Banks post 41pc jump in H1 profits

- Post Report, Kathmandu

Feb 21, 2017-

The combined first-half net profits of the 28 commercial banks in the country stood at Rs20.84 billion, a whopping 41 percent jump year-on-year. Six commercial banks have posted net profits totalling more than Rs1 billion for the first six months of the current fiscal year. 

Nepal Bank topped the chart with a net profit of Rs1.89 billion, followed by Nabil, Nepal Investment, Rastriya Banijya, Prabhu and Himalayan Bank, according to their unaudited financial highlights. 

Their combined net profit of Rs8.58 makes up more than 41 percent of the total net profits of all the commercial banks in operation in the country. 

Bankers said the reason behind the surge in net profits was rapid lending by commercial banks following the end of the Indian blockade and Tarai unrest when demand for credit swelled as the economy rebounded.

Lending by commercial banks grew irrespective of the growth in deposit collection, according to Devendra Pratap Shah, CEO of Nepal Bank. “This resulted in the growth of their net profit,” said Shah. “Also, some banks have posted high returns because of a write-back of funds that had been provisioned to cover possible losses on problematic loans.”

Part of the reason for Nepal Bank’s chart topping net profit is receipts of around Rs700 million from the sale of stocks of various companies held by it. “The rest of our earning, which is more than Rs1 billion, is interest income,” said Shah. 

Shah added that the happy days of surging profits may be short-lived as further credit growth is improbable due to a shortage of loanable funds in the banking system. “In fact, the high net profit in the first two quarters of the current fiscal year is the reason behind the current problem,” he said. 

“Therefore, profits will not grow at the same rate in the next two quarters like in the first half.”  

Banks are currently allowed to lend up to 80 percent of their total local currency deposit and core capital combined. On January 27, commercial banks in aggregate breached this lending limit by over 1 percentage point. Since then, corrections have been made. 

Yet, there is very little room for credit expansion as banks have utilised around 79 percent of the total quota for loan disbursement, as per the latest data of the Nepal Bankers’ Association.

The banking sector is facing severe problems in keeping itself within the lending boundary because of a mismatch in deposit collection and credit disbursement. This was triggered by the combined effect of a deceleration in remittance inflow—which caused deposit growth to slow down—and higher demand for credit after the end of the Indian trade embargo.

In a bid to enhance their credit disbursement capacity, banks have started offering 

a rate of interest as high as 12 percent on individual fixed deposits. 

This comes as good news for depositors, but the cost will be passed on to 

borrowers. Loans will become costlier, hurting those who plan to start new businesses and expand their existing operations.

 

Bank’s Profit

Banks    Net Profit

Nepal Bank    Rs1.8b

Nabil Bank    Rs1.74b

Nepal Investment Bank    Rs1.58b

Rastriya Banijya Bank    Rs1.21b

Prabhu Bank    Rs1.11b

Himalayan Bank    Rs1.02b

Published: 21-02-2017 09:19

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