Machhapuchchhre Bank Ltd.

Condensed Consolidated Statement of Financial Position (Unaudited)

As on Quarter ended 30 Ashwin 2076 (17 October 2019)

Group Bank
Immediate
Immediate
This Quarter Previous Year This Quarter
Assets Previous Year
Ending Ending Ending
Ending (Audited)
(Audited)
Cash and cash equivalent 8,623,335,320 9,442,900,351 8,623,335,320 9,442,900,351
Due from Nepal Rastra Bank 4,015,907,050 3,226,962,097 4,015,907,050 3,226,962,097
Placement with Bank and Financial Institutions 1,569,225,666 1,458,033,992 1,569,225,666 1,458,033,992
Derivative financial instruments 17,202,304 72,597,160 17,202,304 72,597,160
Other trading assets 365,019,855 358,694,537 365,019,855 358,694,537
Loan and advances to B/FIs 2,709,273,731 2,440,166,215 2,709,273,731 2,440,166,215
Loans and advances to customers 83,630,808,051 75,095,773,816 83,630,808,051 75,095,773,816
Investment securities 10,702,273,469 10,306,077,788 10,702,273,469 10,306,077,788
Current tax assets 28,692,681 208,733,311 27,996,041 209,977,311
Investment in subsidiaries - - 200,000,000 200,000,000
Investment in associates - - - -
Investment property 91,057,459 78,457,743 91,057,459 78,457,743
Property and equipment 1,171,708,435 1,122,933,578 1,171,708,435 1,122,933,578
Goodwill and Intangible assets 48,624,792 49,006,075 48,624,792 49,006,075
Deferred tax assets 36,406,125 21,424,000 36,406,125 21,424,000
Other assets 1,298,390,688 1,162,941,666 1,298,245,688 1,163,041,666
Total Assets 114,307,925,627 105,044,702,329 114,507,083,986 105,246,046,329
Liabilities
Due to Bank and Financial Institutions 4,936,030,567 6,361,837,039 4,936,030,567 6,361,837,039
Due to Nepal Rastra Bank 3,016,665,113 1,020,524,291 3,016,665,113 1,020,524,291
Derivative financial instruments - - - -
Deposits from customers 91,063,536,211 84,990,980,346 91,273,347,913 85,198,402,144
Borrowing - - - -
Current Tax Liabilities - - - -
Provisions - - - -
Deferred tax liabilities - - - -
Other liabilities 1,536,701,791 1,428,430,348 1,535,193,889 1,428,411,353
Debt securities issued 3,033,880,057 - 3,033,880,057 -
Subordinated Liabilities - - - -
Total liabilities 103,586,813,739 93,801,772,023 103,795,117,539 94,009,174,826
Equity
Share capital 8,458,477,650 8,055,693,000 8,458,477,650 8,055,693,000
Share premium 30,881,765 30,881,765 30,881,765 30,881,765
Retained earnings 164,247,365 1,299,526,005 155,101,924 1,293,467,202
Reserves 2,067,505,108 1,856,829,536 2,067,505,108 1,856,829,536
Total equity attributable to equity holders 10,721,111,888 11,242,930,306 10,711,966,447 11,236,871,503
Non-controlling interest - - -
Total equity 10,721,111,888 11,242,930,306 10,711,966,447 11,236,871,503
Total liabilities and equity 114,307,925,627 105,044,702,329 114,507,083,986 105,246,046,329
 Machhapuchchhre Bank Ltd.
Condensed Consolidated Statement of Profit or Loss (Unaudited)
For the Quarter ended 30 Ashwin 2076 (17 October 2019)

Group Bank
Current Year Previous Year Current Year Previous Year
Corresponding Corresponding
Particulars This Quarter Up to This This Quarter Up to This This Quarter Up to This This Quarter Up to This
Quarter Quarter Quarter Quarter
(YTD) (YTD) (YTD) (YTD)

Interest income 2,792,942,168 2,792,942,168 2,354,765,460 2,354,765,460 2,792,942,168 2,792,942,168 2,354,765,460 2,354,765,460
Interest expense 1,835,803,619 1,835,803,619 1,512,181,938 1,512,181,938 1,840,447,889 1,840,447,889 1,512,181,938 1,512,181,938
Net interest income 957,138,549 957,138,549 842,583,522 842,583,522 952,494,278 952,494,278 842,583,522 842,583,522

Fee and commission income 228,593,057 228,593,057 199,628,608 199,628,608 228,593,057 228,593,057 199,628,608 199,628,608
Fee and commission expense 6,906,310 6,906,310 10,869,207 10,869,207 6,906,310 6,906,310 10,869,207 10,869,207
Net fee and commission income 221,686,747 221,686,747 188,759,401 188,759,401 221,686,747 221,686,747 188,759,401 188,759,401
Net interest, fee and commission income 1,178,825,296 1,178,825,296 1,031,342,923 1,031,342,923 1,174,181,026 1,174,181,026 1,031,342,923 1,031,342,923

Net trading income 88,788,979 88,788,979 81,389,006 81,389,006 88,788,979 88,788,979 81,389,006 81,389,006
Other operating income 18,608,555 18,608,555 11,695,751 11,695,751 18,563,094 18,563,094 11,695,751 11,695,751
Total operating income 1,286,222,830 1,286,222,830 1,124,427,681 1,124,427,681 1,281,533,098 1,281,533,098 1,124,427,681 1,124,427,681

Impairment charge/(reversal) for loans and other losses 75,711,668 75,711,668 87,726,625 87,726,625 75,711,668 75,711,668 87,726,625 87,726,625
Net operating income 1,210,511,162 1,210,511,162 1,036,701,056 1,036,701,056 1,205,821,430 1,205,821,430 1,036,701,056 1,036,701,056

Operating expense
Personnel expenses 422,519,739 422,519,739 324,136,363 324,136,363 422,519,739 422,519,739 324,136,363 324,136,363
Other operating expenses 191,562,376 191,562,376 141,817,437 141,817,437 191,282,126 191,282,126 141,817,437 141,817,437
Depreciation & Amortization 33,850,826 33,850,826 30,352,718 30,352,718 33,850,826 33,850,826 30,352,718 30,352,718
Operating Profit 562,578,221 562,578,221 540,394,537 540,394,537 558,168,738 558,168,738 540,394,537 540,394,537

Non operating income 195,000 195,000 60,000 60,000 195,000 195,000 60,000 60,000
Non operating expense 8,417,447 8,417,447 9,467,149 9,467,149 8,417,447 8,417,447 9,467,149 9,467,149
Profit before income tax 554,355,774 554,355,774 530,987,388 530,987,388 549,946,292 549,946,292 530,987,388 530,987,388
Income tax expense -
Current Tax 184,722,781 184,722,781 176,038,700 176,038,700 183,399,936 183,399,936 176,038,700 176,038,700
Deferred Tax (9,458,788) (9,458,788) (16,742,484) (16,742,484) (9,458,788) (9,458,788) (16,742,484) (16,742,484)
Profit for the period 379,091,781 379,091,781 371,691,172 371,691,172 376,005,143 376,005,143 371,691,172 371,691,172
Condensed Consolidated Statement of Comprehensive Income
Group Bank
Current Year Previous Year Current Year Previous Year
Corresponding Corresponding
Particulars This Quarter Up to This This Quarter Up to This This Quarter Up to This This Quarter Up to This
Quarter Quarter Quarter Quarter
(YTD) (YTD) (YTD) (YTD)
Profit or loss for the period 379,091,781 379,091,781 371,691,172 371,691,172 376,005,143 376,005,143 371,691,172 371,691,172
Other comprehensive income
a) Items that will not be reclassified to profit or loss
-Gains/(losses) from investments in equity instruments
measured at fair value (11,528,503) (11,528,503) 1,970,891 1,970,891 (11,528,503) (11,528,503) 1,970,891 1,970,891
-Gain/(loss) on revaluation
-Actuarial gain/loss on defined benefit plans (6,882,624) (6,882,624) - - (6,882,624) (6,882,624) - -
-Income tax relating to above items 5,523,338 5,523,338 (591,267) (591,267) 5,523,338 5,523,338 (591,267) (591,267)
Net other compressive income that will not be
reclassified to profit or loss (12,887,789) (12,887,789) 1,379,624 1,379,624 (12,887,789) (12,887,789) 1,379,624 1,379,624
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 - - - - - - - -
Net other compressive income that are or may be
reclassified to profit or loss - - - - - - - -
c) Share of other comprehensive income of associate
accounted as per equity method - - - - - - - -
Other comprehensive income for the period, net of income (12,887,789) (12,887,789) 1,379,624 1,379,624 (12,887,789) (12,887,789) 1,379,624 1,379,624
Total Comprehensive Income for the period 366,203,992 366,203,992 373,070,796 373,070,796 363,117,355 363,117,355 373,070,796 373,070,796

Profit attributable to:

Equity holders of the Bank 366,203,992 366,203,992 373,070,796 373,070,796 363,117,355 363,117,355 373,070,796 373,070,796
Non-controlling interest - - - - - - - -
Total 366,203,992 366,203,992 373,070,796 373,070,796 363,117,355 363,117,355 373,070,796 373,070,796

Earnings per share

Basic earnings per share 4.33 4.33 4.39 4.39 4.45 4.45 4.39 4.39
Annualized Basic Earnings Per Share 17.32 17.32 17.58 17.58 17.78 17.78 17.58 17.58
Diluted earnings per share 17.32 17.32 17.58 17.58 17.78 17.78 17.58 17.58
 Ratios as per NRB Directive

Group Bank
Particulars Current Year Previous Year Current Year Previous Year
Corresponding Corresponding
Up to
Up to This Up to This Up to This This
This Quarter This Quarter This Quarter This Quarter
Quarter (YTD) Quarter (YTD) Quarter (YTD) Quarter (YTD)
Capital fund to RWA 13.89% 14.36% 13.89% 14.36%
Non-performing loan (NPL) to total loan 0.31% 0.47% 0.31% 0.47%
Total loan loss provision to Total NPL 387.30% 270.00% 387.30% 270.00%
Cost of Funds 7.57% 7.99% 7.57% 7.99%
Credit to Deposit Ratio 77.08% 78.92% 77.08% 78.92%
Base Rate 10.56% 11.21% 10.56% 11.21%
Interest Rate Spread 5.18% 4.08% 5.18% 4.08%
 Machhapuchchhre Bank Ltd.
Condensed Consolidated Statement of Changes in Equity (Unaudited)
For the Period ended 30 Ashwin 2076 (17 October 2019)
Group
Attributable to equity holders of the Bank

controlling
Regulatory
equalizatio

Revaluatio
Exchange

Fair value
n reserve

n reserve
premium

Retained
General

interest
earning
reserve

reserve

reserve

reserve
Capital
Share

Share

Other

Total

Non-
Total equity
Balance at Sawan 1, 2075 8,055,693,000 30,881,765 1,114,123,679 10,716,548 342,871,112 (10,213,802) - 795,090,737 17,708,747 10,356,871,786 - 10,356,871,786
Profit for the period 1,703,147,046 1,703,147,046 1,703,147,046
Other Comprehensive income (3,497,622) - (8,021,603) (11,519,225) - (11,519,225)
Total comprehensive income (3,497,622) 1,703,147,046 (8,021,603) 1,691,627,821 1,691,627,821
Contributions from and distributions to owners
Share issued - - - - -
Share based payments - - -
Dividends to equity holders -
Bonus shares issued - - - -
Cash dividend paid (805,569,300) (805,569,300) (805,569,300)
Other - - 339,417,649 5,709,751 47,440,164 - - (393,142,477) 574,914 (0) - (0)
Total contributions by and distributions - - 339,417,649 5,709,751 47,440,164 (3,497,622) - 504,435,268 (7,446,689) 886,058,521 - 886,058,521
Balance at 32 Ashad 2076 8,055,693,000 30,881,765 1,453,541,328 16,426,299 390,311,276 (13,711,424) - 1,299,526,006 10,262,058 11,242,930,307 - 11,242,930,307

Balance at Sawan 1, 2076 8,055,693,000 30,881,765 1,453,541,328 16,426,299 390,311,276 (13,711,424) - 1,299,526,006 10,262,058 11,242,930,307 - 11,242,930,307
Profit for the period 379,091,781 379,091,781 379,091,781
Other Comprehensive income (8,069,952) (4,817,837) (12,887,789) (12,887,789)
Total comprehensive income (8,069,952) - 379,091,781 (4,817,837) 366,203,992 366,203,992
Contributions from and distributions to owners - -
Share issued - - -
Share based payments - - -
Dividends to equity holders - -
Bonus shares issued 402,784,651 (402,784,651) - -
Cash dividend paid (886,126,230) (886,126,230) (886,126,230)
Other - - 75,201,029 4,183,586 142,314,875 - - (225,459,541) 1,863,871 (1,896,180) (1,896,180)
Total contributions by and distributions 402,784,651 - 75,201,029 4,183,586 142,314,875 (8,069,952) - (1,135,278,641) (2,953,965) (521,818,418) - (521,818,418)
Balance at 30 Ashwin 2076 8,458,477,651 30,881,765 1,528,742,356 20,609,885 532,626,151 (21,781,377) - 164,247,365 7,308,093 10,721,111,889 - 10,721,111,888
 Bank
Attributable to equity holders of the Bank

Total equity
controlling
Regulatory
equalizatio

Revaluatio
Exchange

Fair value
n reserve

n reserve
premium

Retained
General

interest
earning
reserve

reserve

reserve

reserve
Capital
Share

Share

Other

Total

Non-
Adjusted/Restated balance at 1 Shrawn 2075 8,055,693,000 30,881,765 1,114,123,679 10,716,548 342,871,112 (10,213,802) - 795,090,738 17,708,747 10,356,871,786 - 10,356,871,786
Profit for the period 1,697,088,243 1,697,088,243 - 1,697,088,243
Other Comprehensive income (3,497,622) (8,021,603) (11,519,225) - (11,519,225)
Total comprehensive income - - - - - (3,497,622) - 1,697,088,243 (8,021,603) 1,685,569,018 - 1,685,569,018
Contributions from and distributions to owners -
Share issued - - - -
Share based payments - - -
Dividends to equity holders -
Bonus shares issued - - -
Cash dividend paid (805,569,300) (805,569,300) - (805,569,300)
Other - - 339,417,649 5,709,751 47,440,164 - - (393,142,477) 574,913 (0) - (0)
Total contributions by and distributions - - 339,417,649 5,709,751 47,440,164 (3,497,622) - 498,376,465 (7,446,690) 879,999,718 - 879,999,718
Balance at 32 Ashad 2076 8,055,693,000 30,881,765 1,453,541,328 16,426,299 390,311,276 (13,711,424) - 1,293,467,203 10,262,057 11,236,871,504 - 11,236,871,503

Balance at Sawan 1, 2076 8,055,693,000 30,881,765 1,453,541,328 16,426,299 390,311,276 (13,711,424) - 1,293,467,203 10,262,057 11,236,871,504 - 11,236,871,503
Profit for the period 376,005,143 376,005,143 376,005,143
Other Comprehensive income (8,069,952) (4,817,837) (12,887,789) (12,887,789)
Total comprehensive income (8,069,952) 376,005,143 (4,817,837) 363,117,355 363,117,355
Contributions from and distributions to owners - -
Share issued - - - - -
Share based payments - - -
Dividends to equity holders - -
Bonus shares issued 402,784,651 (402,784,651) - -
Cash dividend paid (886,126,230) (886,126,230) (886,126,230)
Other - - 75,201,029 4,183,586 142,314,875 - - (225,459,541) 1,863,871 (1,896,180) (1,896,180)
Total contributions by and distributions 402,784,651 - 75,201,029 4,183,586 142,314,875 (8,069,952) - (1,138,365,279) (2,953,965) (524,905,055) - (524,905,055)
Balance as at 30 Ashwin 2076 8,458,477,651 30,881,765 1,528,742,356 20,609,885 532,626,151 (21,781,377) - 155,101,924 7,308,092 10,711,966,448 - 10,711,966,447
 Machhapuchchhre Bank Ltd.
Condensed Consolidated Statement of Cash Flows (Unaudited)
For the Period ended 30 Ashwin 2076 (17 October 2019)
Group Bank
Corresponding
Previous Year Corresponding
Particular Up to this Up to This Previous Year
Up to This Quarter Quarter Quarter Up to this Quarter
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received 2,623,321,963 2,225,483,758 2,623,321,963 2,225,483,758
Fees and other income received 228,638,518 199,628,608 228,593,057 199,628,608
Dividend received - -
Receipts from other operating activities 107,547,073 92,437,291 107,547,073 92,437,291
Interest paid (1,840,447,889) (1,512,181,938) (1,840,447,889) (1,512,181,938)
Commission and fees paid (6,906,310) (10,869,207) (6,906,310) (10,869,207)
Cash payment to employees - -
Other expense paid (631,482,125) (479,931,507) (630,998,116) (479,931,507)
Operating cash flows before changes in operating 480,671,229 514,567,005 481,109,778 514,567,005
assets and liabilities
(Increase)/Decrease in operating assets
Due from Nepal Rastra Bank (788,944,953) 5,319,300,612 (788,944,953) 5,319,300,612
Placement with bank and financial institutions (111,191,674) (2,602,180,626) (111,191,674) (2,602,180,626)
Other trading assets 49,069,538 1,658,133 49,069,538 1,658,133
Loan and advances to bank and financial institutions (269,107,516) (315,260,276) (269,107,516) (315,260,276)
Loans and advances to customers (8,610,745,903) (7,332,981,451) (8,610,745,903) (7,332,981,451)
Other assets (135,221,487) (1,037,455,654) (135,204,022) (1,037,455,654)
(9,866,141,995) (5,966,919,262) (9,866,124,530) (5,966,919,262)
Increase/(Decrease) in operating liabilities
Due to bank and financial institutions (1,425,806,472) - (1,425,806,472) -
Due to Nepal Rastra Bank 1,996,140,822 1,292,716,343 1,996,140,822 1,292,716,343
Deposit from customers 6,076,503,496 5,510,143,596 6,074,945,769 5,510,143,596
Borrowings - - - -
Other liabilities 106,966,244 2,150,232,763 106,782,536 2,150,232,763
Net cash flow from operating activities before tax paid 6,753,804,090 8,953,092,702 6,752,062,655 8,953,092,702
Income taxes paid (2,704,087) (159,296,216) (1,418,666) (159,296,216)
Net cash flow from operating activities (2,634,370,763) 3,341,444,229 (2,634,370,763) 3,341,444,229

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of investment securities (407,724,184) (466,479,053) (407,724,184) (466,479,053)
Receipts from sale of investment securities - -
Purchase of property and equipment (81,052,614) (108,358,650) (81,052,614) (108,358,650)
Receipt from the sale of property and equipment - -
Purchase of intangible assets (1,191,786) (444,270) (1,191,786) (444,270)
Receipt from the sale of intangible assets - -
Purchase of investment properties (12,599,716) (18,000,000) (12,599,716) (18,000,000)
Receipt from the sale of investment properties - -
Interest received 169,620,205 129,281,702 169,620,205 129,281,702
Dividend received - 707,466 - 707,466
Net cash used in investing activities (332,948,095) (463,292,805) (332,948,095) (463,292,805)

CASH FLOWS FROM FINANCING ACTIVITIES

Receipt from issue of debt securities 3,033,880,057 - 3,033,880,057 -
Repayment of debt securities - - - -
Receipt from issue of subordinated liabilities - - - -
Repayment of subordinated liabilities - - - -
Receipt from issue of shares - - - -
Dividends paid (886,126,230) - (886,126,230) -
Interest paid - - - -
Other receipt/payment - - - -
Net cash from financing activities 2,147,753,827 - 2,147,753,827 -

Net increase (decrease) in cash and cash equivalents (819,565,031) 2,878,151,424 (819,565,031) 2,878,151,424
Cash and cash equivalents at Sawan 1 2076 9,442,900,351 2,364,190,960 9,442,900,351 2,364,190,960
Effect of exchange rate fluctuations on cash and cash equivalents
held - -
Cash and cash equivalents at 30 Ashwin 2076 8,623,335,320 5,242,342,384 8,623,335,320 5,242,342,384
 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

Contents
1. Reporting Entity ....................................................................................................................... 3
1.1 Subsidiary ........................................................................................................................ 3
1.2 Group ............................................................................................................................... 3
2. Basis of Preparation ................................................................................................................ 4
2.1 Statement of Compliance ................................................................................................ 4
2.2 Reporting Period and approval of financial statements ................................................... 4
2.3 Foreign Exchange Transaction........................................................................................ 5
2.4 Functional and Presentation Currency ............................................................................ 5
2.5 Significant Accounting Judgments, Estimates and Assumptions .................................... 5
2.6 Accounting Policies and Changes in Accounting Polices................................................ 5
2.7 New Standards in issue but not yet effective .................................................................. 6
2.8 New Standards and interpretation not adopted ............................................................... 6
2.9 Discounting ...................................................................................................................... 6
2.10 Prior Period Errors ........................................................................................................... 6
2.11 Materiality and Aggregation ............................................................................................. 6
2.12 Offsetting ......................................................................................................................... 6
2.13 Comparative Information ................................................................................................. 6
2.14 Rounding ......................................................................................................................... 7
3. Summary of significant accounting policies ............................................................................. 7
3.1 Basis of Measurement ..................................................................................................... 7
3.2 Basis of Consolidation ..................................................................................................... 7
3.3 Cash and Cash equivalent .............................................................................................. 8
3.4 Balance with Central Bank .............................................................................................. 9
3.5 Placement with Bank and Financial Institution: ............................................................... 9
3.6 Financial Assets and Financial Liabilities ........................................................................ 9
3.7 Trading Asset and liabilities ........................................................................................... 15
3.8 Derivative financial Instruments..................................................................................... 15
3.9 Property, Plant and Equipment...................................................................................... 15
3.10 Intangible Assets and Goodwill ..................................................................................... 18
3.11 Government Grant ......................................................................................................... 19
3.12 Investment Property....................................................................................................... 19
3.13 Due to Banks and Financial Institution .......................................................................... 20
3.14 Deposit from Customers: ............................................................................................... 20

Page 1 of 38
 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

3.15 Contingent Liabilities and Commitments: ...................................................................... 20

3.16 Litigation ........................................................................................................................ 21
3.17 Borrowing Cost: ............................................................................................................. 21
3.18 Income Tax .................................................................................................................... 21
3.19 Provisions ...................................................................................................................... 22
3.20 Revenue Recognition .................................................................................................... 22
3.21 Interest Expense ............................................................................................................ 24
3.22 Impairment of non-financial Assets: .............................................................................. 24
3.23 Employment Benefits ..................................................................................................... 25
3.24 Other expense ............................................................................................................... 26
3.25 Leases ........................................................................................................................... 27
3.26 Foreign Currency Transactions, Translation and Balances .......................................... 27
3.27 Financial guarantee and loan commitment.................................................................... 28
3.28 Share Capital and Reserves .......................................................................................... 28
3.29 Earnings per Share including diluted earning ................................................................ 30
3.30 Segment Reporting ........................................................................................................ 30
3.31 Capital Management...................................................................................................... 31
3.32 Risk Management .......................................................................................................... 31
4. Segmental Information .......................................................................................................... 35
5. Related Parties Disclosures .................................................................................................. 36
6. Dividends paid (aggregate or per share) separately for ordinary shares and other shares. . 38
7. Issues, repurchases and repayments of debt and equity securities ..................................... 38
8. Events after Interim Period .................................................................................................... 38
9. Effect of changes in the composition of the entity during the interim period including merger
and acquisition ............................................................................................................................... 38
10. Distributable Profit Note ..................................................................................................... 38

Page 2 of 38
 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

1. Reporting Entity

Machhapuchchhre Bank Limited (hereinafter referred to as “The Bank”) is a public limited company,
incorporated on 16 February 1998 as per the then Companies Act 1964 of Nepal, and domiciled in
Nepal. The Bank obtained license from Nepal Rastra Bank on 27th September 2000. The registered
office of the Bank is located at Lazimpat, Kathmandu, Nepal. The Bank is listed in Nepal Stock
Exchange Limited (the sole stock exchange in Nepal) for public trading.

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

1.1 Subsidiary

The Bank has recognized Machhapuchchhre Capital Limited as a subsidiary company in which
Bank held 100% controlling interest at the report date.

Machhapuchchhre Capital Limited is wholly owned subsidiary of the Bank and was incorporated
on Ashwin 8, 2075 as a public limited company as per the Companies Act 2063 and licensed by
Securities Board of Nepal under the Securities Businessperson (Merchant Banker) Regulations,
2008 to provide merchant banking and investment banking services.

The financial year of subsidiary is same as that of the Bank ending on July 16, 2019

1.2 Group

The Group” represents The Bank and its subsidiary. The Group reassesses whether or not it
controls an investee if facts and circumstances indicate that there are changes to one or more of
the above mentioned circumstances. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control
ceases. Where Subsidiaries have been sold or acquired during the year, assets, liabilities, income
and expenses of the said subsidiary are included in the consolidated financial statements from the
date the Group gains control until the date the Group ceases to control the subsidiary.

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2. Basis of Preparation

The interim financial statements of the Bank have been prepared in accordance with Nepal
Financial Reporting Standards (NFRS) : NAS 34 Interim Financial Reporting as published by the
Accounting Standards Board (ASB) Nepal and pronounced by The Institute of Chartered
Accountants of Nepal (ICAN). The disclosures made in the condensed consolidated interim
financials information have been limited on the format prescribed by Nepal Rastra Bank through
NRB Circular 19 dated 14th Falgun, 2075 (Ref No: Bai.Bi.Ni.Bi/Niti/Paripatra/ka kha ga/19/075/76)

The Financial Statement comprise of:

 Condensed Consolidated Statement of Financial Position (SOFP)

 Condensed Consolidated Statement of Profit and Loss (SOPL) and Condensed Consolidated
Statement of Other Comprehensive Income (SOCI)
 Condensed Consolidated Statement of Changes in Equity (SOCE)
 Condensed Consolidated Statement of Cash Flows (SOCF)
 Notes to the Condensed Consolidated Financial Statements comprising summary of
Significant Accounting Policies and explanatory notes.

The interim financial statements do not include all of the information required for a complete set of
NFRS financial statements. However, selected explanatory notes are included to explain events
and transactions that are significant to an understanding of the changes in the Bank's financial
position and performance since the last annual financial statements.

2.1 Statement of Compliance

The financial statements of the group have been prepared in accordance with Nepal Financial
Reporting Standards (NFRS) as issued by Accounting Standards Board and carve out issued by
the Institute of Chartered Accountants of Nepal and in compliance with BAFIA 2073 and Unified
Directives 2075 issued by Nepal Rastra Bank and all other applicable laws and regulations. These
policies have been consistently applied to all the years presented except otherwise stated.

2.2 Reporting Period and approval of financial statements

The Bank follows the Nepalese financial year based on the Nepalese calendar. The corresponding
dates for the English calendar are as follows:

Relevant Financial
Nepalese Calendar Date/Period English Calendar Date/Period
Statement
Condensed Consolidated
Statement of Financial As at 30 Ashwin, 2076 17 October ,2019
Position
Condensed Consolidated
1 Shrawan 2076 to 30 Ashwin, 2076 17 July, 2019 to 17 October, 2019
Statement of Profit/Loss
Condensed Consolidated
1 Shrawan 2076 to 30 Ashwin, 2076 17 July, 2019 to 17 October, 2019
Statement of Cash flow
Condensed Consolidated
Statement of Changes in 1 Shrawan 2075 to 30 Ashwin, 2076 17 July, 2018 to 17 October, 2019
Equity

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2.3 Foreign Exchange Transaction

Foreign Exchange Transactions Assets and liabilities denominated in foreign currencies as on the
balance sheet date have been converted into local currency at mid-point exchange rates published
by Nepal Rastra Bank after adjustment for effective trading rate.

2.4 Functional and Presentation Currency

The Nepalese Rupees (NRs), being the currency of primary economic environment under which
bank operates, has been used as the functional currency. The Financial information has been
presented in Nepalese Rupees and has been shown in actual figure, unless indicated otherwise.

2.5 Significant Accounting Judgments, Estimates and Assumptions

The Management of the Bank has made judgments, estimations and assumptions which affect the
application of accounting policies and reported amounts of assets, liabilities, income and expenses
that is required for the preparation of financial statements in conformity with Nepal Financial
Reporting Standards (NFRS). The Management believes that the estimates used in preparation of
financial statements are prudent and reasonable. Estimates and underlying assumptions are
reviewed on an ongoing basis. Necessary revisions to accounting estimates are recognized in the
period in which such estimates are revised and in any future periods affected. Actual results may
differ from these estimates.

Any revision in accounting estimate is recognized prospectively in present and future periods as
required under NAS 8 Accounting Policies, Changes in Accounting Estimates and Error.

Significant estimates, assumptions and judgments used in applying accounting policies which have
material effect in financial statements are:

 Impairment on loans and advances (Higher of provision for loan loss calculated as per NRB
Guideline and Impairment loss calculated as per NFRS as per carve out issued by ICAN to
be mandatorily implemented till carve out period)
 Impairment of other financial and non-financial assets
 Determination of fair value of financial instruments
 Assessment of Bank’s ability to continue as going concern.

2.6 Accounting Policies and Changes in Accounting Polices

There are different accounting principles adopted by management and these policies are
consistently applied to all years presented except or changes in accounting policies that has been
disclosed separately.

The Bank, under NFRS, is required to apply accounting policies to most appropriately suit its
circumstances and operating environment. Further, the Bank is required to make judgments in
respect of items where the choice of specific policy, accounting estimate or assumption to be
followed could materially affect the financial statements. This may later be determined that a
different choice could have been more appropriate. The accounting policies have been included in
the relevant notes for each item of the financial statements and the effect and nature of the
changes, if any, have been disclosed.

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2.7 New Standards in issue but not yet effective

A number of new standards and amendments to the existing standards and interpretations have
been issued by IASB after the pronouncements of NFRS with varying effective dates. Those
become applicable when ASB Nepal incorporates them within NFRS

2.8 New Standards and interpretation not adopted

In preparing financial statement, Standards and pronouncement issued by Accounting Standard

Board Nepal has been adopted. Management has used its assumptions and understandings for
preparation of financial statements under compliance with NFRS, however, certain interpretations
might vary regarding the recognition, measurement, and other related provisions where the
standards are not specific and not clear.

2.9 Discounting

Discounting has been done, using the relevant discount rate, for computing the present value of a
payment or stream of payments that is to be received in future in case required under NFRS for
any valuations, adjustments. Market interest rates, EIR rates are used for discounting the future
payments as required under the provision. It has been applied in the cases where discounting is
material.

2.10 Prior Period Errors

Prior Period Errors are omissions or misstatements in an entity’s financial statements. Such
omissions may relate to one or more prior periods. Correction of an error is done by calculating the
cumulative effect of the change on the financial statements of the period as if new method or
estimate had always been used for all the affected prior years’ financial statements. Sometimes
such changes may not be practicable. In such cases, it is applied to the latest period possible by
making corresponding adjustment to the opening balance of the period.

2.11 Materiality and Aggregation

In compliance with NFRS 1 Presentation of Financial Statements, Each material class of similar
items is presented separately in financial statements. Items of dissimilar nature are presented
separately unless they are material.

2.12 Offsetting

Assets and liabilities, income and expense are reported separately and no assets and liabilities, or
income and expense are offset unless required or permitted by NFRS.

2.13 Comparative Information

Comparative information is provided in narrative and descriptive nature, if it is relevant to

understand the current period’s financial statement and reclassified whenever necessary to
conform to current year presentation.

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2.14 Rounding

The statements have been rounded off to nearest Rupees in relevant assertions.

3. Summary of significant accounting policies

The principal accounting policies set out below have been applied consistently to all periods
presented in these Financial Statements, unless otherwise stated. The preparation of financial
statements requires the use of certain accounting estimates. The areas where significant
judgments and estimates have been made in preparing the financial statements and their effects
have been disclosed.

3.1 Basis of Measurement

The financial statements have been prepared on historical cost basis except for the following
material items in the statement of financial position:

 financial assets and liabilities are measured at fair value at it’s initial recognition. Subsequent
recognition of FVTOCI and FVTPL financial instruments are measured at fair value
 the liability for defined benefit obligations is recognized as the present value of the defined
benefit obligation less the net total of the plan assets, plus unrecognized actuarial gains, less
unrecognized past service cost and unrecognized actuarial losses.

3.2 Basis of Consolidation

3.2.1 Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method as per the requirements of
NFRS 3 Business Combinations. The Bank measures goodwill as the fair value of the consideration
transferred including the recognized amount of any non-controlling interest in the acquire, less the
net recognized amount (generally fair value) of the identifiable assets acquired and liabilities
assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase
gain is immediately recognized in the profit or loss.

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

3.2.2 Non-Controlling Interest (NCI)

Bank elects to measure any non-controlling interests for each business combination in the acquire
either:

 At fair value; or
 At their proportionate share of the acquirer’s identifiable net assets

Changes in the Bank’s interest in a subsidiary that do not result in a loss of control are accounted
for as transactions with owners in their capacity as owners. Adjustments to non-controlling interests

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are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made
to goodwill and no gain or loss is recognized in profit or loss.

3.2.3 Subsidiaries

Subsidiaries are the entities controlled by the Bank. The Bank controls an entity if it is exposed, or
has rights, to variable returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee. The Financial Statements of subsidiaries are
included in the Condensed Consolidated Financial Statements from the date that control
commences until the date that control ceases.

The Bank reassesses whether it has control if there are changes to one or more of the elements of
control. The Financial Statements have been prepared using uniform accounting policies for like
transactions and other events in similar circumstances as stated on Para 19 of the NFRS 10. The
Consolidated Financial Statements are prepared for the common financial year end. The Bank
currently has only one subsidiary- “Machhapuchchhre Capital Limited” which has been
incorporated in Nepal. The details of same is as follows

Subsidiary Cost as on Ashad end 2076

Machhapuchchhre Capital Limited 200,000,000

3.2.4 Loss of Control

When the Bank loses control over a Subsidiary, it derecognizes the assets and liabilities of the
former subsidiary at its carrying value when control is lost and subsequently accounts for it and for
any amounts owed by or to the former subsidiary in accordance with relevant NFRS. That fair value
shall be regarded as the fair value on initial recognition of a financial asset in accordance with
relevant NFRS or, when appropriate, the cost on initial recognition of an investment in an associate
or joint venture. The Bank recognizes the gain or loss associated with the loss of control attributable
to the former controlling interest.

3.2.5 Special Purpose Entity(SPE)

Special purpose entity is a legal entity (usually limited company of some type or, sometimes, a
limited partnership) created to fulfil narrow, specific or temporary objectives. SPEs are typically
used by companies to isolate the firm from financial risk. The Bank does not have any special
purpose entity as of now.

3.2.6 Transaction Elimination on Consolidation

All intra-group balances and transaction, and any unrealized income and expense (except for
foreign currency transaction gains or losses) arising from intra-group transactions are eliminated in
preparing the consolidated financial statements. Unrealized losses are eliminated in the same way
as unrealized gains, but only to the extent that there is no evidence of impairment.

3.3 Cash and Cash equivalent

Cash and cash equivalents include notes and coins on hand and highly liquid financial assets with
original maturities of three months or less from the acquisition date that are subject to an
insignificant risk of changes in their fair value and are used by the Bank in the management of its
short-term commitments. Cash and cash equivalents are carried at amortized cost in the statement
of financial position.

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3.4 Balance with Central Bank

Balances with central banks are carried at amortized cost in the Statement of Financial Position.

3.5 Placement with Bank and Financial Institution:

Placements with banks and financial Institutions includes placement with other banks with original
maturities of more than three months from the acquisition date. Placements with banks are initially
measured at fair value. After initial measurement, they are subsequently measured at amortized
cost using the Effective Interest Rate (EIR), less allowance for impairment. Interest income from
placements with banks is included in “Interest income” in the Statement of Profit or Loss. The losses
arising from impairment are recognized in “Impairment charge/ (reversal) in the Statement of Profit
or Loss.

3.6 Financial Assets and Financial Liabilities

3.6.1 Recognition

The Bank initially recognizes a financial asset or a financial liability in its statement of financial
position when, and only when, it becomes party to the contractual provisions of the instrument. The
Bank initially recognize loans and advances, deposits and debt securities/ subordinated liabilities
issued on the date that they are originated which is the date that the Bank becomes party to the
contractual provisions of the instruments. Investments in equity instruments, bonds, debenture,
Government securities, NRB bond or deposit auction, reverse repos, outright purchase are
recognized on trade date at which the Bank commits to purchase/ acquire the financial assets.
Regular way purchase and sale of financial assets are recognized on trade date at which the Bank
commits to purchase or sell the asset.

3.6.2 Classification

Financial instruments are classified as

 Financial Assets
 Financial Liabilities

A Financial Assets

The Bank classifies the financial assets as subsequently measured at amortized cost or fair
value on the basis of the Bank’s business model for managing the financial assets and the
contractual cash flow characteristics of the financial assets. The two classes of financial assets
are as follows;

 Financial assets measured at amortized cost

 Financial asset measured at fair value

i. Financial assets measured at amortized cost

The Bank classifies a financial asset measured at amortized cost if both of the following conditions
are met:

 The asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows and

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 The contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.

ii. Financial asset measured at fair value

Financial assets other than those measured at amortized cost are measured at fair value. Financial
assets measured at fair value are further classified into two categories as below:

 Financial assets at fair value through profit or loss.

 Financial assets at fair value through other comprehensive income

Financial assets at fair value through profit or loss.

Financial assets are classified as fair value through profit or loss (FVTPL) if they are held for trading
or are designated at fair value through profit or loss. Upon initial recognition, transaction cost are
directly attributable to the acquisition are recognized in profit or loss as incurred. Such assets are
subsequently measured at fair value and changes in fair value are recognized in Statement of Profit
or Loss.

Financial assets at fair value through other comprehensive income

Investment in an equity instrument that is not held for trading and at the initial recognition, the Bank
makes an irrevocable election that the subsequent changes in fair value of the instrument is to be
recognized in other comprehensive income are classified as financial assets at fair value though
other comprehensive income. Such assets are subsequently measured at fair value and changes
in fair value are recognized in other comprehensive income.

B Financial Liabilities

The Bank classifies its financial liabilities, other than financial guarantees and loan Commitments,
as follows;

 Financial Liabilities at Fair Value through Profit or Loss

 Financial Liabilities measured at amortized cost

Financial Liabilities at Fair Value through Profit or Loss

Financial liabilities are classified as fair value through profit or loss if they are held for trading or are
designated at fair value through profit or loss. Upon initial recognition, transaction costs are directly
attributable to the acquisition are recognized in Statement of Profit or Loss as incurred. except for
particular liabilities designated as at FVTPL, the amount of the change in the fair value that is
attributable to changes in the liability’s credit risk is recognized in Other Comprehensive Income

Financial Liabilities measured at amortized cost

All financial liabilities other than measured at fair value though profit or loss are classified as
subsequently measured at amortized cost using effective interest method.

3.6.3 Measurement

Initial Measurement

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A financial asset or financial liability is measured initially at fair value plus or minus, for an item not
at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or
issue. Transaction cost in relation to financial assets and liabilities at fair value through profit or loss
are recognized in Statement of Profit or Loss.

Subsequent Measurement

A financial asset or financial liability is subsequently measured either at fair value or at amortized
cost based on the classification of the financial asset or liability. Financial asset or liability classified
as measured at amortized cost is subsequently measured at amortized cost using effective interest
rate method.

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

Financial assets classified at fair value are subsequently measured at fair value. The subsequent
changes in fair value of financial assets at fair value through profit or loss are recognized in
Statement of Profit or Loss whereas of financial assets at fair value through other comprehensive
income are recognized in other comprehensive income.

3.6.4 Derecognition

Derecognition of Financial Assets

The Bank derecognizes a financial asset when the contractual rights to the cash flows from the
financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction
in which substantially all the risks and rewards of ownership of the financial asset are transferred
or in which the Bank neither transfers nor retains substantially all the risks and rewards of ownership
and it does not retain control of the financial asset.

Any interest in such transferred financial assets that qualify for derecognition that is created or
retained by the Bank is recognized as a separate asset or liability. On derecognition of a financial
asset, the difference between the carrying amount of the asset (or the carrying amount allocated
to the portion of the asset transferred), and consideration received (including any new asset
obtained less any new liability assumed) shall be recognized in profit or loss

In transactions in which the Bank neither retains nor transfers substantially all the risks and rewards
of ownership of a financial asset and it retains control over the asset, the Bank continues to
recognize the asset to the extent of its continuing involvement, determined by the extent to which
it is exposed to changes in the value of the transferred asset.

Derecognition of Financial Liabilities

A financial liability is derecognized when the obligation under the liability is discharged or canceled
or expired. Where an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a de recognition of the original liability and the recognition
of a new liability. The difference between the carrying value of the original financial liability and the
consideration paid is recognized in Statement of Profit or Loss.

3.6.5 Determination of Fair Value

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Fair value is the amount for which an asset could be exchanged, or a liability be settled, between
knowledgeable, willing parties in an arm’s length transaction on the measurement date. The fair
value of a liability reflects its non-performance risk. The fair values are determined according to the
following hierarchy:

Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets
for identical assets or liabilities.

Level 2 valuations are those with quoted prices for similar instruments in active markets or quoted
prices for identical or similar instruments in inactive markets and financial instruments valued using
models where all significant inputs are observable.

Level 3 portfolios are those where at least one input, which could have a significant effect on the
instrument’s valuation, is not based on observable market data.

When available, the Bank measures the fair value of an instrument using quoted prices in an active
market for that instrument. A market is regarded as active if quoted prices are readily and regularly
available and represent actual and regularly occurring market transactions on an arm’s length
basis.

If a market for a financial instrument is not active, the Bank establishes fair value using a valuation
technique. Valuation techniques include using recent arm’s length transactions between
knowledgeable, willing parties (if available), reference to the current fair value of other instruments
that are substantially the same, discounted cash flow analyses. The best evidence of the fair value
of a financial instrument at initial recognition is the transaction price – i.e. the fair value of the
consideration given or received. However, in some cases, the fair value of a financial instrument
on initial recognition may be different to its transaction price. If such fair value is evidenced by
comparison with other observable current market transactions in the same instrument (without
modification) or based on a valuation technique whose variables include only data from observable
markets, then the difference is recognized in profit or loss on initial recognition of the instrument. In
other cases the difference is not recognized in profit or loss immediately but is recognized over the
life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or
sold, or the fair value becomes observable. All unquoted equity investments are recorded at cost.

3.6.6 Offsetting

Financial assets and liabilities are offset and the net amount presented in the statement of financial
position when, and only when, the Group has a legal right to set off the amounts and it intends
either settle them on a net basis or to realize the asset and settle the liability simultaneously. Income
and expenses are presented on a net basis only when permitted under NFRS, or for gains and
losses arising from a group of similar transactions such as in the Group’s trading activity.

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3.6.7 Impairment

At each reporting date the Bank assesses whether there is any indication that an asset may have
been impaired. If such indication exists, the recoverable amount is determined. A financial asset
or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is
objective evidence of impairment as a result of one or more events occurring after the initial
recognition of the asset (a loss event), and that loss event (or events) has an impact on the
estimated future cash flows of the financial asset or group of financial assets that can be reliably
estimated.

The Bank considers the following factors in assessing objective evidence of impairment:

 Whether the counterparty is in default of principal or interest payments.

 When a counterparty files for bankruptcy and this would avoid or delay discharge of its
obligation.
 Where the Bank initiates legal recourse of recovery in respect of a credit obligation of the
counterpart.
 Where the Bank consents to a restructuring of the obligation, resulting in a diminished financial
obligation, demonstrated by a material forgiveness of debt or postponement of scheduled
payments.
 Where there is observable data indicating that there is a measurable decrease in the estimated
future cash flows of a group of financial assets, although the decrease cannot yet be identified
with specific individual financial assets.

The Bank considers evidence of impairment for loans and advances and held-to-maturity investment
securities at both a specific asset and collective level. All individually significant loans and advances
and held-to-maturity investment securities are assessed for specific impairment. Those found not to
be specifically impaired are then collectively assessed for any impairment that has been incurred
but not yet identified.

Loans and advances and held-to-maturity investment securities that are not individually significant
are collectively assessed for impairment by grouping together loans and advances and held-to-
maturity investment securities with similar risk characteristics. Impairment test is done on annual
basis for trade receivables and other financial assets based on the internal and external indication
observed.

In assessing collective impairment, the Bank uses statistical modelling of historical trends of the
probability of default, the timing of recoveries and the amount of loss incurred, adjusted for
management’s judgment as to whether current economic and credit conditions are such that the
actual losses are likely to be greater or less than suggested by historical trends. Default rates, loss
rates and the expected timing of future recoveries are regularly benchmarked against actual
outcomes to ensure that they remain appropriate.

Impairment losses on assets measured at amortized cost

Financial assets carried at amortized cost (such as amounts due from Banks, loans and advances
to customers as well as held–to–maturity investments is impaired, and impairment losses are
recognized, only if there is objective evidence as a result of one or more events that occurred after
the initial recognition of the asset. The amount of the loss is measured as the difference between
the asset's carrying amount and the deemed recoverable value of loan.

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Bank considers evidence of impairment for loans and advances and investment securities
measured at amortized cost at both specific asset and collective level. Bank first assess individually
whether objective evidence of impairment exists for financial assets that are individually significant
and assessed on collective basis for those that are not individually significant. Loans and advances
to customers with significant value are assessed for individual impairment test. The recoverable
value of loan is estimated on the basis of realizable value of collateral and the conduct of the
borrower/past experience of the bank.

If there is objective evidence that impairment loss has been incurred, the amount of loss is
measured at the difference between asset’s carrying amount and present value of estimated future
cash flows. Carrying amount of the asset is reduced through the use of an allowance account and
amount of loss is recognized in profit or loss. All individually significant loans and advances and
investment securities are assessed for specific impairment. Those not found to be specifically
impaired are collectively assessed for impairment by grouping together loan and advances and
held to maturity with similar risk characteristics.

Assets that are individually assessed and for which no impairment exists are grouped with financial
assets with similar credit risk characteristics and collectively assessed for impairment. The credit
risk statistics for each group of the loan and advances are determined by management prudently
being based on the past experience. For the purpose of collective assessment of impairment bank
has categorized assets in to four broad products as follows:

1. Term Loan
2. Auto Loan
3. Home Loan
4. Overdraft

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases
because of an event occurring after the impairment was recognized, the previously recognized
impairment loss is increased or reduced by adjusting the other reserves and funds (impairment
reserve) in other comprehensive income and statement of changes in equity. If a future write–off is
later recovered, the recovery is credited to the ’Income Statement’.

Loan Loss Provision as per direction of Nepal Rastra Bank

Loan loss provisions in respect of non-performing loans and advances are based on management’s
assessment of the degree of impairment of the loans and advances, subject to the minimum
provisioning level prescribed in relevant NRB guidelines. Provision is made for possible losses on
loans and advances including bills purchased at 1% to 100% on the basis of classification of loans
and advances, overdraft and bills purchased in accordance with NRB directives.

Policies Adopted

The bank adopts carve out issued by ICAN for measurement of impairment loss on loans and
advances. As per the Carve out notice issued by ICAN, the Bank has measured impairment loss
on loan and advances as the higher of amount derived as per norms prescribed by Nepal Rastra
Bank for loan loss provision and amount determined as per paragraph 63 of NAS 39.

Impairment of investment in equity instrument classified as fair value though other

comprehensive income

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Where objective evidence of impairment exists for available-for-sale financial assets, the
cumulative loss (measured as the difference between the amortized cost and the current fair value,
less any impairment loss on that financial asset previously recognized in the statement of profit or
loss) is reclassified from equity and recognized in the profit or loss. A significant or prolonged
decline in the fair value of an equity security below its cost is considered, among other factors in
assessing objective evidence of impairment for equity securities.

If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale
increases and the increase can be objectively related to an event occurring after the impairment
loss was recognized, the impairment loss is reversed through the statement of profit or loss.
Impairment losses recognized in the profit or loss on equity instruments are not reversed through
the profit or loss.

3.7 Trading Asset and liabilities

Trading assets and liabilities are those assets and liabilities that the Bank acquires or incurs
principally for the purpose of selling or repurchasing in the near term, or holds as a part of a portfolio
that is managed together for short term profit or position taking.

Trading assets and liabilities are initially recognized at fair value and subsequently measured at
fair value in the statement of financial position, with transaction costs recognized in profit or loss.
All changes in fair value are recognized as part of net trading income in profit or loss as regarded
as fair value through profit & loss account.

3.8 Derivative financial Instruments

Derivatives are financial instruments that derive their value in response to changes in interest rates,
financial instrument prices, commodity prices, foreign exchange rates, credit risk, indices etc.
Derivatives are categorized as trading unless they are designated as hedging instruments. All
derivatives are initially recognized and subsequently measured at fair value, with all revaluation
gains or losses recognized in the Statement of Profit or Loss under Operating Income. Derivatives
are recorded at fair value and carried as assets when their fair value is positive and as liabilities
when their fair value is negative. Fair value is determined using the closing rates ruling on the
reporting date.

3.9 Property, Plant and Equipment

Recognition

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

Measurement

An item of property, plant and equipment that qualifies for recognition as an asset is initially
measured at its cost. Cost includes expenditure that is directly attributable to the acquisition of the
asset and cost incurred subsequently to add to, replace part of an item of property, plant &
equipment. The cost of self-constructed assets includes the cost of materials and direct labor, any

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other costs directly attributable to bringing the asset to a working condition for its intended use and
the costs of dismantling and removing the items and restoring the site on which they are located.

Purchased software that is integral to the functionality of the related equipment is capitalized as
part of computer equipment. When parts of an item of property or equipment have different useful
lives, they are accounted for as separate items (major components) of property, plant and
equipment.

Cost Model

Property and equipment is stated at cost excluding the costs of day–to–day servicing, less
accumulated depreciation and accumulated impairment in value. Such cost includes the cost of
replacing part of the equipment when that cost is incurred, if the recognition criteria are met. Bank
has adopted cost model for entire class of property and equipment. The items of property and
equipment are measured at cost less accumulated depreciation and any accumulated impairment
loss.

Revaluation Model

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

On revaluation of an asset, any increase in the carrying amount is recognized in ‘Other

comprehensive income’ and accumulated in equity, under revaluation reserve or used to reverse a
previous revaluation decrease relating to the same asset, which was charged to the Statement of
Profit or Loss. In this circumstance, the increase is recognized as income to the extent of previous
write down. Any decrease in the carrying amount is recognized as an expense in the Statement of
Profit or Loss or debited to the Other Comprehensive Income to the extent of any credit balance
existing in the revaluation reserve in respect of that asset. The decrease recognized in other
comprehensive income reduces the amount accumulated in equity under revaluation reserves. Any
balance remaining in the revaluation reserve in respect of an asset is transferred directly to retained
earnings on retirement or disposal of the asset.

Subsequent Cost

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

Derecognition

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

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Depreciation

Depreciation is calculated by using the straight line method on cost or carrying value of property,
plant & equipment other than freehold land. Fixed Assets are depreciated on the basis of expected
useful life on Straight Line Method (SLM) basis. Land is not depreciated. Management has
determined the expected life of the fixed assets for depreciation purpose as follows:

S.N. Assets Types Expected useful life (Years)

1 Building 50
2 Vehicle 7
3 Furniture Wooden 8
4 Furniture Metal 10
5 Office Equipment 10
6 Computers 5
7 Generators and Others 10
8 ATM 7
9 Battery 3

The depreciation on the assets purchased and capitalized during the current period has been
accounted from the next month of purchase. In case of assets being sold and written off, the
depreciation is charged up to the previous month of disposal and gain or loss on the sales
transaction is accounted for.

a) Depreciation for income tax purpose is calculated separately at the rate and manner prescribed
by the Income Tax Act, 2058.
b) Assets with a unit value of NPR 10,000 or less are expensed-off during the year of purchase
irrespective of its useful life.
c) Leasehold assets and cost of software licenses are amortized over a period of useful life and
in case useful life cannot be ascertained the bank has the policy to amortize the cost in five
years.

Changes in Estimates

The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted
if appropriate, at each financial year end.

Capital Work in Progress

These are expenses of capital nature directly incurred in the construction of buildings, major plant
and machinery and system development, awaiting capitalization. Capital work-in-progress would
be transferred to the relevant asset when it is available for use, i.e. when it is in the location and
condition necessary for it to be capable of operating in the manner intended by management.
Capital work-in-progress is stated at cost less any accumulated impairment losses.

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3.10 Intangible Assets and Goodwill

Recognition

An intangible asset is an identifiable non-monetary asset without physical substance, held for use
in the production or supply of goods or services, for rental to others or for administrative purposes.
An intangible asset is recognized if it is probable that the future economic benefits that are
attributable to the asset will flow to the entity and the cost of the asset can be measured reliably.
An intangible asset is initially measured at cost. Expenditure incurred on an intangible item that
was initially recognized as an expense by the Bank in previous annual Financial Statements or
interim Financial Statements are not recognized as part of the cost of an intangible asset at a later
date.

Computer Software

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

Goodwill

Goodwill, if any that arises upon the acquisition of Subsidiaries is included in intangible assets.

Subsequent Expenditure

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

Amortization of Intangible Assets

Intangible Assets, except for goodwill, are amortized on a straight–line basis in the Statement of
Profit or Loss from the date when the asset is available for use, over the best of its useful economic
life based on a pattern in which the asset’s economic benefits are consumed by the bank.
Amortization methods, useful lives, residual values are reviewed at each financial year end and
adjusted if appropriate. The Bank assumes that there is no residual value for its intangible assets.

Derecognition of Intangible Assets

The carrying amount of an item of intangible asset is derecognized on disposal or when no future
economic benefits are expected from its use. The gain or loss arising on de recognition of an item
of intangible assets is included in the Statement of Profit or Loss when the item is derecognized.

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3.11 Government Grant

Government grants is recognised in profit or loss on a systematic basis over the periods in which
the entity recognises as expenses the related costs for which the grants are intended to
compensate. Income approach is followed in recording grant income.

Government grants related to the assets including non monetary grants at fair value is presented
in the statement of financial position by setting up Deferred Grant Income.

Grants related to income are presented as part of profit or loss under other income.

During the period the Bank has received grant from Sakchyam Access to Finance for Poor
Challenge Fund (AFPCF or the Project) Programme is an initiative funded by UK Aid.

3.12 Investment Property

Investment properties include land or land and buildings other than those classified as property and
equipment and non-current assets held for sale. They are either held for rental income or for capital
appreciation or for both, but not for sale in ordinary course of business and owner occupied
property. Generally, it includes land, land and building acquired by the Bank as non-banking assets
but not sold as on the reporting date. They have been valued at cost or fair value whichever is
lower.

The Bank holds investment property that has been acquired through enforcement of security over
the loans and advances. Accordingly, Investment properties include the assets obtained as security
for loans & advances and subsequently taken over by the Bank in the course of loan recovery.
Such assets are booked at fair market value or total amount due from the borrower, whichever is
lower in accordance with NRB Directives.

Non-Current Assets Held for Sale

Non-current assets (such as property) and disposal groups (including both the assets and liabilities
of the disposal groups) are classified as held for sale and measured at the lower of their carrying
amount and fair value less cost to sell if their carrying amount is recovered principally through sale
rather than continuing use. They are recognized and measured when:

(i) Their carrying amounts will be recovered principally through sale;

(ii) They are available-for-sale in their present condition; and
(iii) Their sale is highly probable.

Any impairment loss on initial classification and subsequent measurement is recognized as

expense. Also, any increase in fair value less cost to sell (not exceeding the accumulated
impairment loss that has been previously recognized) is recognized in profit or loss. Immediately
before the initial classification as held for sale, the carrying amounts of the assets (or assets and
liabilities in a disposal group) are measured in accordance with the applicable accounting policies
described above.

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3.13 Due to Banks and Financial Institution

Due to banks represents credit balances in Nostro Accounts, short-term borrowings from banks,
deposit accepted from “D” class financial Institutions. These are initially recognized at fair value.
Subsequent to initial recognition, these are measured at their amortized cost. Since all these
transaction costs cannot be identified separately for every customer and it seems impracticable,
separate

3.14 Deposit from Customers:

The Bank accepts deposits from its customers under savings account, current account, term
deposits and margin accounts which allows money to be deposited and withdrawn by the account
holder. These transactions are recorded on the bank's books, and the resulting balance is recorded
as a liability for the Bank and represents the amount owed by the Bank to the customer. They have
been valued at amortized cost.

As per Para 9 of NAS 39 regarding Financial Instruments recognition and measurement, EIR rate
is to be used for booking such interest expense and when calculating the EIR, an entity shall
estimate cash flows considering all contractual term of the financial instrument but not credit loss,
which includes the fees and points received or paid, transaction costs, premiums, discounts

3.15 Contingent Liabilities and Commitments:

Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain
future events or present obligations where the transfer of economic benefit is not probable or cannot
be readily measured as defined under NAS 37 – “Provisions, Contingent Liabilities and Contingent
Assets”. In the normal course of business, the Bank undertakes commitments and incurs contingent
liabilities with legal recourse to its customers to accommodate the financial and investment needs
of clients, to conduct trading activities and to manage its own exposure to risk. These consist of
financial guarantees, letters of credit and other undrawn commitments to lend. Letters of credit and
guarantees (including standby letters of credit) commit the Bank to make payments on behalf of
customers in the event of a specific act, generally related to the import or export of goods.
Guarantees and standby letters of credit carry a similar credit risk to loans. Operating lease
commitments of the Bank (as a lessor and as a lessee) and pending legal claims against the Bank
also form part of commitments of the Bank. Contingent liabilities are not recognized in the
Statement of Financial Position but are disclosed unless they are remote. These financial
instruments generate interest or fees and carries elements of credit risk in excess of those amounts
recognized as assets and liabilities in the Statement of Financial Position. However, no material
losses are anticipated as a result of these transactions.

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3.16 Litigation

Litigations are anticipated in the context of business operations due to the nature of the transactions
involved. The Bank is involved in various such legal actions and the controls have been established
to deal with such legal claims. There are pending litigations existing as at the end of the reporting
period against the Bank, resulting through normal business operations. Litigations against the Bank
have been assessed in terms of the probability of any claims or damages arising against the Bank,
which require provisions to be made in the Financial Statements as per NAS 37 – “Provisions,
Contingent Liabilities and Contingent Assets”.

3.17 Borrowing Cost:

Borrowing cost directly attributable to acquisition or construction of asset necessarily takes

substantial period of time to get ready for its intended use or sale are capitalized as part of cost of
the asset. All other borrowing costs are expensed in the period in which they occur. It includes
interest and other costs that entity incurs in connection with borrowing of funds.

3.18 Income Tax

As per NAS 12 Income Taxes tax expense is the aggregate amount included in determination of
profit or loss for the period in respect of current and deferred taxation. Income Tax expense is
recognized in the statement of Profit or Loss, except to the extent it relates to items recognized
directly in equity or other comprehensive income in which case it is recognized in equity or in other
comprehensive income.

3.18.1 Current Tax

Current tax assets and liabilities consist of amounts expected to be recovered from or paid to Inland
Revenue Department in respect of the current year, using the tax rates and tax laws enacted or
substantively enacted on the reporting date and any adjustment to tax payable in respect of prior
years.

3.18.2 Deferred Tax

Deferred tax is provided on temporary differences at the reporting date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax
liabilities are recognized for all taxable temporary differences except:

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

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

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 Where the deferred tax asset relating to the deductible temporary differences arising from the
initial recognition of an asset or liability in a transaction that is not a business combination, and
at the time of transaction, affects neither the accounting profit nor taxable profit or loss.

 In respect of deductible temporary differences associated with investments in Subsidiaries,

deferred tax assets are recognized only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be available against
which the temporary difference will be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the
extent that it is probable that sufficient profit will be available to allow the deferred tax asset to be
utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are
recognized to the extent that it has become probable that future taxable profit will allow the deferred
tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the reporting date. Current and deferred tax assets and
liabilities are offset only to the extent that they relate to income taxes imposed by the same taxation
authority.

3.19 Provisions

Provision is recognized if, as a result of a past event, the Bank has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will
be required to settle the obligation. The amount recognized is the best estimate of the consideration
required to settle the present obligation at the reporting date, taking in to account the risks and
uncertainties surrounding the obligation at that date. Where a provision is measured using the cash
flows estimated to settle the present obligation, its carrying amount is determined based on the
present value of those cash flows. A provision for onerous contracts is recognized when the
expected benefits to be derived by the Bank from a contract are lower than the unavoidable cost of
meeting its obligations under the contract. The provision is measured as the present value of the
lower of the expected cost of terminating the contract and the expected net cost of continuing with
the contract.

Before a provision is established, the Bank recognizes any impairment loss on the assets
associated with that contract. The expense relating to any provision is presented in the Statement
of Profit or Loss net of any reimbursement.

3.20 Revenue Recognition

Revenue is the gross inflow of economic benefits during the period arising from the course of the
ordinary activities of an entity when those inflows result in increases in equity, other than increases
relating to contributions from equity participants. Revenue is recognized to the extent that it is
probable that the economic benefits will flow to Bank and the revenue can be reliably measured.
The following specific recognition criteria must also be met before revenue is recognized.

3.20.1 Interest Income

Interest income includes interest income on the basis of accrual basis from loan and advance to
borrowers, loans, and investment in government securities, investment in NRB bond, corporate
bonds, and interest on investment securities measured at fair value.

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Treatment of transaction cost

Transaction costs cannot be identified separately and separate EIR computation for every customer
seems impracticable, such transaction costs of all previous years has not been considered when
computing EIR. Due to impracticability, such relevant costs are ignored, due to which EIR rate
equals to the rate provided to customers and therefore, income recognized by system on accrual
basis has been considered as income Once the recorded value of a financial asset or a group of
similar financial assets has been reduced due to an impairment loss, interest income continues to
be recognized using the rate of interest used to discount the future cash flows for the purpose of
measuring the impairment loss.

Guideline on Recognition of Interest Income, 2019 by NRB.

Criteria for determining loans on which interest no longer be recognized to the profit or loss
account but shall be suspended

Guideline issued by NRB on income recognition defines certain criteria for determining loans on
which interest no longer be recognized to the profit or loss account but shall be suspended .These
criteria are as follows

(a) Loans where there is reasonable doubt about the ultimate collectability of principal or interest;
(b) Loans against which individual impairment as per NAS 39 or life time impairment as per NFRS
9 has been made;
(c) Loans where contractual payments of principal and/or interest are more than 3 months in
arrears and where the “net realizable value” of security is insufficient to cover payment of
principal and accrued interest;
(d) Loans where contractual payments of principal and/or interest are more than 12 months in
arrears, irrespective of the net realizable value of collateral;
(e) Overdrafts and other short term facilities which have not been settled after the expiry of the
loan and even not renewed within 3 months of the expiry, and where the net realizable value
of security is insufficient to cover payment of principal and accrued interest;
(f) Overdrafts and other short term facilities which have not been settled after the expiry of the
loan and even not renewed within 12 months of the expiry, irrespective of the net realizable
value of collateral;

Criteria to cease the accrual of interest

Bank and financial institutions shall accrue the interest on loan although it has been decided to
suspend the recognition of income. However, BFIs shall cease to accrue interest on loan, in case
where contractual payments of principal and/or interest of the loan are due for more than 12 months
and the “net realizable value” of security is insufficient to cover payment of principal and accrued
interest. Cessation of accrual of interest for accounting purpose shall not preclude an entity to
continue to accrue interest on a memorandum basis for legal enforcement purposes unless the
loan is written off.

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3.20.2 Fee and Commission Income

Fees and Commission Income being the transaction costs integral to the effective interest rate on
financial asset. Since such transaction costs are not identifiable for separate customer and
therefore being impracticable, they have not been considered when computing EIR. They have
been booked on accrual basis except commission on guarantees issued by the bank which is
recognized as income over the period of the guarantee, except for guarantee commission not
exceeding NPR one lakhs is recognized at the time of issue. Other fee and commission income are
recognized on accrual basis.

3.20.3 Dividend Income

Dividend income are recognized when right to receive such dividend is established. Usually this
is the ex-dividend date for equity securities. Dividends are presented in net trading income, net
income from other financial instruments at fair value through profit or loss or other revenue based
on the underlying classification of the equity investment.

3.20.4 Net Trading Income

Net trading income comprises gains less losses related to trading assets and liabilities, and
includes all realized and unrealized fair value changes, interest, dividends and foreign exchange
differences.

3.20.5 Net Income from other financial instrument at fair value through Profit or Loss

Net income from other financial instruments at fair value through profit or loss relates to non-trading
derivatives held for management purposes that do not form part of qualifying hedge relationships
and financial assets and liabilities designated at fair value through profit or loss. It includes all
realized and unrealized fair value changes, interest, dividends and foreign exchange differences.

3.21 Interest Expense

Interest expense on all financial liabilities including deposits are recognized in profit or loss using
effective interest rate method. Interest expense on all trading liabilities are considered to be
incidental to the Bank’s trading operations and are presented together with all other changes in fair
value of trading assets and liabilities in net trading income.

3.22 Impairment of non-financial Assets:

Bank assess at each reporting date whether there is an indication that an asset may be impaired.
If any such indication exists, Bank estimates the recoverable amount which is higher of Fair Value
less cost to sell or value in use. Where the carrying amount exceeds its recoverable amount, asset
is considered impaired and is written down to recoverable amount.

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3.23 Employment Benefits

Short term employee Benefits:

Short term employee benefits are the benefits that are expected to be settled wholly before 12
months and therefore booked as expense in the period in which employees render the related
service. It includes the following:

 Wages, salaries and social security contributions

 Paid annual and paid sick leave
 Profit sharing and bonuses
 Non-monetary benefits

Post-employment benefit

Post-employment benefit includes the following

a) Defined Contribution Plans

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

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

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

b) Defined Benefit Plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
Accordingly, leave encashment and gratuity has been considered as defined benefit plans as per
NAS 19 Employee Benefits. Net Obligation in DBP is calculated separately for each plan by
estimating the amount of future benefit that employees have earned in return for their service in the
current and prior periods and discounting that benefit to determine its present value and then
deducting the fair value of any plan assets. Bank recognizes all actuarial gains and losses arising
from DBP in the Other Comprehensive Income and expenses related to DBP under personnel
expense in the Statement of Profit or Loss.

Under NFRS, the actuarial gains and losses form part of re measurement of the net defined benefit
liability / asset which is recognized in Other Comprehensive income (OCI). Also, the tax effect of
the same is also recognized in Other Comprehensive Income (OCI) under NFRS..

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i) Gratuity

An actuarial valuation is carried out every year to ascertain the full liability under gratuity. Bank’s
obligation in respect of defined benefit obligation is calculated by estimating the amount of future
benefit that employees have earned for their service in the current and prior periods and discounting
that benefit to determine its present value, then deducting the fair value of any plan assets to
determine the net amount to be shown in the Statement of Financial Position. The value of a defined
benefit asset is restricted to the present value of any economic benefits available in the form of
refunds from the plan or reduction on the future contributions to the plan. In order to calculate the
present value of economic benefits, consideration is given to any minimum funding requirement
that apply to any plan in Bank. An economic benefit is available to Bank if it is realizable during the
life of the plan, or on settlement of the plan liabilities.

Bank determines the interest expense on the defined benefit liability by applying the discount rate
used to measure the defined benefit liability at the beginning of the annual period to the defined
benefit liability at the beginning of the annual period. The discount rate is the yield at the reporting
date on government bonds that have maturity dates approximating to the terms of Bank’s
obligations.

The increase in gratuity liabilities attributable to the services provided by employees during the
under ‘Personnel Expenses’ together with the net interest expense. Also, actuarial gain loss have
been shown under Other Comprehensive Income (OCI) Bank recognizes the total actuarial gain/
(loss) that arises in computing Bank’s obligation in respect of gratuity in other comprehensive
income during the period in which it occurs.

ii) Unutilized Accumulated Leave

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

3.24 Other expense

Other Expense have been recognized in the Statement of Profit or Loss as they are incurred in the
period to which they relate. All expenditure incurred in the operation of the business and in
maintaining the capital assets in a state of efficiency has been charged to revenue in arriving at
profit for the year. Provisions in respect of other expenses are recognized when there is present
obligation (legal or constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.

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3.25 Leases

The determination of whether an arrangement is a lease, or it contains a lease, is based on the

substance of the arrangement and requires an assessment of whether the fulfillment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement conveys
a right to use the asset.

Finance Lease

Agreements which transfer to counterparties substantially all the risks and rewards incidental to the
ownership of assets, but not necessarily legal title, are classified as finance lease. When Bank is
the lessor under finance lease, the amounts due under the leases, after deduction of unearned
interest income, are included in, ‘Loans to & receivables from other customers’, as appropriate.
Interest income receivable is recognized in ‘Net interest income’ over the periods of the leases so
as to give a constant rate of return on the net investment in the leases.

When Bank is a lessee under finance leases, the leased assets are capitalized and included in
‘Property, Plant and Equipment’ and the corresponding liability to the lessor is included in ‘Other
liabilities’. A finance lease and its corresponding liability are recognized initially at the fair value of
the asset or if lower, the present value of the minimum lease payments. Finance charges payable
are recognized in ‘Interest expenses’ over the period of the lease based on the interest rate implicit
in the lease so as to give a constant rate of interest on the remaining balance of the liability.

Operating Lease

All other leases are classified as operating leases. When acting as lessor, Bank includes the assets
subject to operating leases in ‘Property, plant and equipment’ and accounts for them accordingly.
Impairment losses are recognized to the extent that residual values are not fully recoverable and
the carrying value of the assets is thereby impaired.

When Bank is the lessee, leased assets are not recognized on the Statement of Financial Position.
Rentals payable and receivable under operating leases are accounted as per provision mentioned
in NAS 17 on Leases.

3.26 Foreign Currency Transactions, Translation and Balances

All foreign currency transactions are translated into the functional currency, which is Nepalese
Rupees, using the exchange rates prevailing at the dates when the transactions were affected.

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

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

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 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

Foreign exchange differences arising on the settlement or reporting of monetary items at rates
different from those which were initially recorded are dealt with in the Statement of Profit or Loss.
However, foreign currency differences arising on FVTOCI equity instruments are recognized in
other comprehensive income.

3.27 Financial guarantee and loan commitment

Financial guarantees are contracts that require the Bank to make specified payments to reimburse
the holder for a loss it incurs because a specified debtor fails to make payment when due in
accordance with the terms of a debt instrument. Loan commitments are firm commitments to
provide credit under pre-specified terms and conditions.

Loan commitment is the commitment where the Bank has confirmed its intention to provide funds
to a customer or on behalf of a customer in the form of loans, overdrafts, future guarantees, whether
cancellable or not, or letters of credit and the Bank has not made payments at the reporting date,
those instruments are included in these financial statement as commitments.

3.28 Share Capital and Reserves

The Bank classifies capital instruments as financial liabilities or equity instruments in accordance
with the substance of the contractual terms of the instruments. Equity is defined as residual interest
in total assets of the Bank after deducting all its liabilities.

Common shares are classified as equity of the Bank and distributions thereon are presented in
statement of changes in equity. Dividends on ordinary shares and preference shares classified as
equity are recognized in equity in the period in which they are declared. Incremental costs directly
attributable to the issue of an equity instrument are deducted from the initial measurement of the
equity instruments considering the tax benefits achieved thereon.

The holders of ordinary shares are entitled to one vote per share at general meetings of the bank
and are entitled to receive the annual dividend payments. The various reserve headings are
explained hereinafter:

General reserve
The Bank is required to appropriate a minimum 20% of current year’s net profit into this heading
each year until it becomes double of paid up capital and then after a minimum 10% of profit each
year. This reserve is not available for distribution to shareholders in any form and requires specific
approval of the central bank for any transfers from this heading.

Exchange equalization reserve

The Bank is required to appropriate 25% of current year’s total revaluation gain (except gain from
revaluation of Indian Currency) into this heading.

Fair value reserve

This is a non-statutory reserve and is a requirement in the application of accounting policy for
financial assets. NFRS 9 requires that cumulative net change in the fair value of financial assets
measured at FVTOCI is recognized under fair value reserve heading until the fair valued asset is
de-recognized. Any realized fair value changes upon disposal of the re-valued asset is reclassified
from this reserve heading to retained earnings.

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 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

Asset revaluation reserve

This is a non-statutory reserve and is a requirement in the application of accounting policy for non-
financial assets such as property, equipment, investment property and intangible assets that are
measured following a re-valuation model.

Corporate social responsibility fund

The Bank is required to appropriate an amount equivalent to 1% of net profit into this fund annually.
The fund is created towards funding the Bank’s corporate social responsibility expenditure during
the subsequent year. Balance in this fund is directly reclassified to retained earnings in the
subsequent year to the extent of payments made under corporate social responsibility activities.

Investment adjustment reserve

The Bank is required to maintain balance in this reserve heading which is calculated at fixed
percentages of the cost of equity investments that are not held for trading. Changes in this reserve
requirement are reclassified to retained earnings.

Actuarial gain / loss reserve

This is a non-statutory reserve and is a requirement in the application of accounting policy for
employee benefits. NAS 19 requires that actuarial gain or loss resultant of the change in actuarial
assumptions used to value defined benefit obligations be presented under this reserve heading.
Any change in this reserve heading is recognized through other comprehensive income and is not
an appropriation of net profit.

Regulatory reserve

This is a non-free statutory reserve and is a requirement as prescribed in NRB directive. In the
transition to NFRS from previous GAAP the Bank is required to reclassify all amounts that are
resultant of re-measurement adjustments and that are recognized in retained earnings into this
reserve heading. The amount reclassified to this reserve includes:

 Re-measurement adjustments such as interest income recognized against interest receivables,

 Difference in loan loss provision as per NRB directive and impairment on loan and advance as
per NFRS,
 Amount equals to deferred tax assets,
 Actual loss recognized in other comprehensive income,
 Amount of goodwill recognized under NFRS.

Debenture Redemption Reserve

The Bank is required to maintain a redemption reserve in respect of borrowing raised through
debenture issuance. As per the terms of NRB approval relating to the Bank’s debenture issuance,
the Bank is annually required to transfer 20% of the debenture’s face value to redemption reserve.

Employees training fund

The Bank is required to incur expenses towards employee training and development for an amount
that is equivalent to at least 3% of the preceding year’s salary & allowance. Any shortfall amount

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 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

in meeting this mandatory expense requirement in the current year will have to be transferred to
this reserve fund through appropriation of net profit and the amount shall accumulate in the fund
available for related expenses in the subsequent year. Balance in this fund is directly reclassified
to retained earnings in the subsequent year to the extent of expenses made for employees training
related activities. For the purpose of quarterly results, previous year’s salary and allowances
expense have been taken proportionately.

3.29 Earnings per Share including diluted earning

Bank presents basic and diluted Earnings per share (EPS) data for its ordinary shares. Basic EPS
is calculated by dividing the profit and loss attributable to ordinary equity holders of Bank by the
weighted average number of ordinary shares outstanding during the period. Diluted EPS is
determined by adjusting both the profit and loss attributable to the ordinary equity holders and the
weighted average number of ordinary shares outstanding, for the effects of all dilutive potential
ordinary shares, if any.

If the number of ordinary or potential ordinary shares outstanding increases as a result of a

capitalization due to right share, bonus issue, the calculation of basic and diluted earnings per
share for all periods presented are adjusted retrospectively.

Dividend on Ordinary Shares

Dividend on ordinary shares are recognized as a liability and deducted from equity when they are
approved by the Bank’s shareholders. Interim Dividend are deducted from equity when they are
declared and no longer at the discretion of the Bank. Proposed dividend for the year after reporting
period and before the authorization of financial statements has been disclosed in notes to accounts
as non-adjusting event.

3.30 Segment Reporting

An operating segment is a component that engages in business activities from which it earns
revenue and incurs expense, including revenues and expenses that relating to transaction with any
of groups other components, whose operating results are reviewed by management. For
management purposes, the Bank has organized into operating segments based on business. Also,
interest income are identifiable product wise separately. Management monitors the operating
results of its business units separately for the purpose of making decisions about resource
allocation and performance assessment.

Segment performance is evaluated based on operating profits or losses which, in certain respects,
are measured differently from operating profits or losses in the consolidated financial statements.
Income taxes are managed on a group basis and are not allocated to operating segments.

Interest income is reported net as management primarily relies on net interest revenue as a
performance measure, not the gross income and expense. Transfer prices between operating
segments are on an arm’s length basis in a manner similar to transactions with third parties.

No revenue from transactions with a single external customer or counterparty amounted to 10% or
more of the bank’s total revenue in the reporting period. Segment results that are reported to the
Bank’s include directly attributable to a segment as well as those that can be allocated on a
reasonable basis. Unallocated items comprise head office expense, corporate assets, tax assets
and liabilities.

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Significant Accounting Policies
Period ended 17 October 2019

3.31 Capital Management

The primary objective of Capital Management is to ensure maintenance of minimum regulatory

capital requirement. The Bank ensures that adequate capital has been allocated to achieve
strategic objectives and within the Risk Appetite of the Bank.

Capital Adequacy

Capital Adequacy Ratio (CAR) is a measure of the Bank’s capital expressed as a percentage of
risk-weighted assets of credit, market and operational aspects of the banking business. It is a
measure of financial strength of the Bank which indicates its ability to maintain adequate capital to
face with unforeseen scenarios. Bank has maintained capital adequacy in excess of the minimum
threshold prescribed by Nepal Rastra Bank.

Bank calculates CAR based on New Capital Adequacy Framework under Basel III requirement in
July 2015 issued by NRB. Also, bank monitors the CAR, while stressing rigorously for worst
possible scenarios. ICAAP factors out all possible risks such as reputation risk, strategic risk,
compliance risk, concentration risk, and interest rate risk on banking book.

3.32 Risk Management

Bank needs to manage Credit, Operational, Market, Liquidity and other risks inherent in bank.
There are risk management in process to identify, measure, monitor, and control such risks. In
order to manage such risks. Board of the bank is primarily responsible for setting out the risks
policies, risk strategies, risk appetite, risk tolerance, risk mitigation etc. Such risks are
communicated by the Board down the line for effective and timely implementation adherence.
Board of the bank monitors and evaluates the risk on a regular interval and instructs RMC and
other related departments, who is responsible for risk management of the bank through CEO/CRO
for effective implementation.

In broad sense, Bank’s functional structure for risk related matters are presented below

Board of Directors

Board has critical role to play in overseeing overall risks emanating in the bank business. Board
approves, modifies, and review overall policies related to risk areas, advises the management to
prepare suitable process. Overall accountability for risk management rests on Board and the level
of risks organization accepts. Major responsibilities of Board, but not limited to include:

a) Define bank’s overall risk tolerance in relation to credit risk, market and liquidity risk.
b) Ensure bank’s Credit and investment exposure maintained at prudent levels.
c) Ensure related top management responsible for risk management process.
d) Ensure there is effective, integrated operational risk management framework
e) Ensure implementation of sound fundamental policies that facilitate identification,
measurement, monitoring and control of potential risk.

Risk Management Committee

Risk Management Committee is the sub-committee of the Board, which plays pivotal role in
managing overall risk management of bank. RMC shall work as a bridge between Board and CRO/
Management and escalate the important risks matters to Board

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 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

AML/ CFT committee

A separate committee is formed to ensure compliance of Anti Money Laundering Act, rules and
directive No. 19 issued by Nepal Rastra Bank. Also, in order to enable the strong AML culture in
the bank and in addition ensure to apply a uniform policy framework throughout the branches in
compliance with internal as well as regulatory standards, committee is formed. It devises
appropriate risk management framework to identify, assess and minimize the risk pertaining to AML
and CFT; and recommend its implementation to management of bank.

Assets and Liability Management Committee

Senior Management Committee is responsible for supervision/management of market risk (mainly

interest rate and liquidity risk). It includes the role of monitoring on the structure/ composition of
bank’s assets and liabilities and decide about product pricing for deposits and advances, deciding
on maturity profile, evaluation of market risk and so on.

Credit Risk Management Department:

Credit Risk Management is an independent function of the bank which has the objective to reduce
the level of NPL, and delinquent borrowers and to improve the risk assets quality of the bank. It is
a centralized function which controls overall risk inherent in lending portfolio and also make an
assessment of risk profile in credit files. It includes the assessment/review of purpose of credit,
credit assessment of borrower, structuring of credit facilities, disbursement of loan, assessment of
waiver policies, and others.

a) To monitor bank’s credit portfolio for risk identification, quantification

b) Review risk of asset portfolio sector
c) Periodically review irregular accounts which are NPA
d) Define bank’s overall tolerance to risk.
e) Identify risk and analyze risk management tools.

Credit Risk Management

In order to manage credit risk, the Bank has established a sound credit appraisal system. The Bank
has credit Policies Guidelines and other product papers approved by The Board of Directors which
are strictly followed during credit approval/disbursement. The bank performs market/customer
analysis to minimize the credit risk.

Operation Risk Management

A separate independent function has been established for effective management of operational
risks of bank. The unit performs the job related to identity, measurement, monitoring and reporting
of operational risks as a whole and ensure management of operational risk It evaluates the
adequacy of tools and techniques to reduce the operational risk to acceptable level.

The Bank has a strong internal control system so that material fraud and errors can be easily traced.
Further, the Bank follows a scientific process for segregation of duty so that internal check be
maintained. The Bank follows the operational manual approved by Board of Directors. The Bank
has an effective Internal Audit Department which functions to carry out review of internal control
system of the bank and ensure that the approved policies, procedures and manuals are strictly
followed. The report of the Internal Audit Department is directly submitted to Audit committee.

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 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

Market Risk Management

For the management of Market/Liquidity risk, the Bank has a very effective ALM Policy which
defines procedures and authority including setting up various risk limits. Under the ALM policy, the
Bank has effective Assets Liabilities Committee (ALCO) which meets periodically and reviews
interest rates, liquidity position, liquidity gap, FCY open position, investment portfolio, maturity limit
for investment and takes necessary decision as well as circulates various guidelines to concerned
departments for effective management of market risk.

Liquidity Risk Management

Bank recognize Market Risk as the possibility for loss of earnings or economic value to the bank
caused due to adverse changes in the market level of interest rates or prices of securities (equity),
foreign exchange rates and commodity price fluctuation, as well as the volatilities, of those prices.
While Liquidity risk is chances of failure of a bank to meet obligations as they become due. Effective
liquidity risk management helps ensure the Bank’s ability to meet its obligations as they fall due
without adversely affecting the Bank’s financial condition and reduces the probability of developing
of an adverse situation.

Liquidity risk is defined as the risk that the Bank will encounter difficulty in meeting obligations
associated with financial liabilities that are settled by delivering cash or another financial asset.
Liquidity risk arises because of the possibility that the Bank might be unable to meet its payment
obligations when they fall due as a result of mismatches in the timing of the cash flows under both
normal and stress circumstances. Such scenarios could occur when funding needed for illiquid
asset positions is not available to the Bank on acceptable terms.

To limit this risk, management has arranged for diversified funding sources in addition to its core
deposit base and adopted a policy of managing assets with liquidity in mind and monitoring future
cash flows and liquidity on a daily basis. The Bank has developed internal control processes and
contingency plans for managing liquidity risk. This incorporates an assessment of expected cash
flows and the availability of high grade collateral which could be used to secure additional funding
as required.

Reputational Risk Management

Reputational risk is the risk of possible damage to the Bank’s brand and reputation resulting in loss
of earnings or adverse impact on market capitalization or could be perceived as by the stakeholders
to be inappropriate, unethical, or inconsistent with bank values and beliefs.

The Bank’s Corporate Governance Policy establishes the framework for the governance and
management of reputational risk. The framework aims to protect the Bank’s reputation and restrict
the ability to undertake any activities that may cause material damage to the Bank’s branding.

The bank has clearly set the code of conduct / code of ethics which defines acceptable and
unacceptable behaviors and explicitly disallow behavior that could lead to any reputation risks or
improper or illegal activity, such as financial misreporting, money laundering, fraud, anti-competitive
practices, bribery and corruption, or the violation of consumer rights and make clear that employees
are expected to conduct themselves ethically in addition to complying with laws, regulations and
company policies.

Internal Control

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 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

The Board is responsible for ensuring the Bank has appropriate internal control framework in place
that supports the achievement of the strategies and objectives. The various functions of the Bank
should be looked upon with a view to establish a proper control mechanism is in place during
expansion and growth which enables it to maximize profitable business opportunities, avoid or
reduce risks which can cause loss or reputational damage, ensure compliance with applicable laws
and regulations and enhance resilience to external events.

The Board has set policies and procedures of risk identification, risk evaluation, risk mitigation and
control/monitoring, in line with the NRB directives has effectively implemented the same at the
Bank. The effectiveness of the Company’s internal control system is reviewed regularly by the
Board, its Committees, Management and Internal Audit department.

The Internal Audit monitors compliance with policies/standards and the effectiveness of internal
control structures across the Bank through regular audit, special audit, information system audit,
Off Site review, AML/CFT/KYC audit, ISO audit as well as Risk based Internal Audit (RBIA)
approach. The audits observations are reported to the Chief Executive Officer and Business Heads
for initiating immediate corrective measures. Internal Audit reports are periodically forwarded to the
Audit Committee for review and the committee issues appropriate corrective action in accordance
with the issue involved to the respective department, regional offices or branches.

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 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

4. Segmental Information

Segmental Reporting has been presented for three key business segments of the Bank, identified
on the basis of key functional business activities that generate revenue for the Bank and incur
expenses. These segments serve as the key functional units for resource allocation, decision
making and review of operating results/performance by the Management. These are summarized
as follows:

A. Information about reportable segments

Amount in NPR Million

Banking Treasury Transaction All Others Total

Banking
Current Quarter

Current Quarter

Current Quarter

Current Quarter

Current Quarter
Corresponding

Corresponding

Corresponding

Corresponding

Corresponding
Previous Year

Previous Year

Previous Year

Previous Year

Previous Year
Particulars
Quarter

Quarter

Quarter

Quarter
Quarter
Revenues from 2,785 2,370 278 220 75 54 2 4 3,140 2,649
external customers
Intersegment 388 227 (465) (374) (12) (5) 88 153 0 0
revenues
Segment profit 768 652 214 207 48 34 (481) (363) 550 531
(loss) before tax
86,455 69,604 18,471 14,464 381 246 9,200 9,821 114,507 94,135
Segment assets
96,164 77,168 6,850 1,989 84 69 11,410 14,909 114,507 94,135
Segment liabilities

 Revenue from external customers includes the total interest and non-interest revenue
 Intersegment Revenue includes revenues from transaction with other operating segments of
Bank. Transactions between segments are reported on pre-determined transfer price.
 Segment Assets and liabilities includes the assets and liabilities identifiable to particular
segment.
 The result reported include the items directly attributable to a segment as well as those that
can be allocated on reasonable basis.
 Segment assets and liabilities has been netted off from total assets and liabilities regarding the
items that can be offset.(contra items)

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Significant Accounting Policies
Period ended 17 October 2019

B. Reconciliation of reportable segment profit or loss

Amount in NPR Million

Corresponding
Current
Particulars Previous Year
Quarter
Quarter
550 531
Total profit before tax for reportable segments
- -
Profit before tax for other segments
(0) (0)
Elimination of inter-segment profit
- -
Elimination of discontinued operation

Unallocated amounts:
-
– Other corporate expenses
550 531
Profit before tax

5. Related Parties Disclosures

(i) Related Party Disclosure of the Bank

The related parties of the Bank which meets the definition of related parties as defined in NAS 24
Related Party Disclosures are as follows:

Key Management Personnel (KMP) the key management personnel are those persons having
authority and responsibility of planning, directing and controlling the activities of the entity, directly
or indirectly including any director. The key management of the Bank includes members of its Board
of Directors, Chief Executive Officer, and other higher level employee of the Bank. The name of
the key management personnel who were holding various positions in the office during the year
were as follows:

Name of the related party Nature

Machhapuchchhre Capital Limited Wholly Owned Subsidiary
Dr. Birendra Prasad Mahatto BOD Chairman
Mr. Roshan K.C Director
Mr. Gopi Krishna Neupane Director
Mr. Jaya Mukunda Khanal Director
Mr.Bishwo Prakash Gautam Director
Mr.Omesh Laal Shrestha Director
Mr. Haribhakta Sigdel Director
Mr.Suman Sharma Chief Executive Officer
Mr.Santosh Koirala Deputy Chief Executive Officer
Mr.Sarju Kumar Thapa Chief Credit Business Officer
Mr.Bishwambhar Neupane Chief Risk Officer
Mr. Narayan Prakash Bhuju Chief Technology Officer

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 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

(ii) Compensation to Key Management Personnel:

The members of Board of Directors are entitled for meeting allowances. Salary and allowances are
provided to Chief Executive Officer and other member of Key Management Personnel (KMP).
Salary and Allowances paid to the Chief Executive Officer is based on the contract entered by the
Bank with him whereas compensation paid to other member of KMP are governed by Employees
Byelaws and decisions made by management from time to time in this regard. In addition to salaries
and allowances, non- cash benefits like vehicle facility, subsidized rate employees loan, termination
benefits are also provided to KMP. The details relating to compensation paid and expenses
incurred to key management personnel (directors only) were as follows:

Particulars Amount in NPR

Meeting Fees 974,400
Other Board expenses 401,967
Total 1,376,367

The details relating to compensation paid to key management personnel other than directors
were as follows:

Particulars Amount in NPR

Short term employee benefits 22,832,065
Post- employment benefits* 1,169,821
Other long term benefits** 633,768
Total 24,635,654

*Post- employment benefits includes Provident Fund and Gratuity. Provident Fund is deposited in an
independent institution and Gratuity is provided for as per actuarial valuation against which investment is made
in an independent planned asset.
**Other long term employment benefit includes Home Leave and Sick Leave encashment over and above the
accumulation limit set as per Employee Byelaws of the Bank.
*** KMP also get accidental and medical insurance, vehicle, fuel, lunch and mobile facilities as per Employee
Byelaws of the Bank.

iii) Transaction with wholly owned subsidiary

The Bank has invested Rs. 200 million in Machhapuchchhre Capital Ltd, a wholly owned subsidiary
company of the Bank, which is in the process of obtaining necessary approval from SEBON for its
operation.

Period ended 30
Machhapuchchhre Capital Limited
Ashwin 2076
Transaction during the year
Interest Paid on Deposit to subsidiary 4,644,270
Year end Balance
Deposit from Subsidiary 209,811,701

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 Machhapuchchhre Bank Limited
Significant Accounting Policies
Period ended 17 October 2019

6. Dividends paid (aggregate or per share) separately for ordinary shares and other shares.

The Bank has paid dividend 5% bonus and 11 % cash dividend on ordinary shares for FY 2075-76
which was approved by the 21st AGM held on 24 Ashwin 2076.

7. Issues, repurchases and repayments of debt and equity securities

The Bank has issued 10-year debenture amounting to NPR. 3 billion (to be listed as unsecured
rated redeemable subordinated Basel III compliant debentures) with the face value of Rs. 1000/-
each and 10.25% coupon rate, payable semi-annually.

8. Events after Interim Period

No circumstances have arisen and no material events have occurred since the reporting date,
which require disclosures or adjustments to the financial statements.

9. Effect of changes in the composition of the entity during the interim period including
merger and acquisition

During the reporting period there were no material changes in the composition of assets, liabilities
and contingent liabilities and the Bank did not engage in any merger and acquisition activities.

10. Distributable Profit Note

Amount in NPR

Particular Amount
Net Profit for the period end 30 Ashwin 2076 (1st Quarer) 376,005,143
1. Appropriations
1.1 Profit required to be appropriated to 83,144,666
a. General Reserve 75,201,029
b. Capital Redemption Reserve -
c. Exchange Fluctuation Fund 4,183,586
d. CSR Fund 3,760,051
e. Employees Training Fund -
f. Other -
1.2 Profit required to be transfer to Regulatory Reserve 142,314,875
a. Transfer to Regulatory Reserve 142,314,875
b. Transfer from Regulatory Reserve -
Net Profit for the period end 30 Ashwin 2076 available for distribution 150,545,602

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