Despite economic slowdown, the net profit of Nepali commercial banks rose 20.17 percent year-on-year in the first quarter of the current fiscal year, 2024/25.

The recently published unannualised financial statements of the banks show that their total net profit amounted to Rs 16.18 billion in the period, compared to Rs 13.47 billion in the same period last fiscal year.

The current fiscal year began in mid-July 2024. 

This rise in profitability, however, is primarily due to facilities provided by the Nepal Rastra Bank through a flexible monetary policy. The policy has enabled banks to lower provisions for credit risk, thereby enhancing their earnings.

In the first quarter of last fiscal year, 2023/24, the total net profit of  commercial banks had risen by 5.94 percent. But, it had continuously grown, jumping nearly 25 percent in the fourth quarter.

Banker Parshuram Kunwar Chhetri says that although the collection remains weak in the first quarter, the concessions provided in provisioning have positively impacted profits. 

“Banks’ profit growth looks good in the first quarter,” Chhetri said. “Its main reason is the reduction in provisioning.”

The Nepal Rastra Bank has gradually eased the monetary policy to revitalise the economy, which was slumped by the Covid pandemic and Russia-Ukraine war among others factors. 

The policy adjustments for the purpose included increasing the limit of share mortgage loans, extending the timeframe for implementing the working capital loan guidelines, easing loan restructuring and blacklisting provisions and reducing the provisioning requirement for credit risk management among other facilities. They have positively impacted on the banks' net profits.

Following the announcement of the monetary policy, the central bank through a directive eased the provisioning requirement in the beginning of this fiscal year. It was reduced to 1.1 percent from 1.2 percent for performing loans. 

Similarly, the commercial banks, previously, could upgrade the overdue loans into the ‘pass loan category’ only if they received regular payments for it for six months. But, the central bank amended this provision to allow the banks to keep the overdue loans under the ‘watchlist category’.  Banks are only required to set aside 5 percent in provisioning requirements for watchlist loans. 

While the banks had allocated Rs 17.59 billion in provisioning requirements by the end of the first quarter in the last fiscal year, they have reserved Rs 11.16 billion by mid-October this fiscal year. 

Additionally, the central bank has also extended the loan repayment period for construction entrepreneurs and removed the cap on share mortgage loans for institutional investors. However, the banks’ net income from interest, in the period, has declined by approximately 7 percent.

Nabil Bank has reported the highest net profit of Rs 2.05 billion in the first quarter, while eight other banks — Global IME, Nepal Investment Mega, Prime Commercial, NMB, Everest, Kumari, and Prabhu — each generated profits exceeding Rs 1 billion.

But, the net profits of seven banks declined in the period, with NIC Asia Bank seeing the biggest drop of 89.6 percent.