Provisioning eats into banks profit growth rate

KATHMANDU: The growth in profits of commercial banks has declined in the second quarter of the current fiscal year as they had to provision loans due to the increasing difficulties in the real estate sector.

The unaudited financial figures for the second quarter, released by 16 commercial banks today, reveal that average net profit was down by 15 per cent in comparison to the corresponding period of the last fiscal year. The banks on average earned a net profit of Rs 204 million in the second quarter while in the corresponding quarter of last fiscal year they had earned an average net profit of Rs 240 million. 

Among the 16 commercial banks that have published their quarterly statistics, Standard Chartered Bank stands at the top with a net profit of Rs 555 million followed by Everest Bank with a net profit worth of Rs 487 million. 

Net profit has been affected by a higher loan loss provisioning that is up by 10.7 per cent, the figure showed. In the corresponding quarter of the last fiscal year, banks had provisioned Rs 135 million on average for probable cases of loan defaults. This year the average loan loss provisioning has increased to Rs 150 million in the quarter. 

The cooling down of the real estate sector has affected the banks pushing their loan loss provisioning up by notches which in turn has brought down their overall profits. Loans to the real estate sector consist of 20 per cent of the total lendings by banks which includes personal home loans. 

“Investment in the realty and crusher industries has brought down the profits of banks in the second quarter,” said spokesperson for the central bank Bhaskar Mani Gyanwali. 

However, he pointed out that there are signs of improvement as the government has taken initiatives to revive the housing sector. The central bank had earlier allowed a one-time rescheduling of real estate loans on the payment of outstanding interests and has also increased ceiling for personal home loans to Rs 10 million. 

Along with increased provisioning, the non performing asset (NPA) has also increased. The average NPA of these banks stands at four per cent whereas it was only three per cent last year. 

Nepal Bangladesh Bank has the highest NPA of 18.58 per cent. During the last quarter of the last fiscal year and first quarter of the current fiscal year, the central bank had extended the outstanding interest payment time by a month after the end of the quarters to aid the payment of interests.

Source: THT