Banks defy odds to post impressive profit
KATHMANDU, Feb 19:
Despite fears that liquidity surplus, tumbling interest rates and recent regulatory headwinds will hurt (spoilsport) profit of banking industry, commercial banks have registered impressive profit in the first half of the current fiscal year.
Unaudited financial results of the second quarter of 30 commercial banks compiled by Republica shows that majority of the banks have reported rise in their net profit. Except Grand Bank Nepal Ltd, remaining 29 commercial banks are in profit in the first half of 2014/15.
Though Grand Bank has improved its financial health compared to the first quarter after it recovered some bad loans, it is still in red with net loss of Rs 138.68 million. The bank, which had suffered net loss of Rs 280.63 million in the first quarter, managed to recover Rs 134.73 million worth of bad loans in the second quarter.
State-owned Rastriya Banijya Bank Ltd (RBBL) tops the list of banks in terms of net profit. The reported net profit of Rs 3.6 billion in the second quarter, compared to Rs 717.88 million in the corresponding period of 2013/14. The bank´s profit swelled largely because of the selling of its cross-holding in Nepal Investment Bank Ltd (NIBL) during this period. The bank generated around Rs 2 billion from the divestment of the shares it held in NIBL and Nepal Aawas Finance Company Ltd alone.
Next in the list are Nabil Bank (Rs 1.12 billion), NIBL (Rs 966 million), Everest Bank Ltd (Rs 771.2 million) and Standard Chartered Bank Nepal Ltd (Rs 644.6 million).
Bankers attribute the growth in business volume to impressive rise in the profit of commercial banks in the first half“ "When you look at financial report of the banks, you will find that their business volumes have surged in recent months. Net profit has climbed up in line with the surge in their business volume," Upendra Poudyal, president of Nepal Bankers Association (NBA), told Republica.
Many bankers say that relatively stable political climate following the Constituent Assembly (CA) election in November 2013 has created a favorable environment for economy which augurs well for the banking business.
Investors´ confidence has improved after the CA elections, pushing up demand for bank loans.“
"Investors who want to kick-start large-scale projects are still awaiting new constitution and assurance of political stability in the long run. Somme investors, however, are already turning up at banks," shared Poudyal who is also the CEO of NMB Bank.
Though commercial banks were grappled with liquidity surplus in the past two years, lending is gradually gaining pace in recent months.
NON-INTEREST INCOME UP
Another major factor that is boosting profit of banks is the surge in non-interest income which includes fees, commission and other charge“. "The non-interest income also constitutes a significant portion in banks´ profit," a banker told Republica.
Following complaints from general public about ´exorbitant´ fees charged by banks, Nepal Rastra Bank (NRB) recently barred banks from extracting some charges, like Any Branch Banking System (ABBS) charges and loan commitment fees, from their clients“
"We (NRB) are really concerned with the unusual rise in banks´ non-interest income. The rise of such income might propel the profitability of the banks for now. But, the banks should understand that this is a short-term phenomen”n," Min Bahadur Shrestha, executive director at NRB´s Research Department, sai“. "Our recent measure was also guided by the notion that banks should concentrate on the core banking busine”s."
Rising corporate governance culture in commercial banks is also one of the reasons behind bank´s growing profitability. Banks are becoming more careful about the quality of collateral against which they float loans which ultimately reduces the risk of their loans going default. Except Grand Bank, all commercial banks have their non-performing asset below five percent“
"Banks have learnt a lot of lessons from reckless lending in the past, particularly during the real estate bubbles, and are becoming more careful about the quality of assets," NBA president Poudyal said.
According to Poudyal, loan write-back is the other reason behind rise in profit of commercial banks. "They (banks) had already set aside the money provisioning the losses from bad debts. Recovery of such bad debts also adds up to their profit," he added.
PROFIT RISING DESPITE ´INTEREST RATE SPREAD CAP´
Unveiling mid-term review of Monetary Policy 2014/15 last week, NRB Governor Yubaraj Khatiwada congratulated the commercial banks for posting ´impressive´ profit despite the 5 percent interest spread cap enforced by the central regulatory bank.“
"You have managed to bring down interest rate spread cap to five percent. However, your profit has not squeezed. On the contrary, it is rising. This shows that there remains space in the balance sheet to reap benefit even you narrow down the interest rate spre”d," he said at the program.
Except Standard Chartered Bank Nepal, all commercial banks have brought their interest rate spread below 5 percent. According to statistics of first half of 2014/15 unveiled by NRB, the weighted interest rate spread of commercial banks stood at 4.5 percent in mid-January 2015.
Standard Chartered Nepal CEO Joseph Silvanus told Republica recently that they will also bring such interest spread within the regulatory requiremen“. "The spread rate has now come down to 5.61 percent from near 8 percent a year ago. This is proof that we are complying with NRB regulations. But the fact that it dropped dramatically now from a year ago shows that we are a regulations-compliant ba”k," Silvanus had said in a recent interview to Republica.
Source: Republica
