Feb 14, 2017- The profit of commercial banks is likely to grow by almost 50 percent in the second quarter of this fiscal year buoyed by soaring demand for loan after the end of the trade blockade imposed by India.
A total of 25 commercial banks generated a net profit of Rs19.4 billion in between mid-July and mid-January, up 49 percent than in the same period a year ago,show unaudited balance sheets published till Monday. Three commercial banks, Rastriya Banijya, NCC and Janata, are yet to publish their second-quarter balance sheets.
“The profit of banks grew as normalisation in supply situation following the end of blockade unleashed the pent-up demand for loans,” said Sanima Bank CEO Bhuvan Kumar Dahal. “Profit of a few banks also went up because of write-back in funds that were set aside to cover possible losses that could emanate from sour loans.”
The top five profit generators, so far, are: Nepal Bank, Nabil Bank, Nepal Investment Bank, Prabhu Bank and Himalayan Bank.
These banks generated net profit of Rs7.4 billion in total, accounting for 38 percent of profit generated by 25 banks.
The profit growth was led by a surge in net interest income—basically the difference between earnings made by extending loans and expenses incurred to pay depositors. Net interest income of 25 commercial banks jumped 41 percent to Rs33.7 billion in the second quarter of 2016-17.
Also, non-interest income went up by 37.5 percent to Rs10.7 billion. Non-interest income includes revenue generated from fees imposed on remittance service, card issuance and letters of credit issuance.
Also, earnings from foreign exchange and loan management are categorised as non-interest income.
“Although financial results of banks in the second quarter were impressive, the situation may not remain same in the third quarter because many financial institutions are facing severe shortage of loanable funds,” Dahal said.
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, show the latest data of the Nepal Bankers’ Association.
The banking sector is facing severe problems in keeping itself within the lending boundary because of mismatch in deposit collection and credit disbursement. This was triggered by a combination of deceleration in remittance inflow-which caused deposit growth to slow down-and higher demand for credit since the end of the Indian trade embargo.
To enhance their credit disbursement capacity, banks have now started offering interest rate as high as 12 percent on individual fixed deposits. This comes as good news for depositors, but this cost will be passed on to borrowers. This will make loans expensive, hurting those who plan to start new businesses and enterprises planning to expand.
Source: The Kathmandu Post