/18

www.sanimabank.com 13 Annual Report 2017/18

Consolidated Statement of Financial Position For the year ended on 16 July 2018 In NPR. Group Bank Note Mid July 2018 Mid July 2017 Mid July 2016 Mid July 2018 Mid July 2017 Mid July 2016 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 9,413,443,775 429,154,180 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 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 Bharat Kumar Pokharel SAR Associates Saroj Guragain Mahesh Ghimire Chartered Accountants Chief Financial Officer Uttam Kumar Bhattarai Date: October 31, 2018 Place: Naxal, Kathmandu

14 www.sanimabank.com Annual Report 2017/18

Consolidated Statement of Profit or Loss For the year ended on 16 July 2018 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

www.sanimabank.com 15 Annual Report 2017/18

Consolidated Statement of Other Comprehensive Income For the year ended on 16 July 2018 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 reclassified to (58,677,898) (5,017,908) (57,530,785) (5,017,908) profit or loss

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

Gains/(losses) on cash flow hedge

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

Income tax relating to above items - - - -

Reclassify to profit or loss

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

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

Other comprehensive income for the year, net of income tax (58,677,898) (5,017,908) (57,530,785) (5,017,908)

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

16 www.sanimabank.com Annual Report 2017/18

Consolidated Statement of Changes In Equity For the year ended on 16 July 2018 In NPR. Group Attributable to equity holders of the Bank Non-con- Share General Exchange Regulatory Fair value Reval- Retained Other trolling Total equity Share Capital equalisation uation Total interest premium reserve reserve reserve reserve reserve earning reserve 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 1, 2073 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 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 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 - - 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 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) - 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 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 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 instruments (6,861,239) (6,861,239) 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 - - 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 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 3,452,862 337,775,191 (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

www.sanimabank.com 17 Annual Report 2017/18

Consolidated Statement of Changes In Equity For the year ended on 16 July 2018 In NPR.

Bank Attributable to equity holders of the Bank Non-con- Share General Exchange Regulatory Fair value Reval- Retained Other trolling Total equity Share Capital equalisation uation Total interest premium reserve reserve reserve reserve reserve earning reserve 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 combination 26,875,500 (168,727,611) 7,176,146 200,225,965 4,994 65,554,994 65,554,994 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

18 www.sanimabank.com Annual Report 2017/18 Consolidated Statement of Cash Flows

For the year ended on 16 July 2018 In NPR. Group Bank Current Year Previous Year Current Year Previous Year CASH FLOWS FROM OPERATING ACTIVITIES

Interest received 8,002,273,251 4,824,523,673 8,002,273,251 4,797,928,723 Fees and other income received 754,957,589 342,933,527 701,473,377 342,010,425 Dividend received - - - Receipts from other operating activities 312,307,411 301,979,944 312,307,411 301,979,944 Interest paid (5,092,440,963) (2,810,966,277) (5,092,440,963) (2,834,569,936) Commission and fees paid (50,152,348) (50,152,348) - Cash payment to employees (722,689,017) (345,209,152) (728,799,274) (339,098,895) Other expense paid (376,854,190) (344,710,176) (383,765,844) (340,193,986) Operating cash flows before changes in operating assets and liabilities 2,827,401,732 1,968,551,539 2,760,895,608 1,928,056,274 (Increase)/Decrease in operating assets - Due from Nepal Rastra Bank (342,870,204) (2,690,513,662) (342,870,204) (2,690,513,662) Placement with bank and financial institutions 333,086,667 1,812,420,202 333,086,667 1,812,420,202 Other trading assets (90,126,962) 609,467,888 (71,808,565) Loan and advances to bank and financial institutions (1,051,307,909) (1,051,307,909) Loans and advances to customers (16,788,980,230) (10,518,959,375) (16,788,980,230) (10,518,959,375) Other assets 367,753,361 (1,229,690,977) 367,753,361 (1,206,978,904) (17,572,445,277) (12,017,275,924) (17,554,126,880) (12,604,031,739) Increase/(Decrease) in operating liabilities - Due to bank and financial institutions (756,560,268) (221,460,000) (756,560,268) (221,460,000) Due to Nepal Rastra Bank (252,059,097) (2,449,470,473) (252,059,097) (2,449,470,473) Deposit from customers 21,241,939,572 10,914,221,004 21,688,324,196 11,358,662,524 Borrowings - (221,460,000) - - Other liabilities 420,917,477 1,415,247,131 (24,059,093) 1,185,088,209 Net cash flow from operating activities before tax paid 20,654,237,684 9,437,077,662 20,655,645,738 9,872,820,260 Income taxes paid 781,995,703 555,986,127 780,552,184 554,542,608 Net cash flow from operating activities 5,127,198,436 (1,167,632,850) 5,081,862,281 (1,357,697,813) CASH FLOWS FROM INVESTING ACTIVITIES - Purchase of investment securities (3,151,470,593) 946,839,517 (3,095,055,409) 899,415,189 Receipts from sale of investment securities 11,356,071 - Purchase of property and equipment (278,384,411) (144,855,919) (274,221,103) (140,692,611) Receipt from the sale of property and equipment - Purchase of intangible assets (53,235,136) (53,235,136) Receipt from the sale of intangible assets - Purchase of investment properties - Receipt from the sale of investment properties - 11,356,071 Interest received 1,855,212 247,216,649 - 245,361,436 Dividend received 4,296,384 6,420,905 4,208,435 6,332,956 Net cash used in investing activities (3,465,582,473) 1,066,977,223 (3,418,303,213) 1,010,416,970 CASH FLOWS FROM FINANCING ACTIVITIES - Receipt from issue of debt securities - - Repayment of debt securities - Receipt from issue of subordinated liabilities - Repayment of subordinated liabilities - Receipt from issue of shares 1,103,621,440 2,160,162,000 1,103,621,440 2,160,162,000 Dividends paid - Interest paid - Other receipt/payment (1,185,808,276) (2,284,042,862) (1,185,808,276) Net cash from financing activities (82,186,836) (123,880,862) (82,186,836) 2,160,162,000 Net increase (decrease) in cash and cash equivalents 1,579,429,128 (224,536,489) 1,581,372,232 1,812,881,157 Cash and cash equivalents at Shrawan 1, 2074 (Adjusted) 2,952,471,513 3,169,565,623 2,948,780,102 1,128,456,564 Effect of exchange rate fluctuations on cash and cash equivalents held - 7,442,380 - 7,442,380 Cash and cash equivalents at Ashadh end 2075 4,531,900,641 2,952,471,513 4,530,152,334 2,948,780,102

www.sanimabank.com 19 Annual Report 2017/18

Sanima Bank Ltd Notes to the Financial Statements Year ended 16th July 2018

1. BANK 2. BASIS OF PREPARATION

1.1 General 2.1. Statement of Compliance

Sanima Bank Limited (hereinafter referred to as “The Bank”) The Financial Statements of Bank for the year ended 16th July, is a public limited company, incorporated on 30th June 2004 2018 comprising Statement of Financial Position, Statement as per the then Companies Act 1964 of Nepal, and domiciled of Comprehensive Income, Statement of Changes in Equity, in Nepal. The Bank obtained license from Nepal Rastra Bank Statement of Cash Flows and Notes to the Financial Statements on 26th November 2004 and operated the banking business (including Significant Accounting Policies), have been prepared in from 6th December 2004. The Bank obtained license to operate accordance with Nepal Financial Reporting Standards (hereafter as “A” class financial institution under the Bank and Financial referred as NFRS), laid down by the Institute of Chartered Institutions Act, 2006 on 13th February 2012. The registered Accountants of Nepal and in compliance with the requirements office of the Bank is located at Alakapuri Building, Naxal, of all applicable laws and regulations. Kathmandu, Nepal. The Bank is listed in Nepal Stock Exchange Limited for public trading of stocks. 2.2. Reporting Period and Approval of Financial Statements 1.2 Principal Activities and Operations The Bank has prepared the financial statements for the first Bank time in accordance with NFRS depicting financial performance for FY 2017/18 and financial position of 16th July 2018 and The principal activities of the Bank are to provide full-fledged the comparatives of FY 2016/17. Hence the date of transition commercial banking services including, agency services, to NFRS is 17th July, 2016. The comparative figures including trade finance services, card services, e-commerce products the opening balance on the date of transition have been re- and services, remittance and bullion trading services to its classified and re-measured as per NFRS. customers through its strategic business units, branches, extension counters, ATMs and network of agents. The accompanied Financial Statements have been authorized by the Board of Directors vide its resolution date 31st October, Subsidiary and Associates 2018 and recommended for its approval by the Annual General Meeting of the shareholders. Ownership as on: Subsidiary Principal Activities 16th July 15th July 2.3. Functional and Presentation Currency 2018 2017 Provides merchant/investment The Financial Statements of Bank and Group are presented in banking services such Nepalese Rupees (Rs.), which is the currency of the primary as Management of public offerings, portfolio economic environment in which the Bank operates. There was management, underwriting no change in Bank’s presentation and functional currency during of securities, management the period under review. Sanima Capital of mutual fund schemes, Limited 100% 100% depository participant’s 2.4. Use of Estimates, Assumptions and Judgments service under Central Depository Service (CDS) and administration and record The preparation of Financial Statements in conformity with keeping of securities of its Nepal Accounting Standards requires the management to clients make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts th As on 16 July 2018 and comparative period, bank has not of assets, liabilities, income and expenses. Actual results may identified any associates. differ due to these estimates.

20 www.sanimabank.com Annual Report 2017/18

Estimates and underlying assumptions are reviewed on an with similar risk characteristics, to determine whether ongoing basis. Revisions to accounting estimates are recognized provision should be made due to incurred loss events for in the period in which the estimate is revised and in any future which there is objective evidence, but the effects of which periods affected. are not yet evident. The bank has segregated risk assets into five groups with similar risk characteristics i.e. home The most significant areas of estimation, uncertainty and critical loan, auto loan, personal loan, short term loan and long term judgments in applying accounting policies that have most loan for collective impairment assessment. The collective significant effect in the Financial Statements are as follows: assessment takes in to account data from the loan portfolio such as levels of arrears, credit quality, portfolio size etc. 2.4.1 Going Concern and judgments based on current economic conditions as per Para 63 of NAS 39. Also the collective assessment takes The Directors have made an assessment of Bank’s ability into account the past sixty months data for PD computation to continue as a going concern and satisfied that it has the and five years data for loss given default (LGD) computation. resources to continue in business for the foreseeable future. Collective impairment assessment on loans and advances is Furthermore, Board is not aware of any material uncertainties derived from product of PD and LGD. that may cast significant doubt upon Bank’s ability to continue as a going concern and they do not intend either to The impairment loss on loans and advances as per paragraph liquidate or to cease operations of it. Therefore, the Financial 63 of NAS 39 is Rs. 31.58 Million and as per the norms Statements continue to be prepared on the going concern basis. prescribed by Nepal Rastra Bank for loan loss provision is Rs. 817.87 Million in total. The impairment loss on loans and 2.4.2 Fair Value of Financial Instruments 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 Where the fair values of financial assets and financial liabilities for loan loss provision is Rs. 16.50 Million. recorded in the statement of financial position can be derived from active markets, they are derived from observable market Loans and advances have been impaired as the higher of amount data. However, if this is not available, judgment is required to derived as per the norms prescribed by Nepal Rastra Bank for establish fair values. The valuation of financial instruments is loan loss provision and amount determined as per paragraph 63 described in more detail in Notes. of NAS 39, as per Carve-out pronounced on 20th September 2018. 2.4.3 Impairment of Financial Assets – Loans and Advances

The Bank review their individually significant loans and The impairment loss on loans and advances is disclosed in Note advances at each statement of financial position date to 4.6 and 4.7 to the financial statements. assess whether an impairment loss should be recorded in the income statement. The bank has conducted objective 2.4.4 Impairment of Investments measured through OCI evidence test for individual impairment through different parameters like inability to meet loan agreements, Bank reviews its investments classified as available for sale, substantial drop in profits/ turnover, significant adverse cash at each reporting date to assess whether they are impaired. flows, significant adverse net worth situation, problematic Objective evidence that an available for sale debt security is borrower financial position, etc. In particular, Judgment of impaired includes among other things significant financial the management is required in the estimation of the amount difficulty of the issuer, a breach of contract such as a default and timing of future cash flows while determining the or delinquency in interest or principal payments etc. Bank impairment loss. These estimates are based on assumptions also records impairment charges on available for sale equity about a number of factors and actual results may differ, investments where there is significant or prolonged decline resulting in future changes to the impairment allowance. in fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. Bank generally Loans and advances of top 50 customers (holding 21 % treats ‘significant’ as 20% and ‘prolonged’ as greater than of portfolio) have been assessed individually and found to six months. In addition, Bank evaluates, among other factors, be not impaired and all individually insignificant loans and historical share price movements, duration and extent up to advances are then assessed collectively, in groups of assets which the fair value of an investment is less than its cost.

www.sanimabank.com 21 Annual Report 2017/18

2.4.5 Taxation a. Fair value; or

Bank is subject to income tax and judgment is required to b. Cost or depreciated cost in accordance with NFRSs, determine the total provision for current, deferred and other adjusted to reflect, for example, changes in a general or taxes due to the uncertainties that exist with respect to the specific price index interpretation of the applicable tax laws, at the time of preparation Previous GAAP has been considered the fair value for of these Financial Statements. Property and Equipment on the basis that these assets value are comparable to fair value. Deferred tax assets are recognized in respect of impairment allowances which will be recovered in the foreseeable future 2.4.8 Useful Life-time of the Property, Plant and Equipment tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Bank reviews the residual values, useful lives and methods Judgment is required to determine the amount of deferred tax of depreciation of property, plant and equipment at each assets that can be recognized, based upon the likely timing and reporting date. Judgment of the management is exercised in the level of future taxable profits, together with future tax planning estimation of these values, rates, methods and hence they are strategies. subject to uncertainty. a) Fixed Assets Details on deferred tax assets/liability are disclosed in Note 4.15 to the financial statements. Fixed assets except land are stated at acquisition cost less accumulated depreciation. Acquisition cost includes 2.4.6 Defined Benefit Plans expenditures that are directly attributable to the acquisition of the assets. The cost of the defined benefit obligations and the present value of their obligations are determined using actuarial valuations. 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 The actuarial valuation involves making assumptions about purchase. discount rates, future salary increases, mortality rates and possible future liability increases if any. Due to the long term Leasehold improvements are capitalized at cost and amortized nature of these plans, such estimates are subject to uncertainty. over the lease period or ten years whichever is earlier. The amount of amortization is charged as revenue expenses. All assumptions are reviewed at each reporting date. b) Computer Software In determining the appropriate discount rate, management Acquired computer software licenses are capitalized on the considers the average interest rates of Nepal government bonds basis of cost incurred to acquire and bring to use the specific with maturities of five years or more. The mortality rate is based software and are amortized over their useful life estimated as on publicly available mortality tables. Future salary increases 5 years from the date of acquisition or over the period of the are based on expected future salary increase rates of Bank and license, whichever is less. attrition rate are based on the past period’s attrition rates. 2.4.9 Commitments and Contingencies 2.4.7 Fair Value of Property, Plant and Equipment All discernible risks are accounted for in determining the The freehold land and buildings of the bank are not reflected at amount of all known liabilities. Contingent liabilities are fair value and no revaluation has been carried at the reporting possible obligations whose existence will be confirmed only date. Under NFRS 1, a first-time adopter may elect to use a by uncertain future events or present obligations where the previous GAAP revaluation of an item of property, plant and transfer of economic benefit is not probable or cannot be equipment at, or before, the date of transition to NFRSs as reliably measured. Contingent liabilities are not recognized in deemed cost at the date of the revaluation, if the revaluation the Statement of Financial Position but are disclosed unless was, at the date of the revaluation, broadly comparable to: they are remote.

22 www.sanimabank.com Annual Report 2017/18

2.4.10 Provisions for Liabilities and Contingencies b. Others

The Bank receives legal claims against it in the normal course The Bank has elected to disclose the following amounts of business. Management has made judgments as to the prospectively from the date of transition: likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of i. The present value of the defined benefit obligation, the fair possible outflow of economic benefits. value of the plan assets and the surplus or deficit in the plan; and 2.5. Changes in Accounting Policies ii. The experience adjustments arising on the plan liabilities and the plan assets. The bank has changed its accounting policies, wherever required, iii. The Bank has designated unquoted equity instruments held to ensure compliance with NFRS. Detailed accounting policies at 16th July 2018 as investments measured at fair value are mentioned in Note 3. The effect of change in accounting through OCI. policy at the date of transition has been given to the retained earnings (and reserves, if applicable). 2.8. Discounting

2.6. New Standards in issue but not yet effective The fair value of debt securities shall be determined by discounting by the future cash flows by the coupon interest rate. There are no Standards which have been issued but not yet The Bank has a policy to treat share/debenture issue expenses effective up to the date of issuance of the financial statements. up to 1% of share/debentures issue price as immaterial. Considering those expenses as immaterial and impracticable to 2.7. New standards and interpretation not adapted determine reliably, same has not been considered in computation of effective interest rate as per Carve-out (optional) pronounced NFRS 1 First- time adoption of Nepal Accounting Standards on 20th September 2018. allows first time adopters certain exemptions from the retrospective application of certain NFRS. Employee benefits has been determined by considering discount rate as the average yield on government bonds issued during The Bank has taken the following exemptions. the period having maturity of five years or more. a. Business Combinations 2.9. Responsibility for Financial Statements

Not applied for subsidiaries, which are considered business The Board of Directors is responsible for the preparation and combination for NFRS, or in interest in associates and joint presentation of Financial Statements of Sanima Bank Limited as ventures that occurred before 17th July 2016. per the provisions of the Companies Act, 2006.

Use of this exemption means that the NAS carrying amounts of 2.10. Presentation of Financial Statements assets and liabilities, which are required to be recognised under NFRS, is their deemed cost at the date of the acquisition. After The assets and liabilities of Bank presented in the Statement of the date of the acquisition, measurement is in accordance with Financial Position are grouped in an order of liquidity. An analysis NFRS. Assets and liabilities that do not qualify for recognition on recovery or settlement within 12 months after the reporting under NFRS are excluded from the opening NFRS statement of date (current) and more than 12 months after the reporting date financial position. (non-current) is presented in the Notes.

The Bank did not recognize or exclude any previously recognised 2.11. Materiality and Aggregation amounts as a result of NFRS recognition requirements. NFRS 1 also requires that the local NAS carrying amount of goodwill In compliance with Nepal Accounting Standard - NAS 01 must be used in the opening NFRS statement of financial (Presentation of Financial Statements), each material class of position (apart from adjustments for goodwill impairment and similar items is presented separately in the Financial Statements. recognition or de-recognition of intangible assets). Items of dissimilar nature or functions too are presented

www.sanimabank.com 23 Annual Report 2017/18 separately unless they are immaterial. Financial Assets and negative, a bargain purchase gain is immediately recognised in Financial Liabilities are offset and the net amount reported in the profit or loss. the Statement of Financial Position only when there is a legally enforceable right to offset the recognized amounts and there The Bank elects on a transaction-by transaction basis whether is an intention to settle on a net basis, or to realize the assets to measure non-controlling interest at its fair value, or at its and settle the liability simultaneously. Income and expenses are proportionate share of the recognised amount of the identifiable not offset in the Statement of Profit or Loss unless required or net assets, at the acquisition date. The consideration transferred permitted by an Accounting Standard. does not include amounts related to the settlement of pre- existing relationships. Such amounts are generally recognised 2.12. Comparative Information in profit or loss. Transactions costs, other than those associated with the issue of debt or equity securities, that the Bank incurs The Financial Statement of the Bank provides comparative in connection with a business combination are expensed as information in respect of previous periods. The accounting incurred. policies have been consistently applied by Bank with those of the previous financial year in accordance with NAS 01 Presentation The Bank has applied Exemptions for NFRS 3 as stated in of Financial Statements, except those which had to be changed Appendix C as below: as a result of application of the new NFRS. Further, comparative information is reclassified wherever necessary to comply with A first-time adopter may elect not to apply NFRS 3 retrospectively the current presentation. to past business combinations (business combinations that occurred before the date of transition to NFRSs). However, if a 3. SIGNIFICANT ACCOUNTING POLICIES first-time adopter restates any business combination to comply with NFRS 3 it shall restate all later business combinations and The accounting policies set out below have been applied shall also apply NFRS 10 from that same date. consistently to all periods presented in these Financial Statements, and deviations if any have been disclosed accordingly. b. Non-controlling interest (NCI)

3.1. Basis of Measurement Non-controlling interest (NCI), also known as minority interest, is an ownership position whereby a shareholder owns less than The Financial Statements of Bank have been prepared on the 50% of outstanding shares and has no control over decisions. historical cost basis, except for the following material items in Non-controlling interests are measured at the net asset value of the Statement of Financial Position: entities and do not account for potential voting rights.

• Liabilities for defined benefit obligations are recognized at For each business combination, the Group elects to measure the present value of the defined benefit obligation less the any non-controlling interest in the acquiree at fair value. fair value of the plan assets. • Unquoted investments available for sale are measured Changes in group interest in subsidiary that do not result in the through OCI. loss of control are accounted for transactions of owners in the capacity of owners. Adjustments to non-controlling interest are 3.2. Basis of consolidation based on proportionate amount of net assets of subsidiary. a. Business Combinations and Goodwill c. Subsidiaries

Business combinations are accounted for using the acquisition Subsidiaries are entities that are controlled by the Bank. The method as per the requirements of Nepal Accounting Standard - Bank is presumed to control an investee when it is exposed NFRS 03 (Business Combinations). The Bank measures goodwill or has rights to variable returns from its involvement with the as the fair value of the consideration transferred including investee and has the ability to affect those returns through the recognised amount of any non-controlling interest in the its power over the investee. At each reporting date the Bank acquiree, less the net recognised amount (generally fair value) reassesses whether it controls an investee if facts and of the identifiable assets acquired and liabilities assumed, circumstances indicate that there are changes to one or more all measured as of the acquisition date. When the excess is elements of control mentioned above.

24 www.sanimabank.com Annual Report 2017/18

The Financial Statements of Subsidiaries are fully consolidated and it often holds this off-balance sheet. Some also call this a from the date on which control is transferred to the Bank and “bankruptcy-remote entity” or “variable interest entities” since continue to be consolidated until the date when such control its operations are limited to the acquisition and financing of ceases. The Financial Statements of the Bank’s Subsidiaries are specific assets as a method of isolating risk. A special purpose prepared for the same reporting period as per the Bank, using vehicle/entity is a subsidiary company with an asset/liability consistent accounting policies. structure and legal status that makes its obligations secure, even if the parent company goes bankrupt. The cost of acquisition of a Subsidiary is measured as the fair value of the consideration, including contingent consideration, Group does not have any SPE. given on the date of transfer of title. The acquired identifiable assets, liabilities are measured at their fair values at the date f. Transaction elimination on consolidation of acquisition. Subsequent to the initial measurement, the Bank continues to recognize the investments in Subsidiaries at cost. Intra group balances and transactions, any unrealized income and expenses arising from intra group transactions, are When a Subsidiary is acquired or sold during the year, operating eliminating in preparing the consolidated financial statements. results of such Subsidiary is included from the date of acquisition Unrealized gains/losses arising from transactions with equity or to the date of disposal. accounted investees are eliminated against the investments to the extent of group interest of investee. All Subsidiaries of the Bank have been incorporated in Nepal. 3.3. Cash and cash equivalent Principal Cost as on 16th Cost as on Subsidiary Activities July 2018 15th July 2017 Cash and Cash Equivalents include cash in hand, balances with Management of banks, placements with banks and money at call and at short public offerings, portfolio notice with maturity less than three months. management, Sanima Capital underwriting Limited 250,000,000 110,000,000 Details of the Cash and Cash Equivalents are given in Note 4.1 of securities, management to the Financial Statements. of mutual fund schemes 3.4. Financial Assets and financial liabilities 250,000,000 110,000,000 a. Recognition d. Loss of Control All financial assets and liabilities are initially recognized on Upon the loss of control, the Bank derecognizes the assets the trade date, i.e. the date that Bank becomes a party to the and liabilities of the Subsidiary, any non-controlling interests contractual provisions of the instrument. This includes ‘regular and other components of equity related to the subsidiary. Any way trades’. Regular way trade means purchases or sales of surplus or deficit arising on the loss of control is recognized in financial assets that required delivery of assets within the time the Statement of Profit or loss. frame generally established by regulation or convention in the market place. If the Bank retains any interest in the previous Subsidiary, then such interest is measured at fair value at the date that control The classification of financial instruments at the initial is lost. Subsequently it is accounted for as equity-accounted recognition depends on their purpose and characteristics and investee or in accordance with the Bank’s accounting policy the management’s intention in acquiring them. for financial instruments depending on the level of influence retained. b. Classification and Measurement e. Special Purpose Entity (SPE) Financial Assets

A special purpose vehicle/entity is a “bankruptcy-remote entity” All financial instruments are measured initially at their fair value that a parent company uses to isolate or securitize assets plus transaction costs that are directly attributable to acquisition

www.sanimabank.com 25 Annual Report 2017/18 or issue of such financial instruments except in the case of government securities and equity instruments that have been such financial assets and liabilities at fair value through profit or acquired principally for the purpose of selling or repurchasing loss, as per the Nepal Accounting Standard - NAS 39 (Financial in the near term. Instruments: Recognition and Measurement). Transaction cost in relation to financial assets and financial liabilities at fair value ii. Financial Assets Designated at Fair Value through through profit or loss are dealt with the Statement of Profit or Loss. Profit or Loss

At the inception, a financial asset is classified into one of the Bank designates financial assets at fair value through profit or following: loss in the following circumstances: a. Financial assets at fair value through profit or loss • Such designation eliminates or significantly reduces i. Financial assets held for trading measurement or recognition inconsistency that would ii. Financial assets designated at fair value through profit otherwise arise from measuring the assets or loss • The assets are part of a group of Financial assets, financial b. Financial Assets at amortized cost liabilities or both, which are managed and their performance c. Financial assets at fair value through OCI evaluated on a fair value basis, in accordance with a The subsequent measurement of financial assets depends on documented risk management or investment strategy their classification. • The asset contains one or more embedded derivatives that significantly modify the cash flows that would otherwise Financial Assets at Fair Value through Profit or Loss have been required under the contract.

A financial asset is classified as fair value through profit or loss Financial assets designated at fair value through profit or loss if it is held for trading or is designated at fair value through profit are recorded in the Statement of Financial Position at fair or loss. value. Changes in fair value are recorded in ‘Net gain or loss on financial instruments designated at fair value through profit i. Financial Assets Held for Trading or losses’ in the Statement of Profit or Loss. Interest earned is accrued under ‘Interest income’, using the effective interest Financial assets are classified as held for trading if they are rate method, while dividend income is recorded under ‘Other acquired principally for the purpose of selling or repurchasing in operating income’ when the right to receive the payment has the near term or holds as a part of a portfolio that is managed been established. together for short-term profit or position taking. This category also includes derivative financial instruments entered into by The Bank has not designated any financial assets upon initial Bank that are not designated as hedging instruments in hedge recognition as designated at fair value through profit or loss. relationships as defined by Nepal Accounting Standards NAS 39 (Financial Instruments: Recognition and Measurement). iii. Financial Assets measured at amortized cost

Financial assets held for trading are recorded in the Statement Held to Maturity Financial Assets are non-derivative financial of Financial Position at fair value. Changes in fair value are assets with fixed or determinable payments and fixed maturities recognized in ‘Net trading income'. Dividend income is recorded which the Bank has the intention and ability to hold to maturity. in ‘Net trading income’ when the right to receive the payment After the initial measurement, held to maturity financial has been established. investments are subsequently measured at amortized cost using the effective interest rate, less impairment. The amortization is Bank evaluates its held for trading asset portfolio, other than included in ‘Interest income’ in the Statement of Profit or Loss. derivatives, to determine whether the intention to sell them in The losses arising from impairment of such investments are the near future is still appropriate. When Bank is unable to trade recognized in the Statement of Profit or Loss. these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly The Amortized cost of a financial asset or liability is the amount changes, Bank may elect to reclassify these financial assets. at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the Financial assets held for trading include instruments such as cumulative amortization using the effective interest method of

26 www.sanimabank.com Annual Report 2017/18 any difference between the initial amount recognised and the intended to be held for an indefinite period of time and may be maturity amount, minus any reduction for impairment. sold in response to needs for liquidity or in response to changes in the market conditions. Loans and Receivables from Customers After initial measurement, available for sale financial investments Loans and receivables include non-derivative financial assets are subsequently measured at fair value. Unrealized gains with fixed or determinable payments that are not quoted in an and losses are recognized directly in equity through ‘Other active market, other than: comprehensive income / expense’ in the ‘Fair value reserve’. When the investment is disposed of the cumulative gain or loss • Those that the Bank intends to sell immediately or in the previously recognized in equity is recognized in the Statement near term and those that the Bank, upon initial recognition, of Profit or Loss under ‘Other operating income’. Where Bank designates as fair value through profit or loss holds more than one investment in the same security, they • Those that the Bank, upon initial recognition, designates as are deemed to be disposed off on a first-in-first-out basis. available for sale Interest earned whilst holding ‘Financial investments at fair • Those for which the Bank may not recover substantially value through OCI’ is reported as ‘Interest income’ using the all of its initial investment through contractual cash flows, effective interest rate. Dividend earned whilst holding ‘Financial other than because of credit deterioration. investments at fair value through OCI’ are recognized in the Statement of Profit or Loss as ‘other operating income’ when the After initial measurement, loans and receivables shall be right to receive the payment has been established. The losses subsequently measured at amortized cost using the effective arising from impairment of such investments are recognized in interest rate, less allowance for impairment. The amortization the Statement of Profit or Loss under ‘Impairment charge for shall be included in ‘Interest Income’ in the Statement of Profit loans and other losses’ and removed from the ‘Available for sale or Loss. The losses arising from impairment are recognized in reserve’. ‘Impairment charge / reversal for loans and other losses’ in the Statement of Profit or Loss. Financial Liabilities

However, Bank has a policy to treat loan administration fees up At the inception, Bank determines the classification of its to 1% of loan amount as immaterial. Considering those fees as financial liabilities. Accordingly financial liabilities are classified immaterial and impracticable to determine reliably, same has as: not been considered in computation of effective interest rate as per Carve-out (optional) pronounced on 20th September 2018. a. Financial liabilities at fair value through profit or loss i. Financial liabilities held for trading Staff Loans measured at fair value ii. Financial liabilities designated at fair value through profit or loss The bank has a policy to provide home loan, hire purchase b. Financial liabilities at amortized cost loan and home loan tied up with insurance to employees at subsidized interest rate. The Bank has measured the staff Financial Liabilities at Fair Value through Profit or Loss loans at fair value. The bank is considering average base rate (10.27%) as fair market interest rate for deriving fair value of Financial Liabilities at fair value through profit or loss include staff loans though the loans are provided to staffs at interest financial liabilities held for trading and financial liabilities rate of 4%(Hire Purchase) and 5%(Home loan). Difference of designated upon initial recognition as fair value through profit book value with fair value of loans has been shown as prepaid or loss. Subsequent to initial recognition, financial liabilities at employee benefits. fair value through profit or loss are measured at fair value and changes therein are recognized in profit or loss. Financial Assets measured at fair value through OCI (i) Financial Liabilities Held for Trading Financial assets measured through OCI include equity and debt securities. Equity Investments classified as ‘Fair value through Financial liabilities are classified as held for trading if they are OCI’ are those which are neither classified as ‘Held for neither acquired principally for the purpose of selling or repurchasing in Trading ’nor ‘Designated. Debt securities in this category are the near term or holds as a part of a portfolio that is managed

www.sanimabank.com 27 Annual Report 2017/18 together for short-term profit or position taking. This category reclassified subsequently out of fair value through profit or includes derivative financial instrument entered into by Bank loss category. that are not designated as hedging instruments in hedge relationships as defined by Nepal Accounting Standard - NAS Bank may, in rare circumstances reclassify financial 39 (Financial Instruments: Recognition and Measurement). instruments out of fair value through profit or loss category if such instruments are no longer held for the purpose of selling (ii) Financial Liabilities Designated at Fair Value through or repurchasing in the near term not withstanding that such Profit or Loss financial instruments may have been acquired principally for the purpose of selling or repurchasing in the near term. Bank designates financial liabilities at fair value through profit or Financial assets classified as fair value through profit or loss at loss at following circumstances: the initial recognition which would have also met the definition of ‘Loans and Receivables’ as at that date is reclassified out of • Such designation eliminates or significantly reduces the fair value through profit or loss category only if Bank has measurement or recognition inconsistency that would the intention and ability to hold such asset for the foreseeable otherwise arise from measuring the liabilities. future or until maturity. • The liabilities are part of a group of Financial assets, financial liabilities or both, which are managed and their The fair value of financial instruments at the date of performance evaluated on a fair value basis, in accordance reclassification is treated as the new cost or amortized cost with a documented risk management or investment strategy of the financial instrument after reclassification. Any gain or • The liability contains one or more embedded derivatives loss already recognized in respect of the reclassified financial that significantly modify the cash flows that would otherwise instrument until the date of reclassification is not reversed to the have been required under the contract. Statement of Profit or Loss.

Financial Liabilities At Amortized Cost If a financial asset is reclassified, and if Bank subsequently increases its estimates of the future cash receipts as a result Financial instruments issued by Bank that are not classified of increased recoverability of those cash receipts, the effect of as fair value through profit or loss are classified as financial that increase is recognized as an adjustment to the effective liabilities at amortized cost, where the substance of the interest rate from the date of the change in estimate rather than contractual arrangement results in Bank having an obligation an adjustment to the carrying amount of the asset at the date of either to deliver cash or another financial asset to another Bank, change in estimate. or to exchange financial assets or financial liabilities with another Bank under conditions that are potentially unfavorable to the (ii) Reclassification of ‘Financial Assets measured at fair Bank or settling the obligation by delivering variable number of value through OCI’ Bank’s own equity instruments. Bank may reclassify financial assets out of available for sale category After initial recognition, such financial liabilities are subsequently as a result of change in intention or ability or in rare circumstances measured at amortized cost using the effective interest rate that a reliable measure of fair value is no longer available. method. Amortization is included in ‘Interest Expenses’ in the Statement of Profit or Loss. Gains and losses are recognized in the The fair value of financial instruments at the date of reclassification Statement of Profit or Loss when the liabilities are derecognized. is treated as the new cost or amortized cost of the financial instrument after reclassification. Difference between the new Reclassification amortized cost and the maturity value is amortized over the (i) Reclassification of Financial Instruments ‘At fair value remaining life of the asset using the effective interest rate. Any through profit or loss’, gain or loss already recognized in Other Comprehensive Income in respect of the reclassified financial instrument is accounted Bank does not reclassify derivative financial instruments out of the as follows: fair value through profit or loss category when it is held or issued. 1. Financial assets with fixed maturity : Non-derivative financial instruments designated at fair value through profit or loss upon initial recognition is not Gain or loss recognized up to the date of reclassification

28 www.sanimabank.com Annual Report 2017/18 is amortized to profit or loss over the remaining life of the financial asset or part of a group of similar financial assets) when: investment using the effective interest rate. If the financial asset is subsequently impaired, any previous gain or loss that has • The rights to receive cash flows from the asset have been recognized in other comprehensive income is reclassified expired; or from equity to profit or loss. • Bank has transferred its rights to receive cash flows from the asset or 2. Financial assets without fixed maturity : • Bank has assumed an obligation to pay the received cash flows in full without material delay to a third party Gain or loss recognized up to the date of reclassification is under a ‘pass-through’ arrangement and either Bank has recognized in profit or loss only when the financial asset is sold transferred substantially all the risks and rewards of the or otherwise disposed of. If the financial asset is subsequently asset or it has neither transferred nor retained substantially impaired, any previous gain or loss that has been recognized in other all the risks and rewards of the asset, but has transferred comprehensive income is reclassified from equity to profit or loss. control of the asset.

If a financial asset is reclassified, and if Bank subsequently On derecognition of a financial asset, the difference between the increases its estimates of future cash receipts as a result of carrying amount of the asset (or the carrying amount allocated increased recoverability of those cash receipts, the effect of that to the portion of the asset derecognized) and the sum of the increase is recognized as an adjustment to the effective interest consideration received (including any new asset obtained less rate from the date of the change in estimate rather than an any new liability assumed) and any cumulative gain or loss adjustment to the carrying amount of the asset at the date of that had been recognized in other comprehensive income is change in estimate. recognized in profit or loss.

(iii) Reclassification of ‘Financial Instruments amortized When Bank has transferred its rights to receive cash flows from at cost’ an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all of the risks As a result of a change in intention or ability, if it is no longer and rewards of the asset nor transferred control of the asset, appropriate to classify an investment as amortized at cost, Bank the asset is recognized to the extent of the Bank’s continuing may reclassify such financial assets as at fair value through involvement in the asset. In that case, Bank also recognizes an OCI and re-measured at fair value. Any difference between the associated liability. The transferred asset and the associated carrying value of the financial asset before reclassification and liability are measured on a basis that reflects the rights and fair value is recognized in equity through other comprehensive obligations that Bank has retained. income. When Bank’s continuing involvement that takes the form of However, if Bank were to sell or reclassify more than an guaranteeing the transferred asset, the extent of the continuing insignificant amount of held to maturity investments before involvement is measured at the lower of the original carrying maturity [other than in certain specific circumstances permitted amount of the asset and the maximum amount of consideration in Nepal Accounting Standard - NAS 39 (Financial Instruments: received by Bank that Bank could be required to repay. Recognition and Measurement)], the entire category would be tainted and would have to be reclassified as ‘Investment Derecognition of Financial Liabilities measured at fair value through OCI’. Furthermore, Bank would be prohibited from classifying any financial assets as ‘Held to A financial liability is derecognized when the obligation under the Maturity’ during the following two years. These reclassifications liability is discharged or cancelled or expired. Where an existing are at the election of management and determined on an financial liability is replaced by another from the same lender on instrument by instrument basis. substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification c. Derecognition is treated as derecognition of the original liability and the recognition of a new liability. Derecognition of Financial Assets The difference between the carrying value of the original financial Bank derecognizes a financial asset (or where applicable a part of liability and the consideration paid is recognized in profit or loss.

www.sanimabank.com 29 Annual Report 2017/18

Offsetting of Financial Instruments dealer price quotations (assets and long positions are measured at a bid price, liabilities and short positions are measured at an Financial assets and financial liabilities are offset and the net asking price), without any deduction for transaction costs. amount presented in the Statement of Financial Position when and only when Bank has a legal right to set off the recognized A market is regarded as active if quoted prices are readily and amounts and it intends either to settle on a net basis or to regularly available and represent actual and regularly occurring realize the asset and settle the liability simultaneously. Income market transactions on an arm’s length basis. and expenses are presented on a net basis only when permitted under NFRSs or for gains and losses arising from a group of Level 2 similar transaction such as in trading activity. If a market for a financial instrument is not active, then the Bank d. Determination of fair value establishes fair value using a valuation technique. Valuation techniques include using recent arm’s length transactions ‘Fair value’ is the price that would be received to sell an asset between knowledgeable, willing parties (if available), or paid to transfer a liability (exit price) in an orderly transaction reference to the current fair value of other instruments that between market participants at the measurement date. The are substantially the same, discounted cash flow analysis and fair value measurement is based on the presumption that the option pricing models. The chosen valuation technique makes transaction to sell the asset or transfer the liability takes place maximum use of market inputs, relies as little as possible on either: estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is • In the principal market for the asset or liability or consistent with accepted economic methodologies for pricing • In the absence of principal market, in the most advantageous financial instruments. Inputs to valuation techniques reasonably market for asset or liability. represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Bank calibrates All assets and liabilities for which fair value is measured or valuation techniques and tests them for validity using prices from disclosed in the financial statements are categorized within the observable current market transactions in the same instrument fair value hierarchy, described as follows, based on the lowest or based on other available observable market data. level input that is significant to the fair value measurement as a whole: The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of • Level 1 - Valuation technique using quoted market the consideration given or received, unless the fair value of that price: financial instruments with quoted prices for identical instrument is evidenced by comparison with other observable instruments in active markets. current market transactions in the same instrument, i.e. without modification or repackaging, or based on a valuation • Level 2 - Valuation technique using observable technique whose variables include only data from observable inputs: financial instruments with quoted prices for similar markets. When transaction price provides the best evidence of instruments in active markets or quoted prices for identical fair value at initial recognition, the financial instrument is initially or similar instruments in inactive markets and financial measured at the transaction price and any difference between instruments valued using models where all significant this price and the value initially obtained from a valuation model inputs are observable. is subsequently recognised in profit or loss on an appropriate basis over the life of the instrument but not later than when the • Level 3 – Valuation technique with significant valuation is supported wholly by observable market data or the unobservable inputs: financial instruments valued using transaction is closed out. valuation techniques where one or more significant inputs are unobservable. Level 3

Level 1 Certain financial instruments are recorded at fair value using valuation techniques in which current market transactions When available, the Bank measures the fair value of an instrument or observable market data are not available. Their fair value using quoted prices in an active market for that instrument or is determined using a valuation model that has been tested

30 www.sanimabank.com Annual Report 2017/18 against prices or inputs to actual market transactions and the inputs of market price of similar market instruments. using the Bank’s best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid e. Impairment and ask prices to reflect costs to close out positions, credit and debit valuation adjustments, liquidity spread and limitations in At each reporting date, Bank assesses whether there is any the models. Also, profit or loss calculated when such financial objective evidence that a financial asset or group of financial assets instruments are first recorded (day 1 profit or loss) is deferred not carried at fair value through profit or loss is impaired. A financial and recognised only when the inputs become observable or on asset or group of financial assets is deemed to be impaired if and derecognition of the instrument. 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 Fair values reflect the credit risk of the instrument and include asset (an ‘incurred loss event’) and that loss event (or events) has an adjustments to take account of the credit risk of the Bank entity impact on the estimated future cash flows of the financial asset or and the counterparty where appropriate. Fair value estimates group of financial assets that can be reliably estimated. obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties; to the extent that the Group Objective evidence of impairment may include: indications that believes a third-party market participant would take them into the borrower or a group of borrowers is experiencing significant account in pricing a transaction. financial difficulty; the probability that they will enter bankruptcy or other financial reorganization; default or delinquency in interest Assets and Liabilities Recorded at Fair Value or principal payments; and where observable data indicates that there is a measurable decrease in the estimated future cash A description of how fair values are determined for assets flows, such as changes in arrears or economic conditions that and liabilities that are recorded at fair value using valuation correlate with defaults. techniques is summarized below which incorporates the bank’s estimate of assumptions that a market participant would make Impairment of Financial Assets carried at Amortized Cost when valuing the instruments. For financial assets carried at amortized cost, such as amounts Derivative financial Instruments due from banks, held to maturity investments etc., Bank first assesses individually whether objective evidence of impairment Derivative financial instruments such as forward foreign exchange exists for financial assets that are individually significant or contracts are valued using a valuation technique with market collectively for financial assets that are not individually significant. observable inputs (Level 2). The most frequently applied valuation In the event Bank determines that no objective evidence of technique is forward pricing model which incorporates various impairment exists for an individually assessed financial asset, inputs including foreign exchange spot and forward premiums. financial assets in a group with similar credit risk characteristics are collectively assesses for impairment. However, assets Financial Investments measured at fair value through OCI that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not Quoted equities, Quoted Mutual Funds classified as financial included in a collective assessment of impairment. investments measured at fair value through OCI are valued using quoted market prices in the active markets as at the reporting Impairment of loans and advances (financial assets measured date (Level 1). at amortized cost) has been determined as per the directive of Nepal Rastra Bank. Foreign Quoted Debt Securities classified as financial investments measured at fair value through OCI are valued using market rate Reversal of Impairment published by the Stock exchange in which the Securities is listed (Level 1). If the amount of an impairment loss decreases in a subsequent period and the decrease can be related objectively to an event Unquoted equities, classified as financial investments measured occurring after the impairment was recognised, the excess at fair value through OCI are valued using a valuation technique is written back by reducing the financial asset impairment with market observable inputs (Level 2). The most frequently allowance account accordingly. The write-back is recognized in applied valuation technique is proxy pricing which incorporates the Statement of Profit or Loss.

www.sanimabank.com 31 Annual Report 2017/18

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

32 www.sanimabank.com Annual Report 2017/18 of the Cash Generating Units (CGU) fair value less costs to sell to a working condition for its intended use and the costs of and its value in use. Where the carrying amount of an asset or dismantling and removing the items and restoring the site on CGU exceeds its recoverable amount, the asset is considered which they are located. Purchased software that is integral to impaired and is written down to its recoverable amount. the functionality of the related equipment is capitalized as part of computer equipment. When parts of an item of property or In assessing value in use, the estimated future cash flows are equipment have different useful lives, they are accounted for discounted to their present value using a pre–tax discount rate as separate items (major components) of property, plant and that reflects current market assessments of the time value of equipment. money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. Cost Model

3.5. Trading Assets Property and equipment is stated at cost excluding the costs of day–to–day servicing, less accumulated depreciation and Financial assets such as government securities, equity etc. held accumulated impairment in value. Such cost includes the cost for short term with an intention to trade have been classified as of replacing part of the equipment when that cost is incurred, if trading assets. Trading assets are measured at fair value with the recognition criteria are met. any changes in fair value being recognised in Profit or Loss. Revaluation Model 3.6. Derivative assets and derivative liabilities The Bank has not applied the revaluation model to the any class Derivative financial instruments such as forward foreign of freehold land and buildings or other assets. Such properties exchange contracts are valued using a valuation technique with are carried at a previously recognised GAAP Amount. market observable inputs. The most frequently applied valuation technique is forward pricing model which incorporates various On revaluation of an asset, any increase in the carrying amount is inputs including foreign exchange spot and forward premiums. recognised in ‘Other comprehensive income’ and accumulated in equity, under capital reserve or used to reverse a previous 3.7. Property and Equipment revaluation decrease relating to the same asset, which was charged to the Statement of Profit or Loss. In this circumstance, Recognition the increase is recognised as income to the extent of previous write down. Any decrease in the carrying amount is recognised Property, plant and equipment are tangible items that are held for as an expense in the Statement of Profit or Loss or debited to the use in the production or supply of services, for rental to others or Other Comprehensive income to the extent of any credit balance for administrative purposes and are expected to be used during existing in the capital reserve in respect of that asset. more than one period. The Bank applies the requirements of the Nepal Accounting Standard - NAS 16 (Property, Plant and The decrease recognised in other comprehensive income Equipment) in accounting for these assets. Property, plant and reduces the amount accumulated in equity under capital equipment are recognised if it is probable that future economic reserves. Any balance remaining in the revaluation reserve in benefits associated with the asset will flow to the entity and the respect of an asset is transferred directly to retained earnings cost of the asset can be reliably measured. on retirement or disposal of the asset.

Measurement Subsequent Cost

An item of property, plant and equipment that qualifies for The subsequent cost of replacing a component of an item of recognition as an asset is initially measured at its cost. Cost property, plant and equipment is recognised in the carrying includes expenditure that is directly attributable to the acquisition amount of the item, if it is probable that the future economic of the asset and cost incurred subsequently to add to, replace benefits embodied within that part will flow to the Bank and it part of an item of property, plant & equipment. The cost of self- can be reliably measured. The cost of day to day servicing of constructed assets includes the cost of materials and direct property, plant and equipment are charged to the Statement of labor, any other costs directly attributable to bringing the asset Profit or Loss as incurred.

www.sanimabank.com 33 Annual Report 2017/18

Derecognition construction of buildings, major plant and machinery and system development, awaiting capitalization. Capital work-in-progress The carrying amount of an item of property, plant and equipment would be transferred to the relevant asset when it is available is derecognized on disposal or when no future economic benefits for use, i.e. when it is in the location and condition necessary are expected from its use. The gain or loss arising from de- for it to be capable of operating in the manner intended by recognition of an item of property, plant and equipment is included management. Capital work-in-progress is stated at cost less in the Statement of Profit or Loss when the item is derecognized. any accumulated impairment losses. When replacement costs are recognized in the carrying amount of an item of property, plant and equipment, the remaining 3.8. Intangible Assets carrying amount of the replaced part is derecognized. Major inspection costs are capitalized. At each such capitalization, the Recognition remaining carrying amount of the previous cost of inspections is derecognized. The gain or losses derecognition of an item of An intangible asset is an identifiable non-monetary asset without property, plant and equipment is included in profit or loss when physical substance, held for use in the production or supply the item is derecognized. of goods or services, for rental to others or for administrative purposes. An intangible asset is recognised if it is probable Depreciation that the future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be Depreciation is calculated by using the straight line method on measured reliably. An intangible asset is initially measured at cost or carrying value of property, plant & equipment other than cost. Expenditure incurred on an intangible item that was initially freehold land. recognised as an expense by the Bank in previous annual Financial Statements or interim Financial Statements are not The depreciable amount of an item of property, plant and recognised as part of the cost of an intangible asset at a later equipment is allocated on systematic basis over its useful life date. and is depreciated as follows: Computer Software Useful Life Depreciation Nature of Asset (in Years) Rate % Cost of purchased licenses and all computer software costs Building 50 5 incurred, licensed for use by the Bank, which are not integrally Furniture 10 25 related to associated hardware, which can be clearly identified, Office Equipment 10 25 reliably measured, and it’s probable that they will lead to future Vehicles 7 20 economic benefits, are included in the Statement of Financial Computers 7 25 Position under the category ‘Intangible assets’ and carried at Plant and Machinery 10 15 cost less accumulated amortization and any accumulated Leasehold Assets 10 Years or Lease period whichever impairment losses. is less Goodwill Depreciation on assets acquired during the year is computed on a proportionate basis from date of purchase or put to use, Goodwill, if any that arises upon the acquisition of Subsidiaries whichever is earlier. is included in intangible assets. Goodwill is measured at initial recognition in accordance with Note. Changes in Estimates Subsequent Expenditure The asset’s residual values, useful lives and methods of Expenditure incurred on software is capitalized only when it is depreciation are reviewed, and adjusted if appropriate, at each probable that this expenditure will enable the asset to generate financial year end. future economic benefits in excess of its originally assessed standard of performance and this expenditure can be measured Capital Work in Progress and attributed to the asset reliably. All other expenditure is These are expenses of capital nature directly incurred in the expensed as incurred.

34 www.sanimabank.com Annual Report 2017/18

Goodwill is measured at cost less accumulated impairment adjustment to tax payable in respect of prior years. losses. Deferred Tax Amortization of Intangible Assets Deferred tax is provided on temporary differences at the Intangible Assets, except for goodwill, are amortized on a reporting date between the tax bases of assets and liabilities straight–line basis in the Statement of Profit or Loss from the and their carrying amounts for financial reporting purposes. date when the asset is available for use, over the best of its useful Deferred tax liabilities are recognised for all taxable temporary economic life based on a pattern in which the asset’s economic differences except: benefits are consumed by the bank. Amortization methods, useful lives, residual values are reviewed at each financial year • Where the deferred tax liability arises from the initial end and adjusted if appropriate. The Bank assumes that there is recognition of goodwill or of an asset or liability in a no residual value for its intangible assets. transaction that is not a business combination, and at the time of transaction, affects neither the accounting profit nor Acquired computer software licenses are capitalized on the taxable profit or loss. basis of cost incurred to acquire and bring to use the specific software and are amortized over their useful life estimated as • In respect of taxable temporary differences associated 5 years from the date of acquisition or over the period of the with investments in subsidiaries, where the timing of the license, whichever is less. reversal of the temporary differences can be controlled and is probable that the temporary differences will not reverse Derecognition of Intangible Assets in the foreseeable future.

The carrying amount of an item of intangible asset is derecognized Deferred tax assets are recognised for all deductible temporary on disposal or when no future economic benefits are expected differences, carried forward unused tax credits and unused tax from its use. The gain or loss arising on de-recognition of an losses (if any), to the extent that it is probable that the taxable item of intangible assets is included in the Statement of Profit or profit will be available against which the deductible temporary Loss when the item is derecognized. differences, carried forward unused tax credits and unused tax losses can be utilized except: 3.9. Investment Property • Where the deferred tax asset relating to the deductible Properties held to earn rental and or capital appropriation temporary differences arising from the initial recognition of are recognised as investment property. Such properties are an asset or liability in a transaction that is not a business measured at cost. combination, and at the time of transaction, affects neither the accounting profit nor taxable profit or loss. 3.10. Income Tax • In respect of deductible temporary differences associated As per Nepal Accounting Standard- NAS 12 (Income Taxes) tax with investments in Subsidiaries, deferred tax assets are expense is the aggregate amount included in determination of recognised only to the extent that it is probable that the profit or loss for the period in respect of current and deferred temporary differences will reverse in the foreseeable future taxation. Income Tax expense is recognised in the statement of and taxable profit will be available against which the Profit or Loss, except to the extent it relates to items recognised temporary difference will be utilized. directly in equity or other comprehensive income in which case it is recognised in equity or in other comprehensive income. The carrying amount of deferred tax assets is reviewed at each Current Tax reporting date and reduced to the extent that it is probable that sufficient profit will be available to allow the deferred tax asset to Current tax assets and liabilities consist of amounts expected be utilized. Unrecognized deferred tax assets are reassessed at to be recovered from or paid to Inland Revenue Department in each reporting date and are recognised to the extent that it has respect of the current year, using the tax rates and tax laws become probable that future taxable profit will allow the deferred enacted or substantively enacted on the reporting date and any tax asset to be recovered.

www.sanimabank.com 35 Annual Report 2017/18

Deferred tax assets and liabilities are measured at the tax rates Interest Income 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 For all financial instruments measured at amortized cost, interest have been enacted or substantively enacted at the reporting bearing financial assets classified as measured at fair value date. through OCI and financial instruments designated at fair value through profit or loss, interest income or expense is recorded Current and deferred tax assets and liabilities are offset only to using the EIR. EIR is the rate that exactly discounts estimated the extent that they relate to income taxes imposed by the same future cash payments or receipts through the expected life of taxation authority. the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial 3.11. Deposits, debt securities issued and subordinated liability. liabilities The calculation takes into account all contractual terms of Deposits, debt securities issued and subordinated liabilities have the financial instrument (for example, prepayment options) been measured at amortized cost. Bank has a policy to treat and includes any fees or incremental costs that are directly debt securities issue expenses up to 1% of debt securities issue attributable to the instrument and are an integral part of the price as immaterial thus the same has not been considered in EIR, but not future credit losses. The carrying amount of the computation of fair value of debt securities. financial asset or financial liability is adjusted if the bank revises its estimates of payments or receipts. The adjusted carrying 3.12. Provisions amount is calculated based on the original EIR and the change in carrying amount is recorded as ’Interest income’ for financial A provision is recognised if, as a result of a past event, the assets and ’Interest and similar expense’ for financial liabilities. Bank has a present legal or constructive obligation that can be However, for a reclassified financial asset for which the bank estimated reliably, and it is probable that an outflow of economic subsequently increases its estimates of future cash receipts as benefits will be required to settle the obligation. The amount a result of increased recoverability of those cash receipts, the recognised is the best estimate of the consideration required effect of that increase is recognised as an adjustment to the EIR to settle the present obligation at the reporting date, taking in to from the date of the change in estimate. account the risks and uncertainties surrounding the obligation at that date. Where a provision is measured using the cash flows Bank has a policy to treat loan administration fees up to 1% of estimated to settle the present obligation, its carrying amount is loan amount as immaterial. Considering loan administration and determined based on the present value of those cash flows. A other fees as immaterial and impracticable to determine reliably, provision for onerous contracts is recognized when the expected same has not been included in computation of effective interest benefits to be derived by the Bank from a contract are lower rate as per Carve-out (optional) pronounced on 20th September than the unavoidable cost of meeting its obligations under the 2018. contract. The provision is measured as the present value of the lower of the expected cost of terminating the contract and the Once the recorded value of a financial asset or a group of similar expected net cost of continuing with the contract. financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of Before a provision is established, the Bank recognizes any interest used to discount the future cash flows for the purpose impairment loss on the assets associated with that contract. The of measuring the impairment loss. expense relating to any provision is presented in the Statement of Profit or Loss net off any reimbursement. Fee and Commission Income

3.13. Revenue Recognition Fees earned for the provision of services over a period of time are accrued over the period, which include service fees and Revenue is recognised to the extent that it is probable that the commission income. Loan commitment fees for loans that economic benefits will flow to Bank and the revenue can be are likely to be drawn down and other credit related fees are reliably measured. The following specific recognition criteria deferred (together with any incremental costs) and recognised must also be met before revenue is recognised. as an adjustment to the EIR on the loan.

36 www.sanimabank.com Annual Report 2017/18

Dividend Income Defined Benefit Plans

Dividend income is recognized when the right to receive payment A defined benefit plan is a post-employment benefit plan other is established. than a defined contribution plan. Accordingly, staff gratuity and leave encashment has been considered as defined benefit plans Net Trading Income as per Nepal Accounting Standards – NAS 19 (Employee Benefits).

Net Trading Income includes all gains and losses from changes (a) Gratuity in fair value and related capital gain/loss and dividend from financial assets ‘Held for Trading’. An actuarial valuation is carried out every year to ascertain the full liability under gratuity. Net income from other financial instrument measured at fair value through Profit or Loss Bank’s obligation in respect of defined benefit obligation is calculated by estimating the amount of future benefit that Net income from other financial instrument measured at fair employees have earned for their service in the current and value through Profit or Loss includes all gains/(losses) arised prior periods and discounting that benefit to determine its from the revaluation of financial instrument at fair value. present value, then deducting the fair value of any plan assets to determine the net amount to be shown in the Statement 3.14. Interest expense of Financial Position. The value of a defined benefit asset is restricted to the present value of any economic benefits available For all financial liabilities measured at amortized cost, interest in the form of refunds from the plan or reduction on the future expense is recognised using the EIR. EIR is the rate that contributions to the plan. In order to calculate the present value exactly discounts estimated future cash payments through the of economic benefits, consideration is given to any minimum expected life of the financial liabilities or a shorter period, where funding requirement that apply to any plan in Bank. An economic appropriate, to the net carrying amount of the financial liability. benefit is available to Bank if it is realizable during the life of the plan, or on settlement of the plan liabilities. 3.15. Employee Benefits Bank determines the interest expense on the defined benefit Defined Contribution Plans liability by applying the discount rate used to measure the defined benefit liability at the beginning of the annual period. A defined contribution plan is a post-employment benefit plan The discount rate is the average yield on government bonds under which the Bank makes fixed contribution into a separate issued during the period having maturity of five years or more. Bank account (a fund) and will have no legal or constructive obligation to pay further contributions even if the fund does not The increase in gratuity liabilities attributable to the services hold sufficient assets to pay all employee benefits relating to provided by employees during the year ended 16th July, 2018 employee services in the current and prior periods as defined (current service cost) has been recognised in the Statement of in Nepal Accounting Standards – NAS 19 (Employee Benefits). Profit or Loss under ‘Personnel Expenses’ together with the net interest expense. Bank recognizes the total actuarial gain/(loss) The contribution payable by the employer to a defined that arises in computing Bank’s obligation in respect of gratuity in contribution plan in proportion to the services rendered to other comprehensive income during the period in which it occurs. Bank by the employees and is recorded as an expense under ‘Personnel Expense’ as and when they become due. Unpaid The demographic assumptions underlying the valuation are contribution are recorded as a liability under ‘Other Liabilities’ retirement age (58 years), early withdrawal from service and in Notes 4.23. retirement on medical grounds.

Bank contributed 10% of the salary of each employee to the (b) Unutilized Accumulated Leave Employees’ Provident Fund. The above expenses are identified as contributions to ‘Defined Contribution Plans’ as defined in Bank’s liability towards the accumulated leave which is expected Nepal Accounting Standards – NAS 19 (Employee Benefits). to be utilized beyond one year from the end of the reporting

www.sanimabank.com 37 Annual Report 2017/18 period is treated as other long term employee benefits. Bank’s of the assets is thereby impaired. net obligation towards unutilized accumulated leave is calculated by discounting the amount of future benefit that employees have When Bank is the lessee, leased assets are not recognized on the earned in return for their service in the current and prior periods Statement of Financial Position. Rentals payable and receivable to determine the present value of such benefits. The discount under operating leases are accounted for on a straight-line rate is the average yield on government bonds issued during the basis over the periods of the leases and are included in ‘Other period having maturity of five years or more. The calculation is operating expenses’ and ‘Other operating income’, respectively. performed using the Projected Unit Credit method. Net change in liability for unutilized accumulated leave including any actuarial The bank recognized accrued lease for the period as an expense gain and loss are recognized in the Statement of Profit or Loss on incremental basis (as per lease term) considering the general under ‘Personnel Expenses’ in the period in which they arise. inflation as per Carve-out (optional) pronounced on 20th September 2018. 3.16. Leases 3.17. Foreign currency translation The determination of whether an arrangement is a lease, or it contains a lease, is based on the substance of the arrangement All foreign currency transactions are translated into the functional and requires an assessment of whether the fulfillment of the currency, which is Nepalese Rupees, using the exchange rates arrangement is dependent on the use of a specific asset or prevailing at the dates when the transactions were affected. assets and the arrangement conveys a right to use the asset. Monetary assets and liabilities denominated in foreign Finance Lease currencies at the reporting date are translated to Nepalese Rupees using the spot foreign exchange rate ruling at that date Agreements which transfer to counterparties substantially all and all differences arising on non-trading activities are taken the risks and rewards incidental to the ownership of assets, to ‘Other Operating Income’ in the Statement of Profit or Loss. but not necessarily legal title, are classified as finance lease. The foreign currency gain or loss on monetary items is the When Bank is the lessor under finance lease, the amounts due difference between amortized cost in the functional currency at under the leases, after deduction of unearned interest income, the beginning of the period, adjusted for effective interest and are included in, ‘Loans & receivables from other customers’, as payments during the period, and the amortized cost in foreign appropriate. Interest income receivable is recognised in ‘Net currency translated at the rates of exchange prevailing at the interest income’ over the periods of the leases so as to give a end of the reporting period. constant rate of return on the net investment in the leases. Non-monetary items in a foreign currency that are measured in When Bank is a lessee under finance leases, the leased assets terms of historical cost are translated using the exchange rates are capitalized and included in ‘Property, Plant and Equipment’ as at the dates of the initial transactions. Non-monetary items in and the corresponding liability to the lessor is included in ‘Other foreign currency measured at fair value are translated using the liabilities’. A finance lease and its corresponding liability are exchange rates at the date when the fair value was determined. recognized initially at the fair value of the asset or if lower, the present value of the minimum lease payments. Finance charges Foreign exchange differences arising on the settlement or payable are recognised in ‘Interest expenses’ over the period of reporting of monetary items at rates different from those the lease based on the interest rate implicit in the lease so as which were initially recorded are dealt with in the Statement to give a constant rate of interest on the remaining balance of of Profit or Loss. However, foreign currency differences arising the liability. on available-for-sale equity instruments are recognized in other comprehensive income. Operating Lease 3.18. Financial guarantee and loan commitments All other leases are classified as operating leases. When acting as lessor, Bank includes the assets subject to operating leases Contingent Liabilities are possible obligations whose existence in ‘Property, plant and equipment’ and accounts for them will be confirmed only by uncertain future events or present accordingly. Impairment losses are recognized to the extent that obligations where the transfer of economic benefits is not residual values are not fully recoverable and the carrying value probable or cannot be reliably measured as defined in the Nepal

38 www.sanimabank.com Annual Report 2017/18

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

3.19. Share capital and reserves 3.23. FIRST TIME ADOPTION OF NFRS

Share capital and reserves have been treated as equity instrument As stated in Note 2.2, these are the Bank’s first financial as per NAS 32 representing the net assets of the entity. Bank statements prepared in accordance with NFRS. The comparative has a policy to treat share/debenture issue expenses upto 1% of figures have also been presented alongside. The effect of any issue amount as immaterial. Thus, same has not been deducted difference in opening balance as per NFRS and as per NRB from capital/debenture and has been charged to profit or loss Directive no. 4 have been given on Retained Earnings or Other of relevant period. components of Reserves, wherever applicable and transferred to Regulatory Reserve. Accordingly the difference in current year 3.20. Earnings per share including diluted profit has also been booked in regulatory reserve.

Bank presents basic and diluted Earnings per share (EPS) data As per the provisions of NFRS, the effect of any difference in for its ordinary shares. Basic EPS is calculated by dividing the opening balance under NFRS is Rs. 179.87 Million in equity profit and loss attributable to ordinary equity holders of Bank by compared to NRB Directives which is disclosed in Note 5.11 to the weighted average number of ordinary shares outstanding financial statements.

www.sanimabank.com 39 Annual Report 2017/18

Cash and Cash Equivalent For the year ended on 16 July 2018 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 Instrument 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 For the year ended on 16 July 2018 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

40 www.sanimabank.com Annual Report 2017/18

Placements with Bank and Financial Instituitions For the year ended on 16 July 2018 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

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 to 6 months Bank and Financial Institutions 177,718,356 177,514,793 203,563 Derivative Financial Instruments For the year ended on 16 July 2018 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 on 16 July 2018 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.

www.sanimabank.com 41 Annual Report 2017/18

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. 145766 shares of Rs. 100 each 14,576,600 22,492,058 14,576,600 28,471,817 14,576,600 22,492,058 14,576,600 28,471,817 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. 845 Ordinary Shares of Rs. 100 each - - - 649,309 - - - 649,309 Laxmi Micro Finance Limited 90 Ordinary Shares of Rs. 100 each - - 486,413 627,362 - - 8,600 166,066 Siddharth 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. 147 Ordinary Shares of Rs. 100 each - - 13,900 31,628 - - 13,900 31,628 Kalika Micro Credit Development Bank Ltd. 82 Ordinary Shares of Rs. 100 each - - 8,200 141,467 - - 8,200 141,467 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 shares of Rs. 100 each) 742,205 722,673 2,600 83,034 - - - - 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

42 www.sanimabank.com Annual Report 2017/18

Loan and Advances to B/FIs For the year ended on 16 July 2018 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

Loan 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 on 16 July 2018 4.6.1 Group Bank Current Year Previous Year Current Year Previous Year Balance at Sawan 1 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 on 16 July 2018 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

www.sanimabank.com 43 Annual Report 2017/18

Analysis of Loan and Advances - By Product For the year ended on 16 July 2018 4.7.1 Group Bank Current Year Previous Year Current Year Previous Year Loan 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 For the year ended on 16 July 2018 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

44 www.sanimabank.com Annual Report 2017/18

Analysis of Loan and Advances - By Collateral For the year ended on 16 July 2018 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 Grant Total 68,399,505,195 51,611,072,368 68,399,505,740 51,611,072,368 Allowances for Impairment For the year ended on 16 July 2018 4.7.4 Group Bank Current Year Previous Year Current Year Previous Year Specific allowances for impairment Balance at Sawan 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 Sawan 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

www.sanimabank.com 45 Annual Report 2017/18

Investment Securities For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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

46 www.sanimabank.com Annual Report 2017/18

Information Relating to Investment In Equities For the year ended on 16 July 2018 4.8.3 Group Bank Current Year Previous Year Current Year Previous Year Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value Investment in quoted equity

Sanima Equity Fund 16900000 shares of Rs. 10 each (Bank) 202,926,800 193,125,030 - - 169,000,000 160,836,962 - - 20292680 shares of Rs. 10 each (Group)

Investment in unquoted equity

Sanima Life Insurance Co. Ltd. 280,000,000 280,000,000 350,000 350,000 280,000,000 280,000,000 350,000 350,000 2800000 shares of Rs. 100 each

Nepal Clearing House Company Ltd. 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 2,302,600 27631 shares of Rs. 100 each

Sanima Insurance Ltd. 100,000,000 100,000,000 - - 100,000,000 100,000,000 1000000 shares of Rs. 100 each

Swet Ganga Hydropower and Construction Ltd (Lower Likhu Hydro Power Project) 25,000,000 25,000,000 - - 25,000,000 25,000,000 - - 250000 shares of Rs. 100 each

Tamor Sanima Energy Pvt Ltd (Sanima Middle Tamor Hydro Power Project) 25,000,000 25,000,000 - - 25,000,000 25,000,000 - - 250000 shares of Rs. 100 each

Mathillo Mailun Khola Jalvidhyut Ltd 22,500,000 22,500,000 - - 22,500,000 22,500,000 - - 225000 shares of Rs. 100 each

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 on 16 July 2018 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

www.sanimabank.com 47 Annual Report 2017/18

Investment in Subsidiaries For the year ended on 16 July 2018 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

Investment in Quoted Subsidiaries For the year ended on 16 July 2018 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. ……hares of Rs. …….each Total

Investment in Unquoted Subsidiaries For the year ended on 16 July 2018 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. 250,000,000 250,000,000 110,000,000 110,000,000 2,500,000 shares of Rs.100.each Total 250,000,000 250,000,000 110,000,000 110,000,000

Information Relating to Subsidiaries of the Bank For the year ended on 16 July 2018 4.10.3 Group Bank Percentage of ownership Percentage of ownership Current Year Previous Year Current Year Previous Year Sanima Capital Ltd. 100% 100%

48 www.sanimabank.com Annual Report 2017/18

Non Controlling Interest of the Subsidiaries For the year ended on 16 July 2018 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 on 16 July 2018 4.11 Group Bank Current Year Previous Year Current Year Previous Year Investment in quoted associates Investment in unquoted associates Total investment Less: Impairment allowances Net carrying amount Investment in Quoted Associates For the year ended on 16 July 2018 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

www.sanimabank.com 49 Annual Report 2017/18

Investment in Unquoted Associates For the year ended on 16 July 2018 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 Information Relating to Associates of the Bank For the year ended on 16 July 2018 4.11.3 Group Bank Percentage of ownership held Percentage of ownership held by the Bank Current Year Previous Year Current Year Previous Year ………………….Ltd. ………………….Ltd. ………………….Ltd. ………………….Ltd. ………………… Equity Value of Associates For the year ended on 16 July 2018 4.11.4 Group Bank Current Year Previous Year Current Year Previous Year …………………………………….Ltd. …………………………………….Ltd. ………………………………. Total Investment Properties For the year ended on 16 July 2018 4.12 Group Bank

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

50 www.sanimabank.com Annual Report 2017/18

------4.13 (485,669) 6,095,887 (9,852,494) 82,673,878 Total (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

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

------(309,423) (313,100) (252,091) 9,650,353 7,669,516 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) 7,850,917 8,547,398 (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 &

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

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

------(274,702) (621,702) (4,706,208) (2,410,357) 17,756,183 80,356,845 37,113,896 13,098,708 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

For the year ended on 16 July 2018

------Property and Equipment 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

Acquisition Capitalization Acquisition Capitalization As on July 15 2017 As on July 16 2018 Cost As on July 16 2016 Particulars Year Addition during the Disposal during the year Adjustment/Revaluation Balance as on July 15 2017 Addition during the Year Addition during the Disposal during the year Adjustment/Revaluation Balance as on July 16 2018 Depreciation and Impairment As on July 16 2016 Depreciation charge for the Year Depreciation charge for the Impairment for the year Disposals Adjustment As on July 15 2017 Impairment for the year Depreciation charge for the Year Depreciation charge for the Disposals Adjustment As on July 16 2018 Capital Work in Progress 2017 Capital Work Capital Work in Progress 2018 Capital Work Net Book Value

www.sanimabank.com 51 Annual Report 2017/18

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

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

- (309,423) (313,100) (252,091) 9,650,353 7,669,516 8,624,141 Machinery 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

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

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

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

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

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

- - - Land 38,736,100 171,600,000 210,336,100 210,336,100 210,336,100 210,336,100 Acquisition Capitalization Acquisition Capitalization As on July 15 2017 As on July 16 2018 Particulars Cost As on July 16 2016 Addition during the Year Addition during the Disposal during the year Adjustment/Revaluation Balance as on July 15 2017 Addition during the Year Addition during the Disposal during the year Adjustment/Revaluation Balance as on July 16 2018 Depreciation and Impairment As on July 16 2016 Depreciation charge for the Year Depreciation charge for the Impairment for the year Disposals Adjustment As on July 15 2017 Impairment for the year Depreciation charge for the Year Depreciation charge for the Disposals Adjustment As on July 16 2018 Capital Work in Progress 2017 Capital Work Capital Work in Progress 2018 Capital Work Net Book Value

52 www.sanimabank.com Annual Report 2017/18

------4.14 881,400 2,071,681 1,215,456 9,272,238 1,678,229 9,936,670 2,632,848 4,367,320 12,695,082 15,982,219 26,135,857 11,614,899 14,247,747 46,252,200 58,140,309 Total

------Other

------Group Developed

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

Goodwill ------

------

- - - For the year ended on 16 July 2018 Goodwill and Intangible Assets Particulars Acquisition Capitalization Capitalization Acquisition As on July 16 2018 As on July 15 2017 Disposal during the year Adjustment/Revaluation Addition during the Year Addition during the As onJuly 16 2016 Cost Disposal during the year Addition during the Year Addition during the Balance as on July 15 2017 Adjustment/Revluation Impairment for the year Amortization charge for the Year Amortization charge for the Amortization and Impairment As on July 16 2016 Balance as on July 16 2018 Disposals Adjustment Impairment for the year Amortization charge for the Year Amortization charge for the As on July 15 2017 Disposals Adjustment Capital Work in Progress 2016 Capital Work As on July 16 2018 Net Book Value Capital Work in Progress 2018 Capital Work

www.sanimabank.com 53 Annual Report 2017/18

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

------Other

------Bank Developed

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

- - Particulars Acquisition Capitalization Acquisition Capitalization As on July 16 2018 As on July 15 2017 Cost Disposal during the year Addition during the Year Addition during the As on July 16 2016 Adjustment/Revaluation Disposal during the year Addition during the Year Addition during the Balance as on July 15 2017 Adjustment/Revluation Impairment for the year Amortization charge for the Year Amortization charge for the Amortization and Impairment As on July 16 2016 Balance as on July 16 2018 Disposals Adjustment Impairment for the year Amortization charge for the Year Amortization charge for the As on July 15 2017 Disposals Adjustment Capital Work in Progress 2017 Capital Work As on July 16 2018 Net Book Value Capital Work in Progress 2018 Capital Work

54 www.sanimabank.com Annual Report 2017/18

Deferred Tax For the year ended on 16 July 2018 4.15 Group Bank Current Year Current Year

Net Deferred Net Deferred Deferred Tax Deferred Tax Tax Assets/ Deferred Tax Deferred Tax Tax Assets/ Assets Liabilities (Liabilities) Assets Liabilities (Liabilities) Deferred tax on temporory differences on following items Loan and Advance to B/FIs ------Loans and advances to customers ------Investment properties ------Investment securities 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 July 16 2018 50,605,018 50,151,213 Deferred tax (asset)/liabilities as on July 16 2017 31,035,758 30,923,343 Origination/(Reversal) during the year (81,640,776) (81,074,556) Deferred tax expense/(income) recognised in profit or loss (56,493,106) (56,418,506) Deferred tax expense/(income) recognised in other comprehensive income (25,147,670) (24,656,051) Deferred tax expense/(income) recognised in directly in equity - -

Current Year Current Year Net Deferred Net Deferred Deferred Tax Deferred Tax Tax Assets/ Deferred Tax Deferred Tax Tax Assets/ Assets Liabilities (Liabilities) Assets Liabilities (Liabilities) Deferred tax on temporory differences on following items Loan and Advance to B/FIs ------Loans and advances to customers - 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 July 15 2017 (31,035,758) (30,923,343) Deferred tax (asset)/liabilities as on July 16 2016 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 comprehensive income (2,150,532) (2,150,532) Deferred tax expense/(income) recognised in directly in equity - -

www.sanimabank.com 55 Annual Report 2017/18

Other Assets For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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 on 16 July 2018 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 -

56 www.sanimabank.com Annual Report 2017/18

Deposits from Customers For the year ended on 16 July 2018 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 on 16 July 2018 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 11.28

www.sanimabank.com 57 Annual Report 2017/18

Borrowing For the year ended on 16 July 2018 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 - - - -

Provisions For the year ended on 16 July 2018 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 on 16 July 2018 4.22.1 Group Bank

Current Year Previous Year Current Year Previous Year Opening Balance 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 Year end 14,805,777 44,519,159 11,817,943 43,355,931

58 www.sanimabank.com Annual Report 2017/18

Other Liabilities For the year ended on 16 July 2018 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 2013/14 259,040 277,000 Bagamati Development Bank 2012/13 126,830 223,860 2011/12 2,223,331 2,367,134 2010/11 1,661,564 1,700,351 Sanima Bank 2009/10 1,544,937 1,580,189 Total 5,815,703 6,148,534 Defined Benefit Obligations For the year ended on 16 July 2018 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

www.sanimabank.com 59 Annual Report 2017/18

Plan Assets For the year ended on 16 July 2018 Plan assets comprise 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 on 16 July 2018 4.23.3 Group Bank

Current Year Previous Year Current Year Previous Year Opening balance of defined benefit obligations 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 Year end 172,132,946 65,209,444 172,132,946 65,209,444 Movement in the Fair Value of Plan Assets For the year ended on 16 July 2018 4.23.4 Group Bank

Current Year Previous Year Current Year Previous Year Opening Fair value of plan assets 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 Year end 65,415,333 36,899,186 65,415,333 36,899,186 Amount Recognised in Profit or Loss For the year ended on 16 July 2018 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

60 www.sanimabank.com Annual Report 2017/18

Amount Recognised in Other Comprehensive Income For the year ended on 16 July 2018 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 on 16 July 2018 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 on 16 July 2018 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 on 16 July 2018 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 61 Annual Report 2017/18

Share Capital For the year ended on 16 July 2018 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 on 16 July 2018 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 on 16 July 2018 4.26.2 Bank Current Year Previous Year Percent Amount Percent Amount Domestic ownership Nepal Government - - - - "A" class licensed institutions - - - - 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

62 www.sanimabank.com Annual Report 2017/18

Details of shareholders holding 0.50% or more shares: Name of Shareholder No. of Shares Holding % ARUN KUMAR OJHA 6,351,707 7.94 TEK RAJ NIRAULA 5,673,124 7.09 NIRAJ GOVINDA SHRESTHA 4,975,452 6.22 JIBA NATH LAMICHHANE 4,425,881 5.53 BINAYA KUMAR SHRESTHA 3,749,576 4.69 GHAN SHYAM THAPA 3,432,629 4.29 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 For the year ended on 16 July 2018 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 63 Annual Report 2017/18

Contingent Liabilities and Commitments For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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

64 www.sanimabank.com Annual Report 2017/18

Capital commitments For the year ended on 16 July 2018 Capital expenditure approved by relevant authority of the bank but provision has not been made in financial statement 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 For the year ended on 16 July 2018 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 Litigation For the year ended on 16 July 2018 4.28.5 None. Explanatory paragraphs are required for ligitation contingent liabilities as per their own case of each bank

www.sanimabank.com 65 Annual Report 2017/18

Interest Income For the year ended on 16 July 2018 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 4,762,259,980 7,512,618,809 4,762,259,980 Investment securities 387,026,213 250,805,669 387,026,213 250,805,669 Loan and advances to staff 62,813,227 28,500,378 62,812,047 28,500,378 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 14,807,093 25,743,864 14,807,093 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 28,500,378 62,812,047 28,500,378

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 on 16 July 2018 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

66 www.sanimabank.com Annual Report 2017/18

Fees and Commission Income For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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

www.sanimabank.com 67 Annual Report 2017/18

Net trading income For the year ended on 16 July 2018 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.

Other Operating Income For the year ended on 16 July 2018 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 - - - 0 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

68 www.sanimabank.com Annual Report 2017/18

Impairment Charge/(Reversal) for Loan and Other Losses For the year ended on 16 July 2018 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 228,771,151 138,183,495 228,771,151 138,183,495 customer 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 on 16 July 2018 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.

www.sanimabank.com 69 Annual Report 2017/18

Other Operating Expense For the year ended on 16 July 2018 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 2017/18, the bank appropriated Corporate Social Responsibility Reserve of amount Rs.16,975,032. CSR reserve fund Amount (Rs.) Opening Balance as at July 16 2017 13,041,034 Less: CSR activities for FY 2017/18 (8,180,178) Add: Reserve @1% on Net Profit 16,975,032 Closing Balance as at July 16 2018 21,835,889 Depreciation & Amortisation For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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.

70 www.sanimabank.com Annual Report 2017/18

Non Operating Expense For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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 For the year ended on 16 July 2018 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 94,628,077 33,958,109 94,628,077 33,958,109 tax purpose 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%

www.sanimabank.com 71 Annual Report 2017/18

Statement of Distributable Profit or Loss For the year ended on 16 July 2018 (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 / Loss 949,069,348 1,044,686,125

72 www.sanimabank.com Annual Report 2017/18

Sanima Bank Ltd Disclosure and Additional Information Year ended 16th July 2018

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

The Board of Directors has overall responsibility for the 5.1.1. Credit Risk establishment and oversight of the Bank’s risk management framework. Chief Risk Officer (CRO), along with his team, is Risk is an inherent feature of any business and it drives an entity responsible for overall risk management of the Bank which towards income generation. Likewise, Risk management objective

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

www.sanimabank.com 73 Annual Report 2017/18 of the Bank is to strike balance between risk and return, and ensure Collateral and other credit enhancements optimum Risk-adjusted return on capital. A reasonable level of return is essential for sustainability of the business. However, The amount and type of collateral required depends on an taking higher risk in search of higher earnings may have chances assessment of the credit risk of the counterparty. Guidelines are to result in failure of business. Thus effective risk management in place covering the acceptability and valuation of each type is a must for business success. Towards this end Sanima Bank of collateral. The general creditworthiness of customers tends has implemented robust risk management architecture as well to be the most relevant indicator of credit quality of a loan. as policies and processes approved by the Board of Directors. However, collateral provides additional security and the Bank These encompass independent identification, measurement and generally requests large borrowers to provide same. The Bank management of risks across various facets of banking operation. may take collateral in the form of a first charge over real estate and residential properties, floating charges over all corporate Board level risk management committee has been set up under assets and other liens and guarantees. The Bank’s policy is to NRB Directive for ensuring/reviewing bank's risk appetite are in pursue timely realisation of the collateral in an orderly manner. line with the policies and CRO acts as member secretary. CRO The proceeds are used to reduce or repay the outstanding claim. closely monitors and report on credit related risks in RMC meeting. The Bank generally does not use non-cash collateral for its own operations. Credit Risk Mitigation (CRM) Definition of Past Due The Bank has extensive policy and guidelines to mitigate credit risks. The Bank’s credit policy has strengthened minimizing Bank consider that any amounts uncollected one day or more credit risk and provided support to make qualitative analysis beyond their contractual due date are ‘past due’ based on sound credit principles and procedures. Bank has a policy to consider as security for pledge, hypothecated or Past due but not impaired loans mortgage which have value considering physical control and legal title. Bank has considered eligible CRM as prescribed by Past due but not impaired loans are those for which contractual Capital Adequacy standard. Collateral taken as Deposit with own interest or principal payments are past due, but the Bank Bank, Deposit with other BFIs, National Saving & Development believes that impairment is not appropriate on the basis of the Bonds, and Gold & Silver have been considered as CRM and stage of collection of amounts owed to the Bank. adjusted on overall risk weighted exposure on credit risk in line with the standard. 5.1.2. Market Risk

The Bank has developed a risk assessment culture and has in Market risk is the risk that the fair value or future cash flows place the required reports for assessing concentration of risks. of financial instruments will fluctuate due to changes in Periodic performance reporting based on Balanced Scorecard, market variables such as interest rates, foreign exchange in line with capital strength, to the Board is also in place. These rates, commodity prices and equity prices. The bank classifies reports are periodically put up to the board. Board also reviews exposures to market risk into either trading or non–trading the same and issues instructions, as appropriate, to the Bank’s portfolios and manages each of those portfolios separately.The management. bank has separate market risk management policy in place as a guiding document. During the current financial year, the Bank has availed the benefits of credit risk mitigation as under: Market Risks are discussed at Asset Liability Management Committee (ALCO) of the Bank and even discussed at respective Particulars 2018 2017 division level on open position on daily basis. The limits for Rs Rs open position are controlled, level wise which ensures in- Deposits with own bank 1,230,908,316 996,062,102 Deposit with other banks and - - depth knowledge of the market and movement before taking financial institutions decision (by choice). The monthly reports on such aspects are Securities issued by Nepal Govern- - - well discussed and dealt in ALCO. The committee ensures ment and Nepal Rastra Bank functioning of the jobs in line with the policies and procedures Gold & Silver 149,209,889 488,531,464 and suggests/recommends for necessary steps collectively 1,380,118,205 1,484,593,565 to address the risk on interest rate movement, exchange rate

74 www.sanimabank.com Annual Report 2017/18 movement and equity price changes. Most of the market The Bank maintains a portfolio of highly marketable and operations (investments) are done from the Treasury Front diverse assets assumed to be easily liquidated in the event of Office which reports to the Chief Financial Officer and exposure an unforeseen interruption of expected cash flow. The Bank accounting including booking of income/expense is done from also has committed lines of credit that could be utilized to Treasury Back Office which reports to the Chief Operating meet liquidity needs. Further, the Bank maintains a statutory Officer. The Bank assesses the open position on daily basis deposit with the Nepal Rastra Bank equal to approx. 7.22% of and calculates risk exposure for allocation of required capital customer local deposits. In accordance with the bank’s policy, in line with Basel provisions. Likely impact on earnings due to the liquidity position is assessed and managed under a variety change in the market condition and change in the standing of of scenarios, giving due consideration to stress factors relating the counterparty are well assessed periodically and necessary to both the market in general and specific to the Bank. The most actions are taken as appropriate. TFO is equipped with advanced important of these is to maintain the required ratio of liquid dealing platform for timely and effectively concluding the deals. assets to liabilities, to meet the regulatory requirement . Liquid Similarly the unit is equipped with modern and advanced assets consist of cash, short–term bank deposits and liquid debt information system on global news, market movements and any securities available for immediate sale. Further the Statutory incidents so that bank can manage and maintain the position Liquid Assets Ratio of the Bank for the month of Ashad 32 2075 favorably. is as follows.

5.1.3. Liquidity Risk & Funding management Statutory Liquidity Ratio

Liquidity risk is the risk that the Bank will encounter difficulties in For the Month of Ashad 2075 24.72 meeting its financial commitments that are settled by delivering cash or another financial asset. Hence the bank may be unable Analysis of financial assets and liabilities by remaining to meet its payment obligations when they fall due under both contractual maturities normal and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core The table below summarises the maturity profile of the deposit base, and adopted a policy of continuously managing undiscounted cash flows of the Bank’s financial assets and assets with liquidity in mind and of monitoring future cash flows liabilities as at Ashad 32, 2075. Repayments which are subject and liquidity on a daily basis. The bank has formulated seperate to notice are treated as if notice were to be given immediately. liquidity risk management policy, developed internal control However, the Bank expects that many customers will not request processes and contingency plans for managing liquidity risk. repayment on the earliest date it could be required to pay and This incorporates an assessment of expected cash flows and the table does not reflect the expected cash flows indicated by the availability of high grade collateral which could be used to its deposit retention history. secure additional funding if required. Contractual maturities & undiscounted cashflows of financial assets & liabilities Figure in Rs. On Up to 3 to 12 More than 16 July 2018 Total Demand 3 months months 1 year 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

www.sanimabank.com 75 Annual Report 2017/18

On Up to 3 to 12 More than 16 July 2018 Total Demand 3 months months 1 year 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 risk monitoring and reporting framework as well as “output checking” at all branches covering all transactions on daily basis to minimize Financial instruments are recorded at fair value. The following is a operational risk. description of how fair values are determined for financial instruments that are recorded at fair value using valuation techniques. These One of the growing risks among others these days is Operations Risk incorporate the bank’s estimate of assumptions that a market participant that arises out of inefficient processes and people inside and outside would make when valuing the instruments. the Bank. Asset Liability Management Committee (ALCO) is the management committee where operating risk, market risk and other For all financial instruments where fair values are determined by risks are discussed, in line with ALM Policy. Banking System (BS) is referring to externally quoted prices or observable pricing inputs to another area of concern where it has witnessed growing threat from models, independent price determination or validation is obtained. In outside. Information and Technology Division in the Bank reviews and an inactive market, direct observation of a traded price may not be checks the security aspects in line with IT Policy of the Bank. Bank has possible. In these circumstances, the Bank uses alternative market conducted an IS Audit of the Bank’s system and suggestions given by information to validate the financial instrument’s fair value, with greater the audit with respect to safety and security standards are being put in weight given to information that is considered to be more relevant and place. reliable. Financials assets measured at fair value (either through PL or OCI), primarily consisting of quoted equities and Quoted Mutual Fund Bank has separate division to oversee operation risk including units, are valued using the quoted market price in active markets as at Compliance of KYC and AML. The division is headed by senior level staff the reporting date. If unquoted, those are carried at cost. with adequate access to the daily report, operational processes and right to recommend the changes in the system and procedures. The Financial investments – Measured through OCI head of operation risk directly reports to the Chief Risk Officer. Bank has SIMs (Standing Instruction Manuals) for all businesses of the Bank. All Financials assets measured through OCI, primarily consist of quoted the activities are undertaken in line with the set criteria in the Standing equities and Quoted Mutual Fund units ,are valued using the quoted Instruction Manual, policies and guidelines including Directives and market price in active markets as at the reporting date. For unquotes circulars from central bank (the regulatory authority). Similarly daily securities those are carried at cost. functions at operations are independently reported through separate reporting line other than business generation and credit risk where 5.1.5 Operational Risk independence of checking and control is complied with.

Operational risk is the risk of losses arising from failed internal processes, Processes are reviewed periodically so that their perfection can be systems failure, human error, fraud or external events. When controls weighed and any shortcoming can be addressed. Most of the functions fail to perform, operational risks can cause damage to reputation, have like line approval, bill payment, loan disbursement are centralized which legal or regulatory implications, or lead to financial loss. Strategic and controls activities that can cause mistake due to inadequate knowledge Reputational Risks are not covered in Operational Risk. 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 Effective operational risk management systems aims to minimizing losses of the Bank, or in branches or publishing notices as appropriate. Staffs and customer dissatisfaction due to failure in processes, focusing on flows are given orientation on the job including that of system of the Bank in products and their design that can expose the Bank to losses due to before they are placed for the job and are guided to follow the SIMs for fraud, analyzing the impact of failures in technology / system, developing the job. Any staff for the first time in any job is put under the supervision plans to meet external shocks that can adversely impact continuity in the of an experienced staff and is allowed to work independently after Bank’s operations. Bank has introduced a “comprehensive operational attaining required skills.

76 www.sanimabank.com Annual Report 2017/18

Bank has Whistle Blowing Policy to report to senior or management basis and also reviewed in ALCO meeting and hedging strategies are directly on anyone’s suspicious conduct outside and inside the used to ensure positions are maintained within established limits. Bank. Skill development and skill enhancement programs are Market risk management policy and Treasury Manual of the bank are conducted on periodic basis and staffs identified for the program the guiding documents for the management and mitigation of currency get the opportunity for training, seminar and workshop. Adequate risk. numbers of trainings are conducted and staffs required with training are given the opportunity for skill enhancement. Knowledge sharing The table below indicates the currencies to which the bank had is one of the core methods of skill development. If a staff gets any significant exposures as at 16 July 2018 and the effect to the training, s/he is encouraged to share the same among the peers in Gain/Loss in case of a market exchange rates up/drop by 5 %. The the division/branch. analysis calculates the effect of a reasonably possible movement of the currency rate against the NPR, with all other variables held constant, on In operations, the Bank has put in place a maker and checker concept the income statement (due to the fair value of currency sensitive non– in which a transaction has to compulsorily go through two individuals trading monetary assets and liabilities) and equity (due to the change from a control standpoint with proper transaction right to capture in fair value of currency swaps and forward foreign exchange contracts deviations, if any. Similarly MIS Reports are generated to check used as cash flow hedges). A negative amount in the table reflects a correctness of transactions and any mistakes are promptly addressed potential net reduction in income statement or equity, while a positive and rectified. The activities of a personnel and division / branch can be amount reflects a net potential increase. An equivalent decrease in viewed and monitored centrally through an integrated system, which each of the below currencies against NPR would have resulted in an helps in minimizing the risk of misconduct, if any. The Bank has an equivalent but opposite impact. on-line replication Disaster Recovery Site (DRS) which captures the record of each transaction that takes place at the Production Server. Currency Code If Market rates dropped by 5%, the effect of the Both the sites (Production Server and Disaster Recovery – Back up site) same to the exchange gain/(loss) are housed in well-conditioned and high shock resistant buildings and are at different seismic zone, far from each other. DRS is outsourced to All Currencies (2,180,280) a professionally managed company having expertise in the sector. Drill is being done periodically and is being tested occasionally to assess the 5.2. CAPITAL MANAGEMENT functioning of DRS. The Bank's capital management policies and practices support Each desktop is implemented with Active Directory System (ADS) its business strategy and ensure that it is adequately capitalised to which does not allow user to take away the data in devices like withstand even in severe macroeconomic downturns. Sanima Bank is a data traveler (pen drive) or bring in data for processing or any other liscened institution provides financial services therefore it must comply purposes posing threat to the repository. Similarly individual data in with capital requirement of central bank so called Nepal Rastra Bank. desk are also stored and backed up in periodic interval at data center The Bank's capital consists of Tier I capital and Tier II capital. so that any loss of data in desktop can be retrieved from data center. 5.2.1.Qualitative Disclosures The Bank has a separate Legal division which is adequately manned by qualified and experienced staff. All legal agreements, deeds and Nepal Rastra Bank has directed the Banks to develop own internal documents including claims and charges are thoroughly studied prior policy, procedures and structures to manage all material risk inherent to making any decision involving such documents. Compliance with in business for assessing capital adequacy in relation to the risk profiles existing rules and regulations and business practices globally and as well as strategies for maintaining capital levels. This includes locally are taken into account before arriving at the decision. The cases basic requirements of having good governance, efficient process of where the Bank needs expert's opinion on any of the issues the same managing all material risks and an effective regime for assessing and is done through the expert in the respective field. maintaining adequate capital. The Bank has various BODs approved risk management policies for proper governance. The Bank has developed 5.1.6 Currency Risk a comprehensive ICAAP document which is subject to review every year. The ICAAP has two major components; first is an internal process Currency risk arises as a result of fluctuations in the value of a financial to identify, measure, manage and report risks to which the bank is instruments due to changes in foreign exchange rates. The Bank’s exposed or could be exposed in the future; and second is an internal Board has set limits on positions by currency in line with NRB directives process to plan and manage a bank’s capital so as to ensure adequate (maximum position for all currency excluding INR is 30% of core capital). capital. The Bank prepares the ICAAP report annually complying with In accordance with the bank’s policy, positions are monitored on a daily the NRB requirement. The report is reviewed and analyzed by Risk

www.sanimabank.com 77 Annual Report 2017/18

Management Committee and Board. The report is prepared as per • Tier 2 Capital and Breakdown of its Components: BASEL III norms considering various adverse scenarios. The Bank also conducts the stress testing on thirty two different unfavorable Particulars Amount (Rs.) scenarios on quarterly basis and is reviewed by senior management, Cumulative and/or Redeemable - Risk Management Committee and Board. The Bank in line with BASEL Preference Share provisions and ICAAP document assesses risk exposures and allocated Subordinated Term Debt 296,000,000 sufficient capital/cushion for perceived risks. The adequacy of capital is Hybrid Capital Instruments - main agenda of any ALCO, Man-Com and Board Meetings. General loan loss provision 807,297,321 5.2.2. Quantitative disclosures Exchange Equalization Reserves 9,507,098 Investments Adjustment Reserves 350,000 1 Capital structure and capital adequacy Assets Revaluation Reserves - • Tier 1 Capital and a breakdown of its Components: Special Reserve Fund - Total Tier 2 Capital 1,113,154,419 Particulars Amount (Rs.) Paid up Equity Share Capital 8,001,255,440 • Details of Subordinated Term Debt: Irredeemable Non-cumulative preference

shares The Bank has issued “7% Sanima Debenture 2079” of face value Share Premium 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 Proposed Bonus Equity Shares - 2079. The bank has created debenture redemption reserve starting Statutory General Reserves 1,172,044,000 from FY 2072-73. The Current balance of Capital Redemption Reserve Retained Earnings 1,136,681,538 stands at Rs.158, 571,429. As at the year end, the outstanding amount Un-audited current year cumulative profit of debenture is Rs 370,000,000 whereas Rs 296,000,000 is only Special Reserve Fund - eligible to be recognized as supplementary Capital (Tier II). Capital Adjustment Reserves 20,187,887 • Deductions from Capital: Dividend Equalization Reserves Capital Redemption Reserves Fund 158,571,429 The Bank has invested Rs. 250,000,000 in its merchant banking Deferred Tax Reserve subsidiary 'Sanima Capital', Rs. 280,000,000 in 'Sanima Life Insurance', Less: Goodwill Rs. 25,000,000 in Swet Ganga Hydropower and Construction Ltd (Lower Less: Intagible Assets 10,309,906 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 Less: Fictitious Assets Mathillo Mailun Khola Jalvidhyut Ltd. and Rs 100,000,000 in Sanima Less: Deferred Tax Assets Insurance Co. Ltd. Accordingly, Rs. 702,500,000 has been deducted Less: Investment in equity of licensed from Core Capital. Financial Institutions Less: Investment in equity of institutions 702,500,000 • Total Qualifying Capital: with financial interests Less: Investment in equity of institutions in Particulars Amount (Rs.) excess of limits Less: Investments arising out of Core Capital (Tier 1) 9,775,930,387

underwriting commitments Supplementary Capital (Tier 2) 1,113,154,419 Less: Purchase of Land & Building in

excess of limit & utilized Total Capital Fund 10,889,084,806 Less: Reciprocal crossholdings • Capital Adequacy Ratio: Less: Other Deductions Total Tier 1 Capital 9,775,930,387 The capital adequacy ratio of the bank as on 16th July, 2018 is 12.41%.

78 www.sanimabank.com Annual Report 2017/18

• Summary of the bank’s internal approach to assess the 2 Risk exposures adequacy of its capital to support current and future activities, if applicable: • Risk weighted exposures for credit Risk, Market Risk and Operational Risk: Sanima Bank adopts healthy risk management framework. The bank follows Internal Capital Adequacy Assessment Process (ICAAP)and Risk RISK WEIGHTED EXPOSURES Amount (Rs.) Management Guideline while taking decision on any business. It has Risk Weighted Exposure for Credit Risk 79,558,665,604 always taken note of ICAAP and has taken steps accordingly in ensuring Risk Weighted Exposure for Operational Risk 3,350,734,475 soundness of capital position and sustainability of the business. The Risk Weighted Exposure for Market Risk 1,425,432,178 bank’s policies and procedures are approved by the Board of Directors Total Risk Weighted Exposures (Before and these documents provide guidance on independent identification, 84,334,832,257 measurement and management of risks across various businesses. Bank's adjustment of Pillar II) Bank’s different committees like Audit Committee, Risk Management Committee review the business and risks periodically and take account • Risk Weighted exposures under each 11 categories of of stress test results, scenario analysis so as to align risk, return and Credit Risk: capital in sustainable manner. Categories Amount (Rs.) The bank also defines risk aspects, considering domestic economic Claims on Government and Central Bank - scenario, and puts in place the system to minimize and remove Claims on Other Financial Entities - such risk. The risk appetite and approach towards risk taking is well Claims on Banks 1,732,666,508 discussed in management level and board level. It is always aligned Claims on Domestic Corporate and Securities Firms 32,349,787,743 with the business, its return and capital. Basel disclosures have been Claims on Regulatory Retail Portfolio & Other Retail complied with, addressing the risks and adopting measures to minimize 12,996,212,087 Portfolio their impact. Increasing complexities in risks, weakness of businesses Claims secured by residential properties 2,951,588,204 and fast changing world with intense competition pose a threat to sustainability. Claims secured by Commercial real estate 2,739,664,607 Past due claims 1,574,345,527 Capital planning is an integral part of the bank’s medium term strategic High Risk claims 12,923,257,636 planning and annual budget formulation process. Total risk weighted Other Assets 2,300,832,590 exposures for the projected level of business operations is calculated, Off Balance Sheet Items 9,980,000,794 the required capital level is projected, and a plan is formulated to retain Total 79,548,355,697 the required capital. The bank is well capitalized and able to maintain the required capital through internal generation, and equally through • Total Risk Weight Exposures calculation Table: capital markets if needed. RISK WEIGHTED EXPOSURES Amount (Rs.) • Summary of terms, conditions and main feature of all Risk Weighted Exposure for Credit Risk 79,548,355,697 capital instrument, especially in case of subordinated term debts including hybrid capital instrument: Risk Weighted Exposure for Operational Risk 3,350,734,475 The Bank has issued “7% Sanima Debenture 2079” of face value Risk Weighted Exposure for Market Risk 1,425,432,178 NRs.1,000 per unit for Rs 370,000,000 on 20th Shrawan 2072. Add: 3% of the total RWE added by Supervisory Review 885,900,000 The main features of this capital instrument are as follows: Add: RWE equivalent to reciprocal of capital 2,529,735,671 charge of 3% of Gross Income Instrument: 7% Sanima Debenture 2079 Total Risk Weighted Exposures (After Bank's 87,740,158,022 Interest Rate: 7% adjustment of Pillar II) Maturity period: 7 Years Total Core Capital 9,775,930,387 Interest Payment Frequency: Half yearly Total Capital 10,889,084,806

www.sanimabank.com 79 Annual Report 2017/18

• Amount of Non-Performing Assets (both Gross and Net): exposures to its risk weighted exposures as per the direction from Nepal Rastra Bank as part of supervisory review. Gross Loan Loss Net NPL Particulars Amount (Rs) Provision (Rs) (Rs) 5.3. Classification of financial assets and financial liabilities Restructured - - - Sub-Standard 11,463,109 2,865,777 8,597,332 Analysis of financial instruments by measurement basis- as at 16 July Doubtful 1,728,277 864,138 864,138 2018 Loss 6,844,322 6,844,322 - Financial instruments are measured on an ongoing basis either at fair Total 20,035,708 10,574,238 9,461,470 value or at amortized cost. The summary of significant accounting 5.2.3. Compliance with external requirement policies describes how the classes of financial instruments are measured, and how income and expenses, including fair value gains The bank, at all times, has complied the externally imposed capital and losses, are recognized. The following table analyses the carrying rqeuirements. In the capital adequacy calculation of 16th July 2018 amounts of the financial instruments by category as defined in NAS 39 (presented above), the bank has added 3% of total risk weighted 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

80 www.sanimabank.com Annual Report 2017/18

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 8,437,254 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 Entity's interest in the profit or loss of associates i - - - - - 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

www.sanimabank.com 81 Annual Report 2017/18

3 Measurement of operating segment profit or loss, 5 Information about products and services assets and liabilities Revenue from each type of product and services: (a) The bank has used Fund Transfer Pricing (FTP) a Treasury 765,439 method to recognise income/expense for any b Card 116,469 transactions between reportable segments. (b) Reportable segment's profit or loss and the entity's c Remittance 14,739 profit or loss before income tax has been computed on d Banking 8,255,990 similar basis. (c ) Reportable segment's assets and the entity's assets Total Revenue 9,152,636 has been measured on similar basis 6 Information about geographical areas 4 Reconciliation of reportable segment revenues, profit or loss, assets and liabilities: Revenue from following geographical areas a Domestic 9,152,636 (a) Revenue Province -1 617,990 Total revenues for reportable 9,333,900 Province -2 248,146 segments Other revenues - Province -3 7,970,209 Elimination of intersegment revenues (181,264) Province -4 157,169 Entity's revenue 9,152,636 Province -5 72,291 Province -6 41,002 (b) Profit or Loss Province -7 45,829 Total profit or loss for reportable 1,878,767 segments b Foreign - Other Profit or loss - Total 9,152,636 Elimination of intersegment Profit (181,264) Unallocated amounts: - 7 Information about major customers Entity's revenue 1,697,503 Revenue from any customers does not amounts to 10 percent or more of the entity's revenue. (c ) Assets 5.5. Share options and share based payments Total Assets for reportable segments 91,821,953 Other assets - The bank has no any share options and share based payments. Unallocated amounts: - 5.6. Contingent liabilities and commitment Entity's Assets 91,821,953 Litigation is a common occurrence in the banking industry due to the (d) Liabilities nature of the business undertaken. The Bank has formal controls and Total Liabilities for reportable seg- policies for managing legal claims. Once professional advice has been 81,034,067 ments obtained and the amount of loss reasonably estimated, the Bank makes Other Liabilities - adjustments to account for adverse effects which the caims may have Unallocated amounts: 10,787,886 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 Entity's Liabilities 91,821,953 Financial Statements.

82 www.sanimabank.com Annual Report 2017/18

5.7. Related Party Disclosures Rs' 000 The Bank has carried out transactions in the ordinary course of business Particulars 2018 2017 on an arm's length basis at commercial rates with parties who are Employee Bonus 11,981 11,716 defined as related parties as per the Nepal Accounting Standard - NAS 24 - ‘Related Party Disclosures’, except for the transactions that Key Festival Allowance and payment Management Personnel (KMPs) have availed under schemes uniformly against annual leave 3,356 2,927 applicable to all staff at concessionary rates. Those transactions Post-employment benefits 3,994 4,479 include lending activities, acceptance of deposits, Off-Balance Sheet Other Allowances 234 641 transactions and provision of other banking and finance services. Total 41,434 38,154 5.7.1. Parent and Ultimate Controlling Party Grand Total 62,657 57,914

The Bank does not have an identifiable parent of its own. In additional to the above the bank has also paid non-cash benifits such a fuel, medical benefits to KMP who are employees 5.7.2. Transactions with Key Managerial Personnel (KMPs) of the bank in line with the approved benefit plans of the bank.

As per NAS 24 – Related Party Disclosures’, Key Management Personnel 5.7.4. Transactions, Arrangements and Agreements are defined as those persons having authority and responsibility for involving KMP and Close Family Members (CFM) planning, directing and controlling the activities of the entity. According to the definition a person cannot be considered as a KMP unless CFMs of the KMP are those family members who may be such person have both the authority and responsibility to carry out all expected to influence, or to be influenced by, that individual the three activities mentioned in the above definition, (i.e. planning, in their dealings with the entity. They may include individual’s directing and controlling the activities of the entity). domestic partner and children, children of the individual’s domestic partner and dependents of the individual or the Accordingly the Board of Directors of the Bank and Management individual’s domestic partner. Committee are considered as KMP of the Bank. 5.7.5. Loans & receivables to KMPS and their CFMs: 5.7.3. Compensations of KMP Rs' 000 Rs' 000 2018 2017 Closing Closing Particulars 2018 2017 Limit Limit Balance Balance To Directors: Loans and 94,064 94,546 96,898 97,256 Sitting fees & expenses 3,825 2,760 Receivables Credit Cards 1,651 64 1,651 - Total 3,825 2,760 Total 95,716 94,610 98,549 97,256 To CEO: Short term employee benefits 9,672 8,988 5.7.6. Deposits and Investments from KMPs and their CFMs: Employee Bonus 5,857 6,215 Rs' 000

Festival Allowance and payment 2018 2017 against annual leave 1,263 1,225 Closing Closing Post-employment benefits 605 571 Limit Limit Balance Balance Other Allowances - - Deposits & Total 17,398 16,999 13,663 13,663 9,488 9,488 Investments To Other Senior Management Personnel: Short term employee benefits 21,870 18,392 Total 13,663 13,663 9,488 9,488

www.sanimabank.com 83 Annual Report 2017/18

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 Related Party Nature of Relation 2018 2017 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 - Mathillo Mailun Khola Jalvidyut (2.25% holding) Investment in Shares 22,500 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 Shares 250,000 110,000 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. 5.7.8. Interest Income & Expense to KMP and their CFMs and Entities million (13%) with its subsidiary (Sanima Capital) has total investment which are controlled and / or jointly controlled by the KMPs or their of Rs. 202.93 million (15.61%). Similarly, Sanima equity fund has CFMs 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 Rs' 000 0.5% of NAV. 2018 2017 5.8. Events after the reporting date Interest Income Interest Expenses 1,305 827 No circumstances have arisen since the reporting date which would Total 1,305 827 require adjustments to, or disclosure in the financial statements.

5.7.9 Investment in mutual fund 5.9. Merger & Accquisition

Bank has sponsored sanima equity fund by initial investment of Rs. 169 The Bank has acquired Bagmati Development Bank Ltd. at the SWAP

84 www.sanimabank.com Annual Report 2017/18 ratio of 100:41 after obtaining approval from the central bank on 5.10. Additional disclosures of non consolidated entities 16th December 2016 and has operated transactions jointly since 13th January 2017. At the time of acquisition, Bagmati Development Bank The Bank has no any substantial interest in other entities, except Ltd. has paid up of Rs. 6,555,000.00, deposits of Rs. 446,526,296.00 consolidated. and loan and advances of Rs. 425,738,035.00. 5.11. Disclosure effect of transition from previous GAAP to NFRSs

5.11.1. Reconciliation of equity Rs' 000

Explanatory Note As at 16.07.2016 As at 15.07.2017

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 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 15.07.2017 Previous GAAP 1,304,103,406 Adjustments under NFRSs: Interest income i 29,482,944 Impairment on loan and advances ii (5,405,988)

www.sanimabank.com 85 Annual Report 2017/18

Explanatory Note As at 15.07.2017 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.

86 www.sanimabank.com Annual Report 2017/18 ------3,315,403 17,734,529 17,139,730 43,355,931 30,923,343 982,243,177 406,239,582 603,900,000 110,000,000 713,080,633 946,305,449 611,009,105 370,000,000 970,036,128 NFRSs 2,948,780,102 5,265,301,643 6,429,154,180 2,103,519,307 1,013,927,072 6,897,634,000 1,280,242,935 9,147,913,063 9,147,913,063 51,038,509,253 69,481,703,681 56,161,055,860 60,333,790,619 69,481,703,681 Amount as per ------8,499 (6,396,470) (8,792,991) 30,923,343 87,079,566 87,079,566 (11,896,208) NFRSs 377,741,086 Effect of (873,654,670) (632,200,670) (514,197,762) (601,277,326) (514,197,761) 1,303,473,516 1,199,493,997 Cumulative (1,303,473,516) Transition to Transition (1,103,621,440) As at 15.07.2017 ------3,315,403 6,396,470 29,630,736 17,139,730 43,355,931 80,748,938 406,239,582 603,900,000 110,000,000 713,080,633 611,009,105 370,000,000 978,829,119 1,645,306,586 5,265,301,643 2,285,716,693 6,429,145,681 1,819,960,119 2,103,519,307 1,646,127,742 8,001,255,440 9,060,833,497 9,060,833,497 50,660,768,166 69,995,901,443 56,161,055,860 60,935,067,945 69,995,901,442 Previous GAAP ------2,758,412 11,003,478 95,398,304 11,766,488 22,701,864 15,953,905 837,797,583 927,473,014 110,000,000 646,548,160 478,653,480 481,138,842 370,000,000 788,338,825 721,752,437 2,574,787,981 2,994,663,379 7,676,014,824 4,981,671,102 3,060,479,578 4,022,031,700 5,532,122,961 5,532,122,961 39,761,690,794 56,128,555,897 41,664,487,644 50,596,432,936 56,128,555,897 statement of Opening NFRSs financial position ------(2,591,740) 91,146,755 15,953,905 82,897,336 NFRSs (12,149,344) (12,149,344) (19,678,059) 234,076,991 163,998,198 785,539,160 179,871,695 179,871,695 163,998,198 Effect of (15,873,498) (146,484,463) (688,564,800) Transition to Transition As at 16.07.2016 ------2,758,412 2,591,740 2,799,665 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 2,574,787,981 2,994,663,379 7,584,868,069 4,981,671,102 3,060,479,578 4,710,596,500 5,352,251,266 5,352,251,266 39,527,613,803 55,964,557,699 41,664,487,644 50,612,306,433 55,964,557,699 Previous GAAP i ii v x iii iv vi ix vii viii Note Explanatory Particulars Assets Cash and cash equivalent Due from Nepal Rastra Bank Placement with Bank and Financial Institutions Derivative financial instruments Other trading assets Loan and advances to B/FIs Current tax assets Investment in susidiaries Loans and advances to customers Investment securities Investment in associates Investment property Property and equipment Goodwill and Intangible assets Deferred tax assets Other assets Total Assets Total Liabilities Due to Bank and Financial Instituions Due to Nepal Rastra Bank Derivative financial instruments Deposits from customers Borrowing Current Tax Liabilities Current Tax Provisions Deferred tax liabilities Other liabilities Debt securities issued Subordinated Liabilities Total liabilities Total Equity Share capital Share premium Retained earnings Reserves Total equity attributable to holders Total Non-controlling interest Total equity Total Total liabilities and equity Total 5.11.3. Effect of NFRSs adoption for the statement financial position 5.11.3.

www.sanimabank.com 87 Annual Report 2017/18 i. Placements upto 3 months are reclassified as cash and cash equivalents. ii. Net off of derivativate 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 15.07.2017 Explanatory Effect of Transition Amount as per Particulars Previous GAAP Note to NFRSs 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 2,934,992,865 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 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 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

88 www.sanimabank.com Annual Report 2017/18 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.

5.11.5. Effect of NFRSs adoption for statement of cash flows

For the year ended 15.07.2017 Explanatory Effect of Transition Amount as Particulars Previous GAAP Note to NFRSs 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.

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 21.12

2018 2017 Weighted average number of Ordinary Shares Weighted Weighted Outstanding Outstanding Average Average Weighted average number of ordinary shares for Basic EPS Number of Shares held as at beginning of the year 68,976,340 68,976,340 40,220,317 40,220,317 Add: Number of shares in issue due to bonus 2017 6,885,648 6,885,648 Add: Number of shares in issue due to bonus 2018 11,036,214 11,036,214 11,036,214 11,036,214 Add: Calls in Advance 2017 - - - - Add: Business Combination (BDBL) - - 268,755 268,755

www.sanimabank.com 89 Annual Report 2017/18

2018 2017 Weighted average number of Ordinary Shares Weighted Weighted Outstanding Outstanding Average Average Add.: Adjustment of Right Shares 2017 - - 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 Year 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 - 5,076,101 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.

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.

90 www.sanimabank.com Annual Report 2017/18

Rs. 2018 2017 Dividend Gross Dividend Gross Dividend Net Dividend Net Dividend Tax Dividend Tax 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 has 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.

www.sanimabank.com 91 Annual Report 2017/18

Sanima Bank limited Principal Indicators Particulars Indicators FY 2013/14 FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 (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

92 www.sanimabank.com Annual Report 2017/18

Sanima Bank Limited Capital Adequacy Table As at 16th July 2018 Form No. 1 (Rs. in million) Particulars Current Yea r 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%

www.sanimabank.com 93 Annual Report 2017/18

Sanima Bank Limited Capital Adequacy Table As at 16th July 2018 form No. 1A (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 1,172.04 832.54 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

94 www.sanimabank.com Annual Report 2017/18

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%

www.sanimabank.com 95 Annual Report 2017/18

Sanima Bank Limited Risk Weighted Exposure for Credit Risk As at 16th July 2018 form No. 2 (Rs. in million) Risk Specific Eligible Risk Book Value Net Value Weighted Previous Year Provision CRM Weight A. Balance Sheet Exposures Exposures Risk Weight a b c d=a-b-c e f=d*e Net Value 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) - - 100% - - - Claims on Foreign Government and Central Bank (ECA -7) - - 150% - - - Claims On BIS, IMF, ECB, EC and MDB's recognized by the framework - 0% - - - Claims on Other Multilateral Development Banks - - 100% - - - Claims on Public Sector Entity (ECA 0-1) - - 20% - - - Claims on Public Sector Entity (ECA 2) - - 50% - - - Claims on Public Sector Entity (ECA 3-6) - - 100% - - - Claims on Public Sector Entity (ECA 7) - - 150% - - - Claims on domestic banks that meet capital adequacy requirements 2,341.39 - 2,341.39 20% 468.28 1,240.61 248.12 Claims on domestic banks that do not meet capital adequacy requirements - - - 100% - 3.60 3.60 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) - - - 100% - - - Claims on foreign bank (ECA Rating 7) - - - 150% - - - 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) - - 100% - - - Claims on Foreign Corporates (ECA 7) - - 150% - - - 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 - - 100% - - - 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 - - 150% - - - 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

96 www.sanimabank.com Annual Report 2017/18

Investments in equity and other capital instruments of institutions not listed 171.30 - 171.30 150% 256.95 2.30 3.45 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 Weight B. Off Balance Sheet Exposures Book Value Net Value Weighted Net Value Provision CRM Weight Amount Exposures 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 counterparty 7,072.15 526.75 401.20 6,144.20 50% 3,072.10 4,696.75 2,348.37 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 buffer of 1% above - 20% - - - 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

www.sanimabank.com 97 Annual Report 2017/18

Sanima Bank Limited Eligible Credit Risk Mitigants As at 16th July 2018 form No. 3 (Rs. in million)

Deposits Sec/G'tee G'tee of Sec/G'tee Deposits Govt.& NRB G'tee of Govt. of G'tee of with other Gold of Other domestic of Foreign Total with Bank Securities Nepal MDBs Credit exposures banks/FI Sovereigns banks 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

98 www.sanimabank.com Annual Report 2017/18

Sanima Bank Limited Other Assets As at 16th July 2018 form No. 5 (Rs. in million) S.No. Assets Gross Amount Specific Provision Net Balance 1 Cash and Cash Items in Transit - - 2 Miscellaneous Expenditure not written off 56.55 10.31 3 Fixed Assets 881.85 929.70 4 Interest Receivable on Other Investment 6.31 6.31 5 Interest Receivable on Loan 217.30 217.30 - 6 Non Banking Assets - - 7 Reconciliation Account - - 8 Draft Paid Without Notice - - 9 Sundry Debtors 1.42 1.42 10 Advance payment and Deposits 2,083.42 1,949.50 133.92 11 Staff Loan and Advance 132.79 132.79 12 Stationery 19.98 19.98 13 Other 328.76 328.76 TOTAL 3,730.00 2,166.80 1,563.20 Sanima Bank Limited Risk Weighted Exposure for Operational Risk As at 16th July 2018 form No. 6 (Rs. in million) S. Fiscal Year Previous Particulars N. 2071/072 2072/073 2073/074 Year 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 SRP 6.4a (8) Adjustments under Pillar II (If Gross Income for the last three years is negative) 1 Total Credit and Investment (net of Specific Provision) of releted month - - Capital Requirement for Operational Risk (5% of net credit and 2 - - investment) 3 Risk Weight (reciprocal of capital requirement of 10%) in times 10 10 4 Equivalent Risk Weight Exposure (g) - - 5 Equivalent Risk Weight Exposure [h=f+g] 3,350.73 2,424.80

www.sanimabank.com 99 Annual Report 2017/18

Sanima Bank Limited Risk Weighted Exposure for Market Risk As at 16th July 2018 form No. 7 Rs. (In full figure) S.No. 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 Total Deposit Ratio As at 16th July 2018 form No. 8 (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.

100 www.sanimabank.com Annual Report 2017/18

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 • Details of Subordinated Term Debt: • Tier 1 Capital and a breakdown of its Components The Bank has issued “7% Sanima Debenture 2079” of face value Particulars Amount Rs.1,000 per unit for Rs. 370,000,000 on 5th August 2015 (20th Paid up Equity Share Capital 8,001,255,440 Shrawan 2072). The debentures have maturity of 7 years from Irredeemable Non-cumulative preference shares - issue i.e. 4th August 2022 (19th Shrawan 2079). The bank has Share Premium - created debenture redemption reserve starting from FY 2015- Proposed Bonus Equity Shares - 16. The Current balance of Capital Redemption Reserve stands Statutory General Reserves 1,172,044,000 at Rs. 158,571,429. As at the year end, the outstanding amount Retained Earnings 1,136,681,538 of debenture is Rs 370,000,000 whereas Rs 296,000,000 is Un-audited current year cumulative profit - only eligible to be recognized as supplementary Capital (Tier II). Special Reserve Fund - Capital Adjustment Reserves 20,187,887 • Deductions from Capital: Dividend Equalization Reserves - Capital Redemption Reserves Fund 158,571,429 The Bank has invested Rs. 250,000,000 in its merchant banking Deferred Tax Reserve - subsidiary 'Sanima Capital', Rs. 280,000,000 in 'Sanima Less: Goodwill - Life Insurance', Rs. 25,000,000 in Swet Ganga Hydropower Less: Intangible Assets 10,309,906 and Construction Ltd (Lower Likhu Hydro Power Project), Rs Less: Fictitious Assets - 25,000,000 in Tamor Sanima Energy Pvt Ltd (Sanima Middle Less: Deferred Tax Assets - Tamor Hydro Power Project), Rs 22,500,000 in Mathillo Mailun Less: Investment in equity of licensed Financial Khola Jalvidhyut Ltd. and Rs 100,000,000 in Sanima Insurance Institutions - Co. Ltd. Accordingly, Rs. 702,500,000 has been deducted from Less: Investment in equity of institutions with Core Capital. financial interests 702,500,000 Less: Investment in equity of institutions in • Total Qualifying Capital: excess of limits - Less: Investments arising out of underwriting Particulars Amount (Rs) commitments - Less: Purchase of Land & Building in excess of Core Capital (Tier 1) 9,775,930,387 limit & utilized - Supplementary Capital (Tier 2) 1,113,154,419 Less: Reciprocal crossholdings - Total Capital Fund 10,889,084,806 Less: Other Deductions - Total Tier 1 Capital 9,775,930,387 • Capital Adequacy Ratio: 12.41% • Tier 2 Capital and Breakdown of its Components Risk Exposures Particulars Amount (Rs) a Cumulative and/or Redeemable Prefer- • Risk weighted exposures for credit Risk, Market Risk ence Share - and Operational Risk: b Subordinated Term Debt 296,000,000 c Hybrid Capital Instruments - RISK WEIGHTED EXPOSURES Amount (Rs) d General loan loss provision 807,297,321 Risk Weighted Exposure for Credit Risk 79,548,355,697 e Exchange Equalization Reserves 9,507,098 Risk Weighted Exposure for Operational Risk 3,350,734,475 f Investments Adjustment Reserves 350,000 Risk Weighted Exposure for Market Risk 1,425,432,178 g Assets Revaluation Reserves - Total Risk Weighted Exposures (Before h Other Reserves - 84,324,522,351 Total Tier 2 Capital 1,113,154,419 Bank's adjustment of Pillar II)

www.sanimabank.com 101 Annual Report 2017/18

• Risk Weighted exposures under each 11 categories of NPA Ratios: Credit Risk: NPA Ratios (%) S.N. Categories Amount (Rs) 1 Claims on Government and Gross NPA to Gross Advances 0.03 Central Bank - 2 Claims on Other Financial Entities - Net NPA to Net Advances 0.01

3 Claims on Banks 1,732,666,508 • Movement in Non-Performing Assets: 4 Claims on Domestic Corporate This Year Previous and Securities Firms 32,349,787,743 Particulars Change (%) (Rs) Year (Rs) 5 Claims on Regulatory Retail Portfolio & Other Retail Portfolio 12,996,212,087 Non-Performing Assets 20,035,708 4,990,732 301.46% 6 Claims secured by residential Non-Performing Assets (%) 0.03 0.01 200.00% properties 2,951,588,204 7 Claims secured by Commercial • Write off Loans and Interest Suspense: real estate 2,739,664,607 Particulars Amount 8 Past due claims 1,574,345,527 Write off loans during the quarter 415,499.96 9 High Risk claims 12,923,257,636 Write off Interest Suspense quarter 8,098.45 10 Other Assets 2,300,832,590 Total 423,598.41 11 Off Balance Sheet Items 9,980,000,794 • Movement in Loan Loss Provision and Interest Suspense: Total 79,548,355,697 Previous Year Change Particulars This Year (Rs) • Total Risk Weight Exposures calculation Table: (Rs) (%) Loan Loss 817,871,559 578,662,633 41.34% RISK WEIGHTED EXPOSURES Amount (Rs) Provision (Total) Risk Weighted Exposure for Credit Risk 79,548,355,697 Interest Suspense 217,301,008 148,566,422 46.27% Risk Weighted Exposure for Operational Risk 3,350,734,475 • Details of Additional Loan Loss Provision (Net) during Risk Weighted Exposure for Market Risk 1,425,432,178 the year: Add: 3% of the total RWE added by Supervisory Review 885,900,000 Particulars Amount (Rs) Add: RWE equivalent to reciprocal of capital Pass 169,336,090 charge of 3% of Gross Income 2,529,735,671 Watch List 61,314,806 Total Risk Weighted Exposures (After Restructured - Bank's adjustment of Pillar II) 87,740,158,022 Sub-Standard 2,179,088 Total Core Capital 9,775,930,387 Doubtful 680,026 Total Capital 10,889,084,806 Loss 5,698,915 • Amount of Non-Performing Assets(both Gross and Net): Total 239,208,925

Gross Loan Loss Net NPL • Segregation of Investment Portfolio: Particulars Amount (Rs) Provision (Rs) (Rs) Particulars Amount (Rs) Restructured - - - Held for Trading 470,590,809 Sub-Standard 11,463,109 2,865,777 8,597,332 Doubtful 1,728,277 864,138 864,138 Held to Maturity 12,286,879,382 Loss 6,844,322 6,844,322 - Available for sale 873,802,600 Total 20,035,708 10,574,238 9,461,470 Total Investment 13,631,272,791

102 www.sanimabank.com Annual Report 2017/18

• Eligible Credit Risk Mitigates (CRM) as on 16th July strategic planning and annual budget formulation process. Total 2018 (Ashadh End 2075) risk weighted exposures for the projected level of business operations is calculated, the required capital level is projected, Particulars Amount (Rs.) and a plan is formulated to retain the required capital. The bank Deposits with Bank 1,230,908,316 is well capitalized and able to maintain the required capital Gold 149,209,889 through internal generation, and equally through capital markets Total 1,380,118,205 if needed.

• Summary of term conditions and main feature of all B. Risk Management Functions & BASEL Disclosure capital instrument, especially in case of subordinated term debts including hybrid capital instrument : Nepal Rastra Bank has directed the Banks to develop own internal policy, procedures and structures to manage all material The Bank has issued “7% Sanima Debenture 2079” of face value risk inherent in business for assessing capital adequacy in NRs.1,000 per unit for Rs 370,000,000 on 5th August 2015 relation to the risk profiles as well as strategies for maintaining th (20 Shrawan 2072). The main features of this capital instrument capital levels. This includes basic requirements of having good are as follows: governance, efficient process of managing all material risks and Instrument: 7% Sanima Debenture 2079 an effective regime for assessing and maintaining adequate Interest Rate: 7% capital. The Bank has various BODs approved risk management Maturity period: 7 Years policies for proper governance. Interest Payment Frequency: Half yearly Chief Risk Officer (CRO) • Summary of the bank’s internal approach to assess the adequacy of its capital to support current and Chief Risk Officer (CRO), along with his team, is responsible for future activities, if applicable: overall risk management of the Bank which includes managing, assessing, identifying, monitoring and reducing pertinent global, Sanima Bank adopts healthy risk management framework. The macro and micro-economic level business risks that could bank follows Internal Capital Adequacy Assessment Process interfere with Banks objective and goals and whether the Bank (ICAAP) and Risk Management Guideline while taking decision on is in substantial compliance with its internal operating policies any business. It has always taken note of ICAAP and has taken and other applicable regulations and procedures, external, legal, steps accordingly in ensuring soundness of capital position and regulatory or contractual requirements on a continuous basis. sustainability of the business. The bank’s policies and procedures Further, CRO ensures integration of all major risk in capital are approved by the Board of Directors and these documents assessment process. provide guidance on independent identification, measurement and management of risks across various businesses. Bank’s Risk Management Committee (RMC) different committees like Audit Committee, Risk Management Committee review the business and risks periodically and take Board level risk management committee has been set up under account of stress test results, scenario analysis so as to align NRB Directive for ensuring/reviewing bank's risk appetite are in risk, return and capital in sustainable manner. line with the policies and CRO acts as member secretary. CRO closely monitors and report on credit related risks in ALCO & The bank also defines risk aspects, considering domestic RMC meeting. economic scenario, and puts in place the system to minimize and remove such risk. The risk appetite and approach towards Operational Risk risk taking is well discussed in management level and board level. It is always aligned with the business, its return and capital. Board and senior management of the bank places high priority Basel disclosures have been complied with, addressing the risks on effective operational risk management and adherence to and adopting measures to minimize their impact. Increasing sound operating controls. complexities in risks, weakness of businesses and fast changing world with intense competition pose a threat to sustainability. • Policies/Guidelines explicitly supports the identification, assessment, control and reporting of key risks. Capital planning is an integral part of the bank’s medium term • Emphasizes on dual controls,

www.sanimabank.com 103 Annual Report 2017/18

• Effective monitoring and internal reporting, Stress Testing • Contingency and business continuity plans, Stress Testing is a risk management technique used to evaluate • High standards of ethics and integrity, the potential effects on an institution’s financial condition, of • Commitment to good corporate governance and a set of specified changes in risk factors, corresponding to • Segregation of duties and clear lines of management exceptional but plausible events. The Bank conducts the stress responsibility, accountability and reporting. test on quarterly basis and reports to senior management as well as to Nepal Rastra Bank. Market Risk

Internal Capital Adequacy Assessment Process (ICAAP) Sanima has Market Risk Management Policy developed in line with Risk Management Guidelines issued by NRB to assess The Bank has developed a comprehensive ICAAP document. The and actively manage all material market risks, wherever they ICAAP has two major components; first is an internal process arise throughout the bank and a capital charge is provided for to identify measure, manage and report risks to which the bank such risks. Stress testing technique also covers the capital is exposed or could be exposed in the future; and second is an requirement on market shock. Foreign Currency peak position, internal process to plan and manage a bank’s capital so as to interest rate risk, stock position is discussed in ALCO meetings ensure adequate capital. The Bank also conducts the stress test on monthly basis. 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 For interest risk management, appropriate assets and liability risks. The adequacy of capital is main agenda of any ALCO, Man- mismatch (GAP analysis) is measured as per policy so as to Com and board meetings. minimize sudden fall in NII. Investments in stock are revalued at the end of every month and Open positions in foreign currencies Maker-Checker Policy are monitored daily. Prompt Action is taken to keep open positions and foreign currency exchange risk to a minimum level. The Bank has adopted Maker-Checker Policy in all of the Regulatory limits are ensured at all time. transactions. Each and every transaction is entered and authorized in CBS by two different individuals for better control Adequate care is taken to ensure the maturity of deposits and any deviations are closely monitored. The activities of any to match with assets maturity. Adequate liquidity is ensured personnel can be monitored centrally through an integrated even in stressed scenarios. Various ratios as per liquidity risk system which helps in minimizing the risk of misconduct management policy are assessed. Treasury department plays the vital role for monitoring same and report to ALCO. Information Technology The Bank has maintained in-house cold site for disaster recovery. Compliance The disaster recovery site and production server site have been kept in well-maintained separate buildings. Periodic drill is Compliance officer has been entrusted with the responsibility of conducted to assess the functioning of DRS. Also, the desktops assessment, identification and reporting to CRO the Operational, are implemented with Active Directory System (ADS) which Liquidity & Market Risk in conformity with risk management does not allow users to replicate or bring the data in/from any policies of Sanima. unauthorized removable devices.

Assets and Liability Committee (ALCO) Internal Audit

The ALCO, chaired by Chief Executive Officer, ensures functioning Internal audit of the Bank is independent from the management of the banking business in line with the set procedures and and directly reports to Audit Committee, a board level committee. processes and recommends for necessary steps to address the Audit functions are carried out by experienced staffs and risk associated with liquidity, movement in interest rate, exchange regular observations are being communicated to the related rate and equity price and other risks. departments/branches/staffs.

104 www.sanimabank.com Annual Report 2017/18

Sanima Bank limited Comparison Unaudited and Audited Financial Statements as of FY 2017/18 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 operaing income 3,953,520 4,009,134 55,614 Impairment charge/(reversal) for loans and (3,431) 239,218 242,648 other losses Net operating income 3,956,951 3,769,916 (187,035) Due to change in staff bonus rate and fair value Personnel expenses 806,910 865,556 (58,645) (7.27) 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 netoff 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 Deferred tax adjustment (172,996) (335,645) (162,649) 94.02 NRB Directive Profit/(loss) after regulatory 1,693,663 1,361,858 (331,805) (19.59) adjustments

www.sanimabank.com 105 Annual Report 2017/18

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 Financial Position 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

106 www.sanimabank.com Annual Report 2017/18

www.sanimabank.com 107 Annual Report 2017/18

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

As per our report on even date

Manish N. Joshi Tej Bahadur Chand Sunir K. Dhungel CEO Chairman Managing Partner SAR Associates Shree Prasad Poudel Nischal Raj Pandey Chartered Accountants Independent Director Director

Bala Ram Parajuli Pawan Kumar Acharya Independent Director Director

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

108 www.sanimabank.com Annual Report 2017/18

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

As per our report on even date

Manish N. Joshi Tej Bahadur Chand Sunir K. Dhungel CEO Chairman Managing Partner SAR Associates Shree Prasad Poudel Nischal Raj Pandey Chartered Accountants Independent Director Director

Bala Ram Parajuli Pawan Kumar Acharya Independent Director Director

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

www.sanimabank.com 109 Annual Report 2017/18

Sanima Capital Limited Statement of Other Comprehensive Income

Year ended 16 July 2018 In NPR.

Particulars 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

As per our report on even date

Manish N. Joshi Tej Bahadur Chand Sunir K. Dhungel CEO Chairman Managing Partner SAR Associates Shree Prasad Poudel Nischal Raj Pandey Chartered Accountants Independent Director Director

Bala Ram Parajuli Pawan Kumar Acharya Independent Director Director

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

110 www.sanimabank.com Annual Report 2017/18

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

As per our report on even date

Manish N. Joshi Tej Bahadur Chand Sunir K. Dhungel CEO Chairman Managing Partner SAR Associates Shree Prasad Poudel Nischal Raj Pandey Chartered Accountants Independent Director Director

Bala Ram Parajuli Pawan Kumar Acharya Independent Director Director

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

www.sanimabank.com 111 Annual Report 2017/18

Sanima Capital Limited Statement of Changes in Equity Year ended 16 July 2018 In NPR.

Other Reserves Total Shareholders' Particulars Share Capital Retained Earnings Available for Sale (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

As per our report on even date

Manish N. Joshi Tej Bahadur Chand Sunir K. Dhungel CEO Chairman Managing Partner SAR Associates Shree Prasad Poudel Nischal Raj Pandey Chartered Accountants Independent Director Director

Bala Ram Parajuli Pawan Kumar Acharya Independent Director Director

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

112 www.sanimabank.com Annual Report 2017/18

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 79,125,273 Bankers to the Issue Account - - - Total 45,810,161 448,132,932 79,125,273

2 Financial Investments - Held For Trading 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

www.sanimabank.com 113 Annual Report 2017/18

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

114 www.sanimabank.com Annual Report 2017/18

Furniture Computer and Office Motor Leasehold 7 Property, Plant And Eqipment Buildings and Fixtures Ancillary Equipments Equipments Vehicles Assets Total 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

www.sanimabank.com 115 Annual Report 2017/18

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

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

116 www.sanimabank.com Annual Report 2017/18

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

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

www.sanimabank.com 117 Annual Report 2017/18

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 - - -

118 www.sanimabank.com Annual Report 2017/18

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

www.sanimabank.com 119 Annual Report 2017/18 Notes:

120 www.sanimabank.com Annual Report 2017/18

www.sanimabank.com 121 Annual Report 2017/18 Fund Transfers & Details of Deposit Merchant Payments » Loan Accounts and » QR Code Payments ACCOUNT DASHBOARD ACCOUNT Airlines Tickets Biometric Platform SECURE LOGIN SECURE » ONLINE PAYMENTS ONLINE » or more information: Card hotline no. 4443901/Toll free no. 1660-01-23111 free 4443901/Toll no. hotline Card information: more or F Now more secure and secure more Now new features.

122 www.sanimabank.com Annual Report 2017/18

www.sanimabank.com 123 Annual Report 2017/18

124 www.sanimabank.com Annual Report 2017/18