Dev banks, finance cos still struggling
KATHMANDU, NOV 23 -
While a majority of commercial bank s have reported an increase in first quarter profit compared to the same period of the last fiscal, development bank s and finance companies have been facing net loss or decreased profit due to recession in realty business and extreme competition within the industry.
The recently published financial highlights of development bank s and finance companies show that their profits have either gone down or they are in net loss. About 20 financial institutions (FIs) have reported a net loss in their financial highlights; the number of FIs reporting dip in profit is actually more than that compared to corresponding period of the last fiscal year.
Nepal Rastra Bank (NRB) spokesperson Bhasker Mani Gnawali said that the regulator cannot make comment based on the unaudited financial highlights of institutions.
“We will be in a poistion to comment only after our approval,” said Gnawali. “Of late financial health of commercial bank s is sound, whereas that of FIs is improving. In fact, a few FIs are performing really well.”
According to bank ers, profit of the FIs was hit as they had to collect deposit paying high interest rate but were unable to lend at higher rate. “We had to decrease interest rate in lending as we didn’t want to loose our clients,” said Raja Ram Khadka, first vice-president of Development Bankers’ Association of Nepal.
Generally, the FIs mobilise deposits at interest rate higher than that of the commercial bank s with whom they compete in lending. At the peak of recent liquidity crisis, the FIs had collected deposits at interest rate higher than commercial bank s. Some of the commercials bank s had collected deposits offering interest rate as high as 12 percent.
Rajendra Man Shakya, president of the Nepal Finance Companies Association, said that they were discussing about the reason behind the net loss and decrease in profit. “We have not figured out the specific reason yet. It might be due to the festive season,” said Shakya, explaining that a majority of the FIs’ borrowers increased their investment rather than paying back loans thus affecting their profit “We had seen such trend before also,” he said.
Shakya also said that recession in realty sector and business environment of the country might be the other reasons behind the fall in profit. “Realty transaction is not the same as it used to be two to three years back,” said Shakya.
Many of the FIs are also found to have kept their deposits idle at commercial bank s. The very low yield from such deposits has also contributed to the fall in their profit. Khadka, however, said that the profit margin would go up once the FIs make correction to their interest rate on deposits.
Of late, instances of bad corporate governance in some of the development bank s and finance companies have sullied the image of the entire FIs. “The NRB has investigated into such issues and taken action against the violators,” he said, “But it has left the general public with negative image of the FIs.”
He also blamed the NRB for its failure to supervise and regulate the large number of FIs in the past. “Had the NRB supervised FIs in the past, as it does today, it would have been a different case,” he added.
Source: The Kathmandu Post
