The profits of commercial banks have declined this fiscal year as rising non-performing loans (NPLs) have necessitated higher provisioning. According to the unaudited financial statements of the second quarter released by 20 commercial banks, their overall net profit fell by 4.62% compared to the same period of last fiscal year. The combined net profit of commercial banks dropped from Rs 28.76 billion last year to Rs 27.43 billion this year.
While the net profit of 11 banks increased, nine banks reported a decline. Notably, NIC Asia Bank saw its profit plummet by 92.03%. The bank’s net profit fell from over Rs 1.9 billion in the second quarter of last fiscal year to just over Rs 150 million this year, as its NPL ratio surged from 1.19% to 4.61%.
Except for Everest Bank, all commercial banks recorded an increase in NPLs, with some exceeding 5%. Kumari Bank reported the highest NPL ratio at 6.96%, followed by Prabhu Bank, Nepal Investment Mega Bank, and Laxmi Sunrise Bank with ratios above 5%.
Everest Bank, however, managed to reduce its NPLs from 0.77% to 0.66%.
Santosh Koirala, president of the Nepal Bankers Association and CEO of Machhapuchhre Bank, attributed the decline in profits to difficulties in loan recovery and the resulting increase in loan loss provisions.
"All banks are working on making loan recovery more effective. Despite market challenges, we should remain satisfied with the current state of the banking sector," said Koirala.
Former banker Analraj Bhattarai warned that NPLs could rise further to 8% considering the current trend. He noted that banks have already allocated Rs 24.67 billion for loan loss provisions, a figure close to their total net profit, significantly impacting profitability.
Adding to the challenge, credit expansion has been limited due to weak loan demand amidst sluggish economic activity.
Prabhu Bank posted the highest profit growth, increasing its net profit by 85.49% to Rs 1.33 billion this year, compared to Rs 723 million in the same period last year. While its NPL ratio rose slightly from 4.90% to 5.06%, the increase was minimal compared to other banks.
