Banks dispel fears of contraction in profit

KATHMANDU, AUG 20: 

The larger and newer banks pushed up the profit of commercial banks making fears regarding squeezed profits to be baseless as the profit of the banks has grown in the last quarter of the last fiscal year, while the cost of funds has also declined a little as compared to the previous quarter.

The average net profit of commercial banks increased by 12 per cent, though slower than expected, in the last quarter of fiscal year 2011-12, according to the recently published unaudited financial reports of commercial banks.

The 32 class ‘A’ financial institutions have recorded a net profit worth Rs 15.5 billion, which stood at Rs 13.8 billion in the corresponding period of the previous fiscal year.

Among the 32 banks, 22 were able to increase their profit during the last quarter. Among them, seven large and well established banks –– Agricultural Development Bank (ADBL), Everest Bank (EBL), Himalayan Bank (HBL), Nabil Bank, Nepal Investment Bank, Rastriya Banijya Bank and Standard Chartered Bank earned more than a billion rupees as net profit last fiscal year. In the previous fiscal year, only five had earned more than Rs one billion. 

HBL and EBL were the new entries last fiscal year. ADBL became the biggest profit earner by earning Rs 1.8 billion as profits, mostly arising from write back of loans worth Rs 2.17 billion. “The large banks have lowered their cost of funds in comparison to the relatively smaller banks making them more profitable and that is one of the reasons for the overall growth in the industrial profit, while the rest of the group’s profit was affected by increased cost of operation,” pointed out vice president of Nepal Bankers’ Association Upendra Paudyal. 

Bankers had been commenting that increased liquidity but contracting areas of investment have hit the profit of the banks on one hand and on the other put pressure on cost of funds. However, according to data, average cost of funds last year was 8.4 per cent which has marginally declined to 8.1 per cent in a year. 

“Good profit growth of those new banks that have completed only one fiscal year in comparison to their first year of operation is also responsible for overall growth rate,” he said. 

The five relatively new banks have registered 88 per cent growth in profit. The banks have been reducing deposit interest rate due to liquidity flush. But lending rate had only come down nominally due to lack of viable projects to finance along with reduced returns in alternate investments such as government securities. 

Despite these facts, the average interest spread rate of the banks is at 3.6 per cent which stood at 3.5 per cent in the fourth quarter of fiscal year 2010-11.

Source: THT