INTERIM FINANCIAL REPORT As of 17 th Oct 2023 (30 th Ashwin 2080) Interim Financial Report | Q1 FY 2023-24 2 A. Condensed Consolidated Statement of Financial Position NPR in 000 Assets Group Bank This Quarter Ending Immediate Previous Year Ending This Quarter Ending Immediate Previous Year Ending Cash and Cash Equivalent 10,205,627 6,967,638 9,825,057 6,774,258 Due from Nepal Rastra Bank 16,853,646 25,640,413 16,853,646 25,640,413 Placement with Banks and FIs 18,507,999 13,424,390 18,507,999 13,424,390 Derivative Financial Instruments 6,155,796 3,833,462 6,155,796 3,833,462 Other Trading Assets 89,422 92,811 - - Loans and Advances to Banks and FIs 9,437,245 8,283,059 9,437,245 8,283,059 Loans and Advances to Customers 353,566,488 332,698,854 353,566,488 332,698,854 Investment Securities 73,555,963 77,532,409 72,845,559 76,875,430 Current Tax Assets - - - - Investment in Subsidiaries - - 1,798,000 1,798,000 Investment in Associates 179,067 179,067 80,000 80,000 Investment Property 1,826,656 1,827,069 1,826,656 1,827,069 Property and Equipment 3,536,430 3,877,694 3,520,007 3,864,803 Goodwill and Intangible Assets 321,890 307,261 314,910 304,330 Deferred Tax Assets - 9,599 - - Other Assets 8,191,806 7,777,449 8,021,831 7,606,990 Total Assets 502,428,036 482,451,176 502,753,195 483,011,058 Liabilities Due to Banks and FIs 4,638,394 6,277,712 4,638,394 6,277,712 Due to Nepal Rastra Bank - - - - Derivative Financial Instruments 6,153,401 3,812,946 6,153,401 3,812,946 Deposits from Customers 413,478,028 395,221,431 414,853,856 396,843,499 Borrowings - - - - Current Tax Liabilities 131,415 327,089 113,637 293,105 Provisions - - - - Deferred Tax Liabilities 2,745,095 2,429,534 2,763,341 2,429,534 Other Liabilities 9,298,925 9,259,219 8,823,601 8,766,754 Interim Financial Report | Q1 FY 2023-24 3 Debt Securities Issued 6,349,670 6,498,689 6,349,670 6,498,689 Subordinated Liabilities - - - - Total Liabilities 442,794,928 423,826,621 443,695,900 424,922,239 Equity Share Capital 27,056,997 27,056,997 27,056,997 27,056,997 Share Premium - - - - Retained Earnings 3,824,567 4,131,931 3,609,801 3,961,099 Reserves 28,480,575 27,173,956 28,390,497 27,070,722 Total Equity Attributable to Equity Holders 59,362,138 58,362,884 59,057,295 58,088,818 Non Controlling Interest 270,969 261,671 - - Total Equity 59,633,108 58,624,555 59,057,295 58,088,818 Total Liabilities and Equity 502,428,036 482,451,176 502,753,195 483,011,058 Interim Financial Report | Q1 FY 2023-24 4 B. Condensed Consolidated Statement of Profit or Loss NPR in 000 Particulars Group Bank Current Year Previous Year Corresponding Current Year Previous Year Corresponding This Quarter Upto This Quarter (YTD) This Quarter Upto This Quarter (YTD) This Quarter Upto This Quarter (YTD) This Quarter Upto This Quarter (YTD) Interest Income 12,178,357 12,178,357 10,256,607 10,256,607 12,131,841 12,131,841 10,245,305 10,245,305 Interest Expense 7,956,853 7,956,853 6,562,419 6,562,419 7,957,895 7,957,895 6,568,126 6,568,126 Net Interest Income 4,221,504 4,221,504 3,694,188 3,694,188 4,173,946 4,173,946 3,677,179 3,677,179 Fees and Commission Income 976,013 976,013 693,859 693,859 911,019 911,019 775,900 775,900 Fees and Commission Expense 164,439 164,439 34,699 34,699 155,643 155,643 147,494 147,494 Net Fees and Commission Income 811,574 811,574 659,160 659,160 755,376 755,376 628,406 628,406 Net Interest, Fees and Commission Income 5,033,078 5,033,078 4,353,348 4,353,348 4,929,322 4,929,322 4,305,585 4,305,585 Net Trading Income 103,008 103,008 128,792 128,792 129,817 129,817 136,005 136,005 Other Operating Income 54,418 54,418 52,620 52,620 54,417 54,417 55,748 55,748 Total Operating Income 5,190,504 5,190,504 4,534,759 4,534,759 5,113,556 5,113,556 4,497,338 4,497,338 Impairment Charge/ (Reversal) for Loans and Other Losses 1,111,667 1,111,667 993,418 993,418 1,111,667 1,111,667 993,418 993,418 Net Operating Income 4,078,837 4,078,837 3,541,341 3,541,341 4,001,889 4,001,889 3,503,920 3,503,920 Personnel Expenses 1,415,417 1,415,417 837,036 837,036 1,396,686 1,396,686 822,294 822,294 Other Operating Expenses 409,231 409,231 394,582 394,582 403,264 403,264 388,934 388,934 Depreciation & Amortization 78,443 78,443 64,934 64,934 75,797 75,797 62,246 62,246 Operating Profit 2,175,747 2,175,747 2,244,789 2,244,789 2,126,142 2,126,142 2,230,446 2,230,446 Non-Operating Income 22,940 22,940 47,460 47,460 22,051 22,051 14,565 14,565 Non-Operating Expense 30 30 (0) (0) 30 30 (0) (0) Profit Before Income Tax 2,198,657 2,198,657 2,292,249 2,292,249 2,148,163 2,148,163 2,245,011 2,245,011 Income Tax Expense 689,390 689,390 677,949 677,949 678,863 678,863 673,474 673,474 Current Tax 688,997 688,997 677,288 677,288 678,863 678,863 673,474 673,474 Deferred Tax 393 393 662 662 - - - - Profit /(Loss) For the Period 1,509,267 1,509,267 1,614,299 1,614,299 1,469,300 1,469,300 1,571,537 1,571,537 Interim Financial Report | Q1 FY 2023-24 5 C. Statement of Comprehensive Income NPR in 000 Particulars Group Bank Current Year Previous Year Corresponding Current Year Previous Year Corresponding This Quarter Upto This Quarter (YTD) This Quarter Upto This Quarter (YTD) This Quarter Upto This Quarter (YTD) This Quarter Upto This Quarter (YTD) Profit /(Loss) For the Period 1,509,267 1,509,267 1,614,299 1,614,299 1,469,300 1,469,300 1,571,537 1,571,537 Other Comprehensive Income a) Items that will not be reclassified to profit or loss - Gains/(losses) from investment in equity instruments measured at fair value (714,314) (714,314) (396,541) (396,541) (710,907) (710,907) (396,541) (396,541) - Gains/(loss) on revaluation - - - - - - - - - Actual gain/(loss) on defined benefit plans - - - - - - - - - Income tax relating to above items 214,294 214,294 118,962 118,962 213,272 213,272 118,962 118,962 Net other comprehensive income that will not be reclassified to profit or loss (500,020) (500,020) (277,579) (277,579) (497,635) (497,635) (277,579) (277,579) b) Items that may be reclassified to profit or loss - Gains/(losses) on cash flow hedge - - (1,448) (1,448) - - - - - Exchange gains/(losses) (arising from translating financial assets of foreign operation) - - - - - - - - - Income tax relating to above items - - 434 434 - - - - Net other comprehensive income that may be reclassified to profit or loss - - (1,014) (1,014) - - - - c) Share of other comprehensive income of associate accounted as per equity method - - - - - - - - Other comprehensive income for the period (net of income tax) (500,020) (500,020) (278,592) (278,592) (497,635) (497,635) (277,579) (277,579) Total Comprehensive Income 1,009,246 1,009,246 1,335,707 1,335,707 971,666 971,666 1,293,958 1,293,958 Interim Financial Report | Q1 FY 2023-24 6 - - - - - - - - Profit Attributable To: Equity holders of the Bank 1,000,598 1,000,598 1,329,669 1,329,669 971,666 971,666 1,293,958 1,293,958 Non - controlling interest 8,648 8,648 6,038 6,038 - - - - Basic Earnings Per Share 21.89 27.75 21.31 27.01 Annualized Basic Earnings Per Share 21.89 27.75 21.31 27.01 Diluted Earnings Per Share 21.89 27.75 21.31 27.01 D. Ratios as per NRB Directive Particulars Group Bank Current Year Previous Year Corresponding Current Year Previous Year Corresponding This Quarter Upto This Quarter (YTD) This Quarter Upto This Quarter (YTD) This Quarter Upto This Quarter (YTD) This Quarter Upto This Quarter (YTD) Capital Fund to RWA 11.97 13.35 11.86 13.11 Gross Non-Performing Loan (NPL) 3.69 2.33 3.69 2.33 Net Non-Performing Loan (NPL) 1.58 1.04 1.58 1.04 Total Loan Loss Provision to Total NPL 95.83 114.12 95.83 114.12 Costs of Funds 7.89 7.91 7.89 7.91 Credit to Deposit Ratio 86.53 90.37 86.53 90.37 Base Rate 9.58 9.45 9.58 9.45 Interest Rate Spread 3.99 4.03 3.99 4.03 Interim Financial Report | Q1 FY 2023-24 7 E. Condensed Consolidated Statement of Changes in Equity NPR 000 Particulars Group Attributable to equity holders of the Bank Non-Controlling Interest Total Equity Share Capital Share Premium General Reserve Exchange Equalisation Reserve Regulatory Reserve Fair Value Reserve Revaluation Reserve Retained Earning Other Reserve Total Balance at Shrawan 01, 2079 22,832,909 176 12,628,795 752,113 2,428,336 3,568,818 560,136 3,139,622 7,315,345 53,226,247 220,849 53,447,096 Profit for the period 7,609,898 - 7,609,898 37,041 7,646,939 Other Comprehensive Income - - - - - 205,851 - - 15,005 220,856 - 220,856 Total Comprehensive Income - - - - - 205,851 - 7,609,898 15,005 7,830,754 37,041 7,867,795 Contributions from and distributions to owners - - - - - - - - - - Share issued - - - - - - - - - - Share based payments - - - - - - - - - - Dividends to equity holders 4,224,088 (176) - - - - - (2,625,784) (4,223,913) (2,625,784) - (2,625,784) Bonus share issued 4,224,088 - - - - - - - (4,224,088) - - - Cash dividends paid - (176) - - - - - (2,625,784) 176 (2,625,784) - (2,625,784) Other - - 1,501,528 35,600 1,298,531 18,835 - (3,991,805) 1,068,978 (68,333) 3,781 (64,551.82) Total contributions by and distributions 4,224,088 (176) 1,501,528 35,600 1,298,531 18,835 - (6,617,589) (3,154,935) (2,694,118) 3,781 (2,690,336) Balance at Ashadh end 2080 27,056,997 (0) 14,130,322 787,713 3,726,867 3,793,504 560,136 4,131,931 4,175,415 58,362,884 261,671 58,624,555 Balance at Shrawan 01, 2080 (17- Jul-2023) 27,056,997 (0) 14,130,322 787,713 3,726,867 3,793,504 560,136 4,131,931 4,175,415 58,362,884 261,671 58,624,555 Profit for the period 1,500,618 - 1,500,618 8,648 1,509,267 Other Comprehensive Income (500,020) - - (0.00) (500,020) (500,020) Total Comprehensive Income - - - - - (500,020) - 1,500,618 (0.00) 1,000,598 8,648 1,009,246 Contributions from and distributions to owners - - Share issued - - - - - - - - - - - - Share based payments - - - - - - - - - - - - Dividends to equity holders - - - - - - - - - - - - Bonus share issued - - - - - - - - - - - - Interim Financial Report | Q1 FY 2023-24 8 Cash dividends paid - - - - - - - - - - - - Other - - 318,130 5,300 1,274,754 (7,828) - (1,807,982) 216,283 (1,344) 650 (694) Total contributions by and distributions - - 318,130 5,300 1,274,754 (7,828) - (1,807,982 ) 216,283 (1,344) 650 (694) Balance at Ashwin end 2080 27,056,997 (0) 14,448,452 793,013 5,001,620 3,285,656 560,136 3,824,567 4,391,698 59,362,138 270,969 59,633,108 Particulars Bank Attributable to equity holders of the Bank Share Capital Share Premium General Reserve Exchange Equalisation Reserve Regulatory Reserve Fair Value Reserve Revaluation Reserve Retained Earning Other Reserve Total Balance at Shrawan 01, 2079 22,832,909 176 12,624,322 752,113 2,428,336 3,582,405 560,136 2,899,545 7,301,806 52,981,747 Profit for the period - - 7,527,149 - 7,527,149 Other Comprehensive Income - - - - - 211,098 - - 15,005 226,103 Total Comprehensive Income - - - - - 211,098 - 7,527,149 15,005 7,753,252 Contributions from and distributions to owners - Share issued - Share based payments - - Dividends to equity holders 4,224,088 (176) - - - - - (2,625,784) (4,223,913) (2,625,784) Bonus share issued 4,224,088 - - - - - - - (4,224,088) - Cash dividends paid - (176) - - - - - (2,625,784) 176 (2,625,784) Other - - 1,506,000 35,600 1,298,531 - - (3,839,809) 979,282 (20,396) Total contributions by and distributions 4,224,088 (176) 1,506,000 35,600 1,298,531 - - (6,465,594) (3,244,631) (2,646,181) Balance at Ashadh end 2080 27,056,997 (0) 14,130,322 787,713 3,726,867 3,793,504 560,136 3,961,099 4,072,181 58,088,818 Balance at Shrawan 01, 2080 (17-Jul- 2023) 27,056,997 (0) 14,130,322 787,713 3,726,867 3,793,504 560,136 3,961,099 4,072,181 58,088,818 Profit for the period 1,469,300 - 1,469,300 Other Comprehensive Income (497,635) - - (0) (497,635) Total Comprehensive Income - - - - - (497,635) - 1,469,300 (0) 971,666 Contributions from and distributions to owners - Share issued - - - - - - - - - - Interim Financial Report | Q1 FY 2023-24 9 Share based payments - - - - - - - - - - Dividends to equity holders - - - - - - - - - - Bonus share issued - - - - - - - - - - Cash dividends paid - - - - - - - - - - Other - - 294,000 5,300 1,274,754 - - (1,820,598) 243,356 (3,189) Total contributions by and distributions - - 294,000 5,300 1,274,754 - - (1,820,598) 243,356 (3,189) Balance at Ashwin end 2080 27,056,997 (0) 14,424,322 793,013 5,001,620 3,295,869 560,136 3,609,801 4,315,537 59,057,295 Interim Financial Report | Q1 FY 2023-24 10 F. Condensed Consolidated Statement of Cash Flows NPR 000 Particulars Group Bank Upto This Quarter Corresponding Previous Year Upto This Quarter Upto This Quarter Corresponding Previous Year Upto This Quarter CASH FLOWS FROM OPERATING ACTIVITIES: Interest Received 12,178,357 9,382,938 12,131,841 9,368,176 Fees and other income received 1,053,371 690,359 987,488 669,886 Dividend received - - - - Receipts from other operating activities 103,008 205,790 129,817 191,223 Interest paid (7,956,853) (6,447,411) (7,957,895) (6,448,092) Commission and fees paid (164,439) (30,949) (155,643) (31,074) Cash payment to employees (1,415,417) (569,408) (1,396,686) (556,275) Other expense paid (409,261) (396,342) (403,294) (388,934) Operating cash flows before changes in operating assets and liabilities 3,388,767 2,834,976 3,335,627 2,804,909 (Increase)/Decrease in operating assets Due from Nepal Rastra Bank 8,786,767 1,718,830 8,786,767 1,718,830 Placement with bank and financial institutions (5,083,609) (3,057,786) (5,083,609) (3,057,786) Other trading assets 3,388 35,444 - - Loan and advances to bank and financial institutions (1,154,186) 473,782 (1,154,186) 473,782 Loan and advances to customers (21,979,301) (4,919,662) (21,979,301) (4,919,662) Other assets (2,736,692) (3,812,562) (2,737,176) (3,809,065) Increase/ (Decrease) in operating liabilities Due to bank and financial institutions (1,639,318) 1,891,680 (1,639,318) 1,891,680 Due to Nepal Rastra Bank - 3,384,703 - 3,384,703 Deposit from customers 18,256,597 7,801,633 18,010,356 7,872,929 Borrowings - (10,716,681) - (10,716,681) Other Liabilities 2,600,087 1,546,184 2,648,087 1,569,029 Net cash flow from operating activities before tax paid 442,501 (2,819,459) 187,249 (2,787,331) Interim Financial Report | Q1 FY 2023-24 11 Income taxes paid (566,230) (253,192) (565,226) (250,795) Net cash flow from operating activities (A) (123,729) (3,072,651) (377,977) (3,038,126) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities 3,262,132 5,721,196 3,318,965 4,135,663 Receipts from sale of investment securities - - - - Purchase of property and equipment 262,821 (60,914) 268,998 (54,352) Receipt from the sale of property and equipment - - - - Purchase of intangible assets (14,629) (27,469) (10,580) (27,469) Receipt from the sale of intangible assets - - - - Purchase of investment properties 412 (90,341) 412.39 (90,341) Receipt from the sale of investment properties - - - - Interest received - - - - Dividend received - 18,980 - 18,980 Net cash used in investing activities (B) 3,510,737 5,561,451 3,577,796 3,982,481 CASH FLOWS FROM FINANCING ACTIVITIES Receipt from issue of debt securities (149,019) - (149,019) - Repayment of debt securities - - - - Receipt from issue of subordinated liabilities - - - - Repayment of subordinated liabilities - - - - Receipt from issue of shares - - - - Dividends paid - (300,370) - (300,370) Interest paid - (366,458) - (366,458) Other receipt/payment - - - - Net cash from financing activities ( C ) (149,019) (666,828) (149,019) (666,828) Net increase (decrease) in cash and cash equivalents 3,237,988 1,821,972 3,050,799 277,527 Cash and cash equivalents at Shrawan 01 (beginning of the year) 6,967,638 9,404,812 6,774,258 9,319,810 Effect of exchange rate fluctuations on cash and cash equivalents held Cash and cash equivalents at Ashwin end 10,205,627 11,226,784 9,825,057 9,597,337 Interim Financial Report | Q1 FY 2023-24 12 G. Statement of Distributable Profit or Loss NPR in 000 Statement of Distributable Profit or Loss Current Year Previous Year For the Quarter end of Ashwin 2080 Upto this Qtr YTD Upto this Qtr YTD Net profit for the period end Ashwin 2080 quarter 1,469,300 1,571,537 1. Appropriations 1.1 Profit required to be appropriated to (545,845) (566,631) a. General Reserve (294,000) (315,000) b. Capital Redemption Reserve (230,852) (230,852) c. Exchange Fluctuation Fund (5,300) (9,400) d. CSR Fund (14,693) (10,380) e. Employees Training Fund - - f. Other (1,000) (1,000) 1.2 Profit required to be transferred to Regulatory Reserve (1,274,754) (846,018) Interest receivable (-)/previous accrued interest received (+) (1,275,013) (789,103) Short loan loss provision on Non Banking Assets (-)/reversal (+) 260 (56,915) Actuarial loss recognised (-)/reversal (+) - - Net profit for the period end Ashwin 2080 quarter available for distribution (351,298) 158,887 Opening Balance in retained earnings 3,961,099 3,371,422 Distribution: Bonus Share Issued - - Cash Dividend paid - - Total Distributable Profit or Loss as on quarter end date 3,609,801 3,530,309 Annualized Distributable profit/ loss per share* 13.34 15.46 Note: Capital adjustment reserve of NPR 1.52 Billion from business acquisition is also available for distribution. *As the distributable profit for the quarter is negative owing to constraints in interest recovery, the same has not been annualised. Interim Financial Report | Q1 FY 2023-24 13 H. Concentration of Credits, Deposits and Borrowings NPR in Full Figures A. Concentration of Borrowings Particulars Current Year Previous Year Borrowings from 10 largest lenders. - 7,938,608,447 Percentage of borrowings from ten largest lenders to total depositors 0.00% 2.34% B. Concentration of Credit exposures Particulars Current Year Previous Year Total exposures to twenty largest borrowers a. As per group (related party) 39,423,071,870 36,685,086,061 b. As per individual customer 33,716,622,222 26,692,408,617 Percentage of exposures to twenty largest borrowers to Total Loans and Advances a. As per group (related party) 10.88% 11.67% b. As per individual customer 9.31% 8.49% LDO 362,194,824,318 314,395,392,714 C. Concentration of Deposits Particulars Current Year Previous Year Total deposits from twenty largest depositors a. Group-wise 102,469,809,720 89,882,477,362 b. As per individual customer 4,679,329,767 3,394,419,946 Percentage of deposits from twenty largest depositors to Total Deposits a. Group-wise 24.43% 26.49% b. As per individual customer 1.12% 1.00% Interim Financial Report | Q1 FY 2023-24 14 I. Notes to the Interim Financial Statements Reporting Entity Nabil Bank Limited (hereinafter referred to as “the Bank”) is a public limited company domiciled in Nepal. It was incorporated on May 11, 1984 under then Companies Act 1964 A.D. of Nepal. It is a class “A” licensed commercial bank regulated under the Banks and Financial Institutions Act 2017 A.D. It commenced banking operations on 12th July 1984 and has its registered head office in ‘Nabil Center’, Tindhara, Durbarmarg, Kathmandu, Nepal. It is listed on the Nepal Stock Exchange. i. Subsidiary Company The Group comprises of the Bank and two of its subsidiaries viz. Nabil Investment Banking Limited, and Nabil Securities Limited. Nabil Investment Banking Limited is a public limited company domiciled in Nepal. It was incorporated on February 07, 2010 under then Companies Act 2006 A.D. of Nepal. It is a Merchant Banker licensed under the Securities Businessperson (Merchant Banker) Regulations, 2008 A.D. It commenced its commercial operations on May 26, 2010 and operates from its registered office at Central Plaza, Narayanchaur, Naxal, Kathmandu, Nepal. The Subsidiary is not listed. Nabil Securities is a public limited company domiciled in Nepal. It was incorporated on 19 th July 2021 with a paid up capital of NPR 1.5 Billion, with the objective of carrying out securities brokerage activities. Basis of preparation The condensed consolidated financial statements of the Group have been prepared in accordance with Nepal Financial Reporting Standards (NFRS) developed by the Accounting Standards Board Nepal (ASBN) along with the carve outs, and pronounced for application by the Institute of Chartered Accountants of Nepal (ICAN). The disclosure made in the condensed consolidated interim financial information have been limited on the format prescribed by Nepal Rastra Bank Directive no. 4. The Bank has applied alternative treatment in the Carve-out issued by the Institute of Chartered Accountants of Nepal with respect to the following: - The Bank has measured impairment loss on Loans and Advances at the higher of amount derived as per norms prescribed by Nepal Rastra Bank for loan loss provision and the amount determined as per Para 5.5 of NFRS 9. - The Bank has not factored fees and points paid or received on loans and advances in the application of effective interest rate. These have been recognized directly in the Statement of Profit and Loss. Interim Financial Report | Q1 FY 2023-24 15 Statement of Compliance with NFRS These condensed financial statements comply with the requirements of the Nepal Financial Reporting Standards (NFRS) laid down by The Institute of Chartered Accountants of Nepal (ICAN), BAFIA 2073, Unified Directive 2079, Companies Act, 2006 and all other applicable lows and regulation and amendments thereto and also provide appropriate disclosures required under regulations of the Securities Exchange Board of Nepal (SEBON). Use of estimates, assumptions and judgments Preparation of financial statements in conformity with NFRS requires the Group’s management to make critical judgments, estimates and assumptions such that could potentially have a material impact on the reported financial figures. These affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. On an ongoing basis the management reviews these estimates and underlying assumptions to ensure that they continue to be relevant and reasonable. Revisions to accounting estimates are recognized prospectively. The most significant areas of assumptions and estimation applied in the application of accounting policies that have the most significant effect on the amounts recognized in the financial statements are listed hereinafter and their description follows: - Fair value of financial instruments - Classification of financial assets and financial liabilities - Impairment losses on financial assets - Impairment losses on non-financial assets - Useful economic life of property and equipment - Taxation and deferred tax - Defined benefit obligations - Provisions for liabilities, commitments and contingencies - Valuation of goodwill Changes in accounting policies The Group has consistently applied the accounting policies for all periods reported in the financial statements. There were no changes in accounting policy in the reporting period. Significant accounting policies The Group has applied the accounting policies set out below consistently to all periods presented in the accompanying financial statements unless specifically stated otherwise. i. Basis of measurement Financial Statements of the Group have been prepared on historical cost convention, except for the following: - Other Trading Assets (investment in mutual funds) and Investment Securities (investment in equity instruments) are measured at fair value under NFRS 9 ‘Financial Instrument’. Interim Financial Report | Q1 FY 2023-24 16 - Investment Property (land and building acquired as non-banking assets) are measured at fair value under NAS 40 ‘Investment Property’. - Liabilities for employee defined benefit obligations and liabilities for long service leave are measured at fair value under NAS 19 ‘Employee Benefits’. ii. Basis of consolidation The Group’s financial statements comprise consolidation of the financial statements of the Bank and those of the following entities: a. The Subsidiary, in accordance with NFRS 10 – “Consolidated Financial Statements” inclusive of the alternative treatment prescribed on carve-out in NFRS; and b. The proportionate share of the profit or loss and net assets of the Associate Company in accordance with NAS – 28 “Investments in Associates and Joint Ventures” inclusive of the alternative treatment prescribed on carve-out in NFRS. iii. Investment in subsidiary The Group has recognized Nabil Investment Banking Ltd. as a Subsidiary company in which the Bank held 60% controlling interest at the report date. Further, the Bank has recognized Nabil Securities as subsidiary company in which the Bank holds 100% controlling interest at the reporting date. iv. Investment in Associate The Group has recognized NADEP Laghubitta Bittiya Sanstha Ltd. as an Associate company in which the Bank held 25% equity interest at the report date. There has been no change in the Bank’s holding in the Associate for the reporting period and the previous comparative period. v. Cash and cash equivalents Cash and cash equivalent comprise of the total amount of cash-in-hand, balances with other bank and financial institutions, money at call and short notice, 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 licensed institution in the management of its short-term commitments. Restricted deposits are not included in cash and cash equivalents. These are measured at amortized cost and presented as a line item on the face of consolidated Statement of Financial Position (SoFP). vi. Financial assets and financial liabilities Financial assets refer to assets that arise from contractual agreements on future cash flows or from owning equity instruments of another entity. Since financial assets derive their value from a contractual claim, these are nonphysical in form and are usually regarded as being more liquid than other tangible assets. Common examples of financial assets are cash, cash equivalents, bank balances, placements, investments in debt and equity instruments, derivative assets and loans and advances. Interim Financial Report | Q1 FY 2023-24 17 Financial liabilities are obligations that arise from contractual agreements and that require settlement by way of delivering cash or another financial asset. Settlement could also require exchanging other financial assets or financial liabilities under potentially unfavorable conditions. Settlement may also be made by issuing own equity instruments. Common examples of financial liabilities are due to banks, derivative liabilities, deposit accounts, money market borrowings and debt capital instruments. The contractual agreements, generally referred to as financial instruments, are characterized by the existence of counterparties and the contract terms give rise to a financial asset to one counterparty and a corresponding financial liability or equity instrument to the other counterparty. The Group has applied NFRS 9 – “Financial Instruments” in the classification and measurement of its financial instruments. Para 5.2.2 of NFRS 9 prescribes the application of impairment requirements in paragraphs 58-65 and AG84 - AG93 of NAS 39 to financial assets measured at amortized cost. Accordingly, the Group has applied para 5.5 of NFRS 9 and measured impairment loss on financial assets measured at amortized cost. vii. Trading Assets Trading assets are those assets that are acquired principally for the purpose of selling in the near term, or held as part of a portfolio that is managed together for short-term profit. It includes non-derivative financial assets such as government bonds, NRB bonds, domestic corporate bonds, treasury bills, equities, etc. held primarily for trading purpose. If a trading asset is a debt instrument, it is subject to the same accounting policy applied to financial assets measured at amortized cost. If a trading asset is an equity instrument, it is subject to the same accounting policy applied to financial assets measured at FVTPL. viii. Derivative assets and derivative liabilities Derivative assets and derivative liabilities (derivatives) create rights and obligations that have the effect of transferring between the parties to the instrument one or more of the financial risks inherent in an underlying primary financial instrument. However, they generally do not result in a transfer of the underlying primary financial instrument on inception of the contract, nor does such a transfer necessarily take place on maturity of the contract. The value of a derivative changes with the change in value of the underlying. Examples of derivative are forward, futures, options or swap contracts. The underlying could be specified interest rate, security price, commodity price, exchange rate, price index, etc. Derivative financial instruments meet the definition of a financial instrument and are accounted for as derivative financial asset or derivative financial liability measured at FVTPL and corresponding fair value changes are recognized in profit or loss. The Group has not designated derivative as a hedging instrument in an eligible hedging relationship under NFRS 9 – “Financial Instrument” and has not applied hedge accounting, Interim Financial Report | Q1 FY 2023-24 18 ix. Property and Equipment Property and equipment are tangible items that are held for and used in the provision of services, for rental to others, or for administrative purposes, and are expected to be used for more than one-year period. The Group applies NAS 16 – “Property, Plant and Equipment” in the accounting of property and equipment. Property and equipment are recognized if it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be reliably measured. An item of property and equipment that qualifies for recognition as an asset is initially measured at cost. Cost includes expenditure that is directly attributable to the acquisition of the asset and eligible subsequent expenditure. Subsequent expenditure is capitalized only when it is probable that the future economic benefits of the expenditure will flow to the Group. Ongoing repairs and maintenance are expensed off as incurred. The Group applies the cost model to all property and equipment and records these at cost of purchase together with any incidental expenses thereon, less accumulated depreciation and any accumulated impairment losses, except for those acquired from mergers and acquisition, which have been revalued at the date of acquisition. Cost also includes the cost of replacing part of the equipment when the recognition criteria are met. x. De - recognition of Assets The carrying amount of an item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on de-recognition of an asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in profit or loss in the year the asset is derecognized xi. Depreciation of Property The Group provides depreciation from the date the assets are available for use up to the date of disposal. Assets are depreciated on a straight line basis over its estimated useful lives. Class of Fixed Assets Estimated Useful Life Freehold Building Up to 50 years Motor Vehicles Up to 10 years Metal Furniture Up to 10 years Wooden Furniture & Fixture Up to 10 years Information Technology Hardware Up to 15 years Office Equipment Up to 10 years Leasehold Assets Up to 10 years Interim Financial Report | Q1 FY 2023-24 19 xii. Goodwill and intangible assets Goodwill that arises on the acquisition of Subsidiaries is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Intangible assets are identifiable non-monetary asset without physical substance, which are held for and used in the provision of services, for rental to others or for administrative purposes. The Group applies NAS 38 – “Intangible Assets” in accounting for its intangible assets. The Group recognizes an intangible asset when: - The cost of the asset can be measured reliably; - There is control over the asset as a result of past events (for example, purchase or self-creation); and - Future economic benefits (inflows of cash or other assets) are expected from the asset. Intangibles can be acquired by separate purchase; as part of a business combination; by a government grant; by exchange of assets; or by self-creation (internal generation). An intangible asset appearing in the Group’s books is computer software. xiii. Investment Property Investment properties are land or building or both other than those classified as property and equipment under NAS 16 – “Property, Plant and Equipment”; and assets classified as non-current assets held for sale under NFRS 5 – “Non-Current Assets Held for Sale & Discontinued Operations”. The Group has recognized as investment property all land or land and building acquired by the Bank as non-banking assets in course of recovery of loans and advances to borrowers that have turned into chronic defaulters. Non-banking assets (only land and building) are initially recognized at cost. Subsequent to initial recognition the Group has chosen to apply the cost model allowed by NAS 40 – “Investment Property”. xiv. Income Tax Tax expense is the aggregate amount included in the determination of profit or loss for the period in respect of current and deferred taxes. The Group applies NAS 12 – “Income Taxes” for the accounting of Income Tax. Income tax expense is recognized in profit or loss, except to the extent it relates to items recognized directly in equity or directly in other comprehensive income. Tax expense Interim Financial Report | Q1 FY 2023-24 20 relating to items recognized directly in other comprehensive income is recognized in the Statement of Other Comprehensive Income. xv. Deposits, debt securities and subordinated liabilities 1. Deposits from customers and BFIs The Group presents deposit accounts held by customers and those held by BFIs in the Bank under respective line items in the face of the consolidated statement of financial position. These are classified as financial liabilities measured at amortized cost. 2. Debt securities issued The Group presents debenture issued by the Bank under this line item. These are classified as financial liabilities measured at amortized cost. 3. Subordinated liabilities These comprise of liabilities subordinated, at the event of winding up, to the claims of depositors, debt securities issued and other creditors. Items eligible for presentation under this line item include redeemable preference share, subordinated notes issued, borrowings etc. These are subject to the same accounting policies applied to financial liabilities measured at amortized cost. The Group does not have any subordinated liabilities at the reporting date. xvi. Provisions The Group applies NAS 37 – “Provisions, Contingent Liabilities & Contingent Assets” in the accounting of provisions. xvii. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be measured reliably. The Group applies NAS 18 – “Revenue” in the accounting of revenue, unless otherwise stated. 1. Interest income Interest income are recognized in profit or loss using the effective interest rate (EIR) method for all financial assets measured at amortized cost. Interest income is earned on bank balances, investments in money market and capital market instruments, loans and advances, etc. 2. Fees and commission income The Group earns fee and commission income on providing a diverse range of services to its customers. Such income earned on services including loan management fees, account maintenance, remittance transactions, agency commissions, e-commerce transactions, letter of credits, bank guarantees, loan management, etc. are recognized as the related services are performed. Fee and commission earned for the provision of services over a period of time are accrued over that period. These fees and commission that are integral to effective interest rate on financial assets are included in the measurement of the effective interest rate and shall not be