Kathmandu: Kumari Bank’s net profit appears low despite a significant increase in operating profit due to impractical provisions in the Income Tax Act, which require the bank to pay tax on unrealized profits.
Due to the flawed provision under Section 59 of the Income Tax Act, Kumari Bank, despite having accumulated losses, has been paying taxes for the past two fiscal years even on income that technically doesn’t exist.
With improvement in loan recovery, Kumari Bank earned an operating profit of Rs 6.13 billion in the fiscal year 2024/25. However, due to an increase in non-performing loans and subsequent loan write-offs, the bank reported non-operating expenses of over Rs 420 million.
As a result, pre-tax profit reached Rs 5.78 billion. Still, due to the restrictive provision under Section 59(1a) of the Income Tax Act, the bank’s net profit for the fiscal year stood at only Rs 2.11 billion.
While banks and financial institutions are supposed to pay only 30 percent income tax on operating profit, the Act limits the deductible provisioning for loan losses and non-banking assets to just 5 percent of the investment portfolio.
Kumari Bank, which has around Rs 300 billion in investments, is therefore unable to deduct over Rs 15 billion in loan loss provisions as expenses. Consequently, it is forced to pay higher taxes. The bank’s total provisioning stands around Rs 25 billion, and over the past two years, it has paid taxes on around Rs 10 billion worth of loan loss provisions.
Although the bank should have paid 30 percent of the Rs 5.78 billion pre-tax profit—approximately Rs 1.73 billion—in taxes, it ended up paying Rs 3.66 billion due to the provision.
In the previous fiscal year 2023/24, even with a pre-tax profit of only Rs 999 million, the bank had to pay a comparable amount in taxes due to the same issue.
As loan recovery improves and loan loss provisioning decreases, Kumari Bank could distribute dividends in the current fiscal year despite having accumulated losses in previous years. The improvement in recovery has allowed some of the earlier overpaid taxes to be adjusted.
Compared to the previous fiscal year, the bank’s income has increased, while provisioning for potential loan losses has decreased. This has contributed to a noticeable rise in both operating and net profit.
Even without major business expansion, Kumari Bank’s net interest income rose by 6.95 percent to Rs 11.55 billion, and fee and commission income increased by 27.44 percent to Rs 2.67 billion. The total operating income rose from Rs 13.67 billion to Rs 15.13 billion.
Loan loss provisioning has dropped significantly compared to the previous fiscal year. While Rs 6.84 billion was allocated for provisioning then, only Rs 2.79 billion was set aside in the latest fiscal year. This has significantly boosted both operating and net profit.
As of mid-July 2025, the bank had invested Rs 260.95 billion in loans and collected Rs 364.64 billion in deposits. With paid-up capital of Rs 26.23 billion, its accumulated losses fell from Rs 5.37 billion to Rs 2.79 billion. Due to improved profitability, the bank’s earnings per share (EPS) reached Rs 8.07.
Accumulated losses reduced through interest recovery
Kumari Bank managed to reduce its accumulated losses by over Rs 2.5 billion in a single fiscal year. The loss dropped from Rs 5.36 billion in Ashad 2081 to Rs 2.79 billion by Ashad 2082. This was made possible by a substantial recovery of overdue interest—over Rs 2.42 billion—and the return of funds from regulatory provisioning to the accumulated fund, coupled with improved profits.
For the last fiscal year alone, the bank earned a distributable profit of Rs 2.57 billion. However, due to the previous year’s accumulated losses, it was unable to distribute dividends. The bank also transferred over Rs 310 million into regulatory reserves by booking non-banking assets.
By the end of Ashad, the bank’s core capital adequacy ratio (CAR) reached 8.94 percent, and the total capital adequacy ratio stood at 12.98 percent. Non-performing loans (NPL) were at 6.42 percent, while net NPL was only 0.67 percent. The base interest rate fell to 6.44 percent. The bank’s net worth per share stood at Rs 142.19, and its price-to-earnings (P/E) ratio was 27.23 times.
x
Kathmandu: Kumari Bank’s net profit appears low despite a significant increase in operating profit due to impractical provisions in the Income Tax Act, which require the bank to pay tax on unrealized profits.
Due to the flawed provision under Section 59 of the Income Tax Act, Kumari Bank, despite having accumulated losses, has been paying taxes for the past two fiscal years even on income that technically doesn’t exist.
With improvement in loan recovery, Kumari Bank earned an operating profit of Rs 6.13 billion in the fiscal year 2024/25. However, due to an increase in non-performing loans and subsequent loan write-offs, the bank reported non-operating expenses of over Rs 420 million.
As a result, pre-tax profit reached Rs 5.78 billion. Still, due to the restrictive provision under Section 59(1a) of the Income Tax Act, the bank’s net profit for the fiscal year stood at only Rs 2.11 billion.
While banks and financial institutions are supposed to pay only 30 percent income tax on operating profit, the Act limits the deductible provisioning for loan losses and non-banking assets to just 5 percent of the investment portfolio.
Kumari Bank, which has around Rs 300 billion in investments, is therefore unable to deduct over Rs 15 billion in loan loss provisions as expenses. Consequently, it is forced to pay higher taxes. The bank’s total provisioning stands around Rs 25 billion, and over the past two years, it has paid taxes on around Rs 10 billion worth of loan loss provisions.
Although the bank should have paid 30 percent of the Rs 5.78 billion pre-tax profit—approximately Rs 1.73 billion—in taxes, it ended up paying Rs 3.66 billion due to the provision.
In the previous fiscal year 2023/24, even with a pre-tax profit of only Rs 999 million, the bank had to pay a comparable amount in taxes due to the same issue.
As loan recovery improves and loan loss provisioning decreases, Kumari Bank could distribute dividends in the current fiscal year despite having accumulated losses in previous years. The improvement in recovery has allowed some of the earlier overpaid taxes to be adjusted.
Compared to the previous fiscal year, the bank’s income has increased, while provisioning for potential loan losses has decreased. This has contributed to a noticeable rise in both operating and net profit.
Even without major business expansion, Kumari Bank’s net interest income rose by 6.95 percent to Rs 11.55 billion, and fee and commission income increased by 27.44 percent to Rs 2.67 billion. The total operating income rose from Rs 13.67 billion to Rs 15.13 billion.
Loan loss provisioning has dropped significantly compared to the previous fiscal year. While Rs 6.84 billion was allocated for provisioning then, only Rs 2.79 billion was set aside in the latest fiscal year. This has significantly boosted both operating and net profit.
As of mid-July 2025, the bank had invested Rs 260.95 billion in loans and collected Rs 364.64 billion in deposits. With paid-up capital of Rs 26.23 billion, its accumulated losses fell from Rs 5.37 billion to Rs 2.79 billion. Due to improved profitability, the bank’s earnings per share (EPS) reached Rs 8.07.
Accumulated losses reduced through interest recovery
Kumari Bank managed to reduce its accumulated losses by over Rs 2.5 billion in a single fiscal year. The loss dropped from Rs 5.36 billion in Ashad 2081 to Rs 2.79 billion by Ashad 2082. This was made possible by a substantial recovery of overdue interest—over Rs 2.42 billion—and the return of funds from regulatory provisioning to the accumulated fund, coupled with improved profits.
For the last fiscal year alone, the bank earned a distributable profit of Rs 2.57 billion. However, due to the previous year’s accumulated losses, it was unable to distribute dividends. The bank also transferred over Rs 310 million into regulatory reserves by booking non-banking assets.
By the end of Ashad, the bank’s core capital adequacy ratio (CAR) reached 8.94 percent, and the total capital adequacy ratio stood at 12.98 percent. Non-performing loans (NPL) were at 6.42 percent, while net NPL was only 0.67 percent. The base interest rate fell to 6.44 percent. The bank’s net worth per share stood at Rs 142.19, and its price-to-earnings (P/E) ratio was 27.23 times.
Comment Here