Banks profits could fall in next few years: Bankers

KATHMANDU, JAN 07 -

Commercial banks that have been reaping handsome profits in the past few years may not enjoy the same benefits in the next few years to come.

With lending remaining sluggish and liquidity remaining surplus, bankers have said there will be contraction in the banks’ profit this year and the following year too. NIC Bank Chief Executive Officer (CEO) Sashin Joshi said promoters should be ready for less dividend next year. “In some cases, there will be no dividend,” Joshi told an interaction titled ‘Where are the banks heading?’ The programme was organised by the Nepal Economic Forum on Friday.

According to Joshi, there is severe competition among banks to go after good assets. “The banks have already lowered the interest rate in corporate lending,” Joshi said. “It will also happen in consumer lending if the liquidity surplus situation remains. This will lower the spread rate, ultimately hitting the profit.”

Nepal Rastra Bank (NRB) Deputy Governor Maha Prasad Adhikari echoed Joshi. “Managing assets and liability is not easy currently,” he said. “This is the time for bankers to test their ability.”

With banks’ and financial institutions’ (BFI) loan exposure to realty sector still remaining one of the major challenges for the financial sector, Adhikari said the financial system will not collapse due to the current problem in the realty sector. “It will not happen,” he said. “The central bank will not let that happen.”

According to Adhikari, the central bank could go for a special purpose vehicle like Asset Management Company if there is systemic risk in the system. The asset management company purchases bad loans and settles them by selling the collateral and other assets of loanees.

However, Adhikari was candid when he termed the government’s recent measures on realty sector as measures to defer the problem. “Has there been any sign of revival in the realty sector after the limit of home loans not categorised as realty loans expanded to Rs 8 million at the end last fiscal year?” Adhikari

said. “The solution lies with the realty developers who should melt down their property.”

On Thursday, the High-Level Financial Sector Coordination Committee headed by the Finance Minister had decided to write to the central bank to expand the limit of home loans to Rs 10 million from Rs 8 million, and to extend the deadline for BFIs to reduce their lending exposure to the realty sector to 25 percent by one more year until mid-July 2013.

The current problem in the realty sector has taught a lesson to BFIs, according to Adhikari. “Now, none of the banks are ready to lend to the unproductive sector,” he said.

Chartered Accountant Jitendra B Rajbhandary, who is closely watching the developments in the banking sector, said non-compliance of the banking norms led to the current problems in the sector. “Compliance of central bank directives is where commercial banks have to work on,” he said.

Source: Kantipur