Profit generated by banks unsustainable
KATHMANDU:
Most of the commercial banks may not be able to sustain the profit earned in the first half of the current fiscal year, as a big portion of the income was generated through windfall gains, like recovery of bad loans or through sales of shares of another financial institution.The 30 commercial banks operating in the country were able to post a net profit of Rs 14.55 billion in the six-month period between mid-July and mid-January, up 55.31 per cent compared with the figures of the same period in the last fiscal year.But core banking activities contributed little to this earning.Net interest income of the 30 banks, for instance, went up by 14.9 per cent to Rs 24.68 billion in the first half. Net interest income is the difference between earnings made through loans or securities and payments made to depositors or other lenders.Non-interest income — earnings made through foreign exchange trading and collection of various fees and commission, among others — on the other hand, increased by 17.6 per cent to Rs 8.03 billion in the six-month period.
Because of these levels of net interest and non-interest income, coupled with 14 per cent hike in staff and other operating expenses, commercial banks’ operating profit before provisioning marked a growth of a mere 12.62 per cent to Rs 18.78 billion in the first six months of the current fiscal.
“There is a big mismatch between net profit and operating profit of commercial banks. This is an indication that most of the earnings were generated through sources other than core-banking activities. Such a growth cannot be considered healthy,” Sanima Bank CEO Bhuvan Kumar Dahal said.
Consider the case of the top profit earner in the first half — Rastriya Banijya Bank.The state-owned bank generated net profit of Rs 3.60 billion, as against operating profit before provisioning of Rs 889.64 million.
This profit largely came from non-operating income of Rs 2.87 billion, which was earned largely through sales of shares of Nepal Investment Bank that it owned. It also earned Rs 710.91 million through recovery of bad loans.Similar is the case with Prabhu Bank, which posted a net profit of Rs 540.21 million in the six-month period, as against a loss of Rs 198.80 million in the same period last fiscal. The bank had earned Rs 819.81 million by recovering bad debt.Also, Nepal Bank Ltd, which posted a net profit of Rs 387.46 million, earned Rs 222.89 million in non-operating income and Rs 154.33 million through recovery of bad loans.“Such incomes cannot be made again and again,” Dahal said. This means many banks will not be able to sustain this profit level in the coming days.
Source: THT
