What it is
After asking whether the loans are sound (asset quality), whether the cushion is thick (capital) and whether the money is cheap (funding), the last question is what all that produces for shareholders.
Return on equity is the headline. Return on assets removes the effect of leverage. Net profit and EPS give the rupee amounts, and net interest income shows how much of the profit comes from the core lending business rather than one-offs.
The verdict ranks ROE among sector peers and against the bank's own figure a year earlier.
How it is calculated
Headline = ratio.return_on_equity (higher is better among peers). Supporting = ratio.return_on_assets, is.net_profit, is.eps, is.net_interest_income.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL, FY 2082/83 Q4: ROE 11.76%, ROA 1.15%, net profit Rs 790.58 crore, EPS Rs 28.36, net interest income Rs 1,700.93 crore.
NABIL's share capital includes Rs 500.00 crore of preference shares, so per-share figures here use its 27,05,69,970 ordinary shares, as the filing does.
What good looks like
ROE above the sector median and rising, with ROA also above median (so the ROE is not just leverage), and net interest income growing in step with profit.
Watch out
- Quarterly ROE and ROA are annualised projections until Q4.
- A high ROE on a thin capital ratio is risk, not skill; read with the Capital pillar.
- One-off gains and provision write-backs inflate a single year.
In Nepal
ROE, ROA and EPS are in NRB's quarterly ratio schedule. Because at least 20% of profit is locked in the general reserve and more in the regulatory reserve, the dividend shareholders see is well below what ROE implies.
Questions
Not directly. Dividends come from distributable profit after reserve transfers and NRB approval.
ROE can be lifted by thin capital. ROA ignores leverage, so a high ROE with a low ROA means the return comes from risk rather than earning power.