Banks report decline in first quarter net profits
KATHMANDU, NOV 21 -
Sluggish lending, high-cost deposits and difficulties in loan recovery have hit commercial banks’ net profits. A majority of banks witnessed decline in their net profits in the first quarter of the current fiscal year.
Of the 24 banks that made public their financial report of the first quarter, 16 saw their profits dipping compared to same period last fiscal year.
Bankers attribute this decrease in net profits to the slowdown in lending against the surge of high-cost deposits, delay in loan recovery and narrowed spread rate gap. “A majority of banks didn’t make lending explosively as they are required to reduce the credit to deposit ratio to a comfortable position as per the central bank directive,” said Ashoke Rana, president of Nepal Bankers’ Association (NBA). “That’s why their high-cost funds remained idle in their vaults, contributing to the decrease in profit.” According to him, banks also could not collect interest of loans properly due to major festivals—Dashin and Tihar, resulting in low profit.
Among the banks that saw decline in profits are Siddhartha Bank, Machhapuchhre Bank, Prime Commercial Bank, Commerz and Trust Bank, Laxmi Bank, Global Bank, Citizens Bank, Nepal Investment Bank Limited (NIBL), NCC Bank, KIST Bank, Bank of Asia Nepal, NMB Bank, Nabil Bank, Bank of Kathmandu, NIC Bank and Lumbini Bank.
Himalayan Bank, which is yet to make public its quarterly report, has also suffered decline in its net profit, according to Rana, who is also the chief executive officer of the bank. Some of the banks witnessed a significant drop in their profits.
Among the banks whose net profits have increased are Mega Bank, Janata Bank, DCBL Bank, Standard Chartered Bank, Everest Bank, Agriculture Development Bank and Nepal SBI Bank. But even for these banks, the profit rise was not substantial.
NIBL and Machhapuchhre Bank are the only two banks that saw decline in lending, but others saw their lending going up, slightly though. Despite the slight decline in lending, NIBL is still the largest private sector lender in the country’s financial industry.
Regarding the decrease in profits, NIBL Chairman and CEO Prithvi Bahadur Pande said his bank made lending conservatively as they didn’t want to take much risk given the current market environment. “We should not run after profit only,” he said.
Problem in recovering loans seems to have stood as one of the key factors behind decreased profit of most of the banks. It is reflected in increased provisioning of more than a dozen of banks that made public their first quarterly report.
“Due to stress in economy, our provisioning also went up in the first quarter,” said Anil Gyawali, CEO of Nabil Bank. “We have already recovered half of the provisioned amount in the fourth month, which we have not incorporated in the quarterly report.”
Bankers say mainly, the difficulty in recovering loans that went to the realty estate sector resulted in increased provisioning of most of the banks. Banks and the realty traders had jointly urged the Nepal Rastra Bank to expand the repayment period of loans for one more month so that recoveries in the additional month could be adjusted in the balance sheet of the first quarter. The central bank approved their demand a few days ago.
According to some bankers, decreased spread rate between the interests on deposits and loans caused the decline in profits. Banks had to depend on high-cost deposits during the liquidity crunch in the last fiscal years. Despite recent surge in liquidity, the lending rate could not increase as desired. “We are now witnessing the impact of cuts in spread rate on profits,” said the NIC Bank CEO Sashin Joshi.
Source: Kantipur
