Handsome Q3 profits of banks belie predictions

May 18, 2017

The Kathmandu Post, 18th May 2017, Kathmandu

Commercial banks reported high profits despite predictions that third quarter results would take a beating due to an acute shortage of loanable funds in the banking industry. 

Unaudited financial highlights of commercial banks for the first nine months of the fiscal year show a 32.08 percent growth in net profits indicating hefty earnings by the country’s 28 commercial banks. 

They raked in a combined net profit of Rs31.40 billion in the third quarter of the fiscal year ended mid-April, up more than 32 percent from the Rs23.78 billion earned during the corresponding period of the last fiscal year.  

Nabil Bank stood first securing a net profit of Rs2.68 billion during the review period, compared to Rs2.05 in the corresponding period of the last fiscal year, marking a jump in profits of 30.73 percent.    

Likewise, Nepal Bank took the second position by booking a net profit of Rs2.52 billion, a whopping growth of 53.04 percent compared to the Rs1.64 billion in the same period a year ago.   

Next on the list is Nepal Investment Bank which booked a net profit of Rs2.37 billion, up 29.5 percent compared to the Rs1.83 billion earned during the corresponding period last year. 

Rastriya Banijya Bank followed close on its heels with a net profit of Rs2.07 billion in the third quarter of 2016-17, compared to Rs1.61 billion in the same period a year ago, reflecting a profit growth of 28.57 percent.

The growth in net profits proved many pundits wrong who were predicting a sharp fall in the third quarter due to a severe shortage of funds that could be immediately extended as loans. 

The shortage of loanable funds was triggered by a combination of deceleration in remittance inflow—which caused deposit growth to slow down—and higher demand for credit after the end of the Indian trade embargo.

Bankers said the major reason behind the surge in profits was growth of capital followed by volume of business. Commercial banks increased their paid-up 

capital to Rs8 billion following the directive of Nepal Rastra Bank (NRB), the regulator of the country’s financial sector, to do so by the end of this fiscal year. As a result, they had to increase their business volume to maintain healthy returns. 

“Therefore, banks expanded their business which was reflected in the balance sheet in terms of net profit,” said Bhuvan Kumar Dahal, CEO of Sanima Bank. “The situation will not be the same in the fourth quarter, and a majority of banks have been struggling to issue loans.”

Another reason behind the high profit generation by commercial banks is that they collected deposits at relatively lower interest rates while lending at higher rates to borrowers. 

According to the unaudited financial report of commercials banks, they have posted a net interest income of Rs58.37 billion in the third quarter, up 31.37 percent compared to the Rs44.43 billion in the same period a year ago.