Kathmandu: According to the financial statements of the third quarter of the current financial year 2080-81, the average return on equity (ROE) of commercial banks is 10.96 percent. This is much less than the last years. Before the onset of Covid-19 and economic recession, the average ROE of these banks was around 15-20 percent.

Due to pressure on profit, their ROE has also decreased. The ROE of Standard Chartered Bank is the highest among commercial banks. As of March, its ROE is 16.57 percent. On the other hand, Everest has 13.04 percent, Prime Commercial Bank has 12.80 percent, Nabil has 11.04 percent and NMB Bank has 10.36 percent. Return on equity (ROE) is given great importance by most of the value investors including Warren Buffett.

ROE informs about the rate at which investors can get returns from share investments. Value investors analyze ROE to find out whether a company is consistently outperforming other companies in the same sector. Equity is obtained by subtracting liabilities from total assets. And mathematically, ROE is obtained by dividing net profit by total equity.

Companies that have been giving positive and acceptable returns for a long time should be chosen for investment. The longer it is giving good return on equity, the better it should be considered for investment. Companies with high ROE are considered good for investment. The higher the ROE, the more the company is able to convert its equity financing into profit.

When comparing ROE, it is necessary to compare between companies of the same sector. It is considered good to choose companies whose ROE is above the average of the sector.

Recently, with the increase in bad loans of banks, the amount of provision has also increased. Because of this, the returns are also low because of not being able to make a profit, according to the experts. On the other hand, Nepal Bank has the lowest ROE. This bank has 0.48 percent ROE. Kumari has 3.92 percent. The ROE of 13 banks is more than 5 percent.

Muktinath Development Bank has the highest ROE of 11.50 percent among the national development banks. Secondly, there is 10.80 percent of dignity development. Shine Resunga Development's ROE is 10.25 percent. On the other hand, the lowest ROE of Jyoti Bikas Bank is 3.45 percent. The average ROE of development banks is 8.40 percent.