What it is
Return on assets asks how much profit the bank makes on everything it holds, loans, bonds, cash, buildings, no matter whose money paid for it.
ROA = net profit ÷ total assets. A bank with Rs 400 arba of assets and Rs 6 arba of profit has an ROA of 1.5%.
Banks have low ROA because most of their assets are funded by deposits that cost interest. ROE is higher because equity is only a small slice of assets: ROE = ROA × (assets ÷ equity).
ROA is the fairer way to compare banks with different capital levels, because leverage does not flatter it.
How it is calculated
ROA (%) = Net profit (annualised) ÷ Average total assets × 100.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's return on assets was 1.15% for FY 2082/83: net profit of Rs 790.58 crore on total assets of about Rs 73,473.16 crore.
What good looks like
Higher is better. Compare with peers; small differences matter at this scale (1.2% vs 1.6% is a third more profit per rupee of assets). A falling ROA while assets grow means growth is diluting returns.
Watch out
- Annualised in quarterly reports.
- A write-back or one-off gain lifts it for one year.
- ROA ignores risk: a bank earning 2% on risky loans is not safer than one earning 1.5% on safe ones.
In Nepal
ROA appears in NRB's quarterly ratio schedule. NRB also builds a fixed 0.75% 'return on assets' into every bank's base rate formula, a different use of the same words: that is a pricing allowance, not the bank's actual ROA.
Questions
Because a bank's assets are mostly funded by deposits it pays interest on. A 1.5% return on a very large base is normal and healthy.
Both. ROA shows how well the whole balance sheet earns; ROE shows what shareholders get after leverage. A high ROE with a low ROA means heavy leverage.