Banks start publishing Q2 report
KATHMANDU, January 22: The first commercial bank to publish its second quarter financials this season has failed to maintain the spread rate under the regulatory bracket.
Citizens Bank International — which published its second quarter financials today — has been able to double its net profit but failed to contain net interest spread below five per cent in the second quarter. Along with Citizens Bank International, NCC Bank has also published its second quarter financials, however, the bank’s profit rate has grown only marginally.
Citizens Bank International has earned Rs 236.4 million as net profit by the second half of the current fiscal. During the same period the previous year, it had recorded profit worth Rs 100.9 million. The bank has recorded net interest income of Rs 507 million.
However, the bank has published its net interest spread as 6.59 per cent, calculated based on Nepal Rastra Bank’s formula. By the end of the first quarter, its spread stood at 4.99 per cent.
“During this quarter, we were not able to bring down the interest spread to the regulator’s prescribed level due to the market situation,” said CEO of Citizens Bank International Rajan Singh Bhandari.
Commercial banks are supposed to maintain net interest spread —difference in deposit and lending rate — below five per cent.
“But by the end of current fiscal year, the bank’s spread rate will be at 4.99 per cent,” he added.
Bhandari is also president of Nepal Bankers’ Association (NBA). The association had written to the central bank to reconsider its decision or amend the formula of the spread calculation almost a month back. Banks will have to publish the monthly interest spread rate. They have till the end of the current fiscal year to bring down the difference below five per cent.
NRB had announced the provision in the monetary policy for the current fiscal year and introduced the provision in a circular issued in October. The central bank had been asking the banks to limit their spread to five per cent.
The banks’ major income source is the difference between the expenses made to pay interests for deposits and the income earned from charging interest from borrowers. By limiting the spread rate, profits will be hit but at the same time, depositors and borrowers will be in an advantage.
NCC Bank earned a profit of Rs 159.9 million by the second half of the current fiscal year, which stood at Rs 155 million a year ago. However, NCC Bank’s spread is at 3.18 per cent.
The financial sector, struggling to manage its excess liquidity, is expected to record lower profits in the quarter that ended mid-January. Banks are supposed to publish the unaudited financials by 35 days of the end of the quarter.
During the first quarter, the profit made by commercial banks had already suffered as it grew by a mere 12 per cent. The credit demand crunch had stunted the profit as deposits are growing while lending has remained almost stagnant. The excess liquidity of about Rs 72 billion with the banks is dead weight asset, further weighing down the profits.
(Source: THT)
