Banks report drop in Q2 profits
KATHMANDU, FEB 15 -
Banks have reported a drop in profits for the second quarter. Of the 24 commercial banks that have published their quarterly reports, only six have posted a rise in their net profits.
According to bankers, high cost of funds, excess liquidity followed by suppressed credit demand and rising defaults on realty loans have hit their profits in Q2.
Kist Bank’s year-on-year profits plunged 97.19 percent followed by Kumari Bank with a 77.67 percent drop. Lumbini Bank saw its profits fall more than 70 percent. Even large banks like Nepal Investment Bank, Himalayan Bank and Nabil Bank witnessed a drop in their net profits.
Bankers have cited the stress felt in recovering realty lending as the main reason for the decline in profits. “Interest payments on a number of loans to the realty sector did not happen and a few borrowers defaulted, leading our profits into a steep decline,” said BN Gharti, deputy general manager of Kist Bank. “Our provisioning for possible loan losses increased significantly.” Kist earned a net profit of Rs 2.3 million as of Q2, a sharp decline from the Rs 82 million in the corresponding period last year.
The main driver of banking profits is interest served on loans. But with the banking system now going through a credit crunch, earnings from interest payments have decreased significantly.
As per the figures for the first half of the fiscal year, lending grew Rs 36.54 billion compared to a deposit growth of Rs 73.77 billion. This is a reverse trend compared to the same period in the last fiscal. During Q1 of the last fiscal year, banks were under a severe liquidity crunch. Now they are awash in liquidity with a surge in deposits and a slowdown in credit flow.
NIC Bank CEO Sashin Joshi said that banks had been hit by suppressed credit demand as soon as they had recovered from the liquidity crunch resulting in decreased profits. “We have not seen new enterprises coming into operation and the existing factories are also not consuming the loans that banks could offer,” said Joshi. “There has been virtually no investment in any other sector except trading which is not a good sign.” Joshi predicted that that the profit decline would continue in the upcoming quarters.
However, spokesperson of Nepal Rastra Bank (NRB) Bhaskarmani Gnawali termed the profit decline as part of a cyclical pattern which was also affected by defaults in certain sectors and there is no need to worry about it. “Nowhere in the world do profits always remain robust,” he added. Despite the decline in profits in a majority of commercial banks, some banks have registered a modest to significant profit growth.
Standard Chartered Bank, Everest Bank, Agricultural Development Bank, DCBL Bank, Nepal SBI Bank and Machhapuchchhre Bank registered profits. According to bankers, some of them were not affected by the realty fiasco while others earned after the write back from the provisioning made earlier.
Banks whose net profit increased (in Rs million)
Banks Q2, 10-11 Q2, 11-12 Profit Rise
Agriculture Development Bank 654 688 5.1%
DCBL Bank 85 100 17.64%
Everest Bank 429 487 13.51%
SBI Bank 202 204 0.99%
Standard Chartered Bank 527 555 5.31%
Machhapuchchhre Bank 3.4 5.7 67.64%
Banks whose Net Profit declined (in Rs million)
Banks Q2, 10-11 Q2, 11-12 Profit Decline
Kist Bank 82 2.3 -97.19%
Kumari Bank 112 25 -77.67%
Lumbini Bank 211 56 -73.45%
Nepal Bangladesh Bank 285 102 -64.21%
Prime Bank 174.68 70.31 -59.74%
NMB Bank 120 54 -55%
Sunrise Bank 61 38 -37.7%
NIC Bank 247 154 -37.65%
Citizens Bank International 110 72 -34.54%
Siddhartha Bank 139 93 -33.09%
Nepal Investment Bank 651 478 -26.57%
Himalayan Bank 435 339 -22.06%
Global Bank 132.45 104.95 -20.76%
NCC Bank 92 74 -19.56%
Bank of Kathmandu 311 270 -13.18%
Laxmi Bank 191.78 176.83 -7.79%
Bank of Asia Nepal 123 116 -5.69%
Nabil Bank 664 658 -0.90%
Source: Kantipur
