Kathmandu: The profits of Nepal’s commercial banks rose significantly in the last fiscal year as loan loss provisions declined. All 20 commercial banks have published their unaudited financial statements for fiscal year 2024/25.
According to the reports, banks earned a collective profit of Rs 71.51 billion, up by 43.37 percent compared to the audited profit of Rs 49.87 billion in fiscal year 2023/24. In unaudited statements last year, banks had reported a profit of Rs 64.15 billion, but higher loan loss provisioning during external audits and central bank review had reduced the figure by over 22 percent. Similar discrepancies between unaudited and audited results had also been recorded in previous fiscal years.
In fiscal year 2023/24, banks had initially set aside Rs 36.96 billion for loan loss provisions, which surged by 52.72 percent to Rs 56.45 billion after auditing. However, in the latest fiscal year, provisioning requirements fell by 57.79 percent, or Rs 30.93 billion, compared to the previous year. Banks did not reverse past provisions but added fewer new provisions, amounting to Rs 25.52 billion.
Despite continuous deterioration in asset quality and rising non-performing loans (NPLs), banks attempted recovery through collateral auctions. However, unsold collateral has led to an increase in non-banking assets (NBAs). Moreover, banks have also been writing off significant amounts, further straining profitability.
The decline in asset quality, combined with intense competition in a highly liquid market, has forced banks to reduce lending rates. This has narrowed the interest spread between deposits and loans, leading to weaker net interest income. Although loans grew by nearly 8 percent, net interest income fell by 1.08 percent to Rs 1.90 trillion, down from Rs 1.92 trillion in the previous year.
Offsetting this decline, fee and commission income grew by 11.02 percent (Rs 3.53 billion), while trading and other operating income rose by Rs 3.26 billion and Rs 2.42 billion respectively. Overall, non-interest income increased by Rs 9.21 billion, contributing to profit growth despite lower net interest income. Reduced provisioning by Rs 31 billion also supported the profit surge, with overall earnings climbing by Rs 21.63 billion.
However, write-offs increased sharply, with non-operating expenses rising by Rs 4.82 billion to Rs 8.96 billion. This curtailed what could have been even higher profits. On the positive side, distributable profit also improved significantly, particularly due to the recovery of previously suspended interest payments.
Distributable profits stood at Rs 21.67 billion in fiscal year 2024/25, compared to a negative Rs 9.36 billion in the previous year, which was weighed down by accumulated losses in several banks. Yet, NBAs surged by 42.13 percent (Rs 12.79 billion) to reach Rs 43.15 billion. Until these assets are sold, banks must allocate nearly half of their residual profit (after taxes, CSR, and bonuses) to regulatory reserves, limiting the distributable pool despite higher profits.
The central bank had also allowed restructuring and rescheduling of construction sector loans and smaller directed loans after collecting only 10 percent of outstanding interest, which helped banks present stronger financials. However, starting this month, the IMF-mandated Loan Portfolio Review by international auditors for Nepal’s top 10 commercial banks will provide a clearer picture of asset quality, raising doubts over whether current unaudited reports reflect true financial health.
Some bankers argue that loan loss provisioning remains higher than necessary, as most loans are secured by collateral. Yet, they admit structural issues exist—such as loans being serviced by income from unrelated sectors, raising concerns about sustainability.
Meanwhile, Nepal Rastra Bank Governor Dr. Bishwanath Paudel has urged banks to convene their annual general meetings quickly and inject cash into the market through cash dividends. It remains to be seen whether the central bank will wait for the loan portfolio review results or allow dividend declarations beforehand.
Profit declines for 4 banks
Out of 20 commercial banks, four recorded profit declines. NIC Asia Bank’s profit fell the most, dropping 76.97 percent to just Rs 160 million, with its distributable profit turning negative due to rising NPLs and higher provisioning. Standard Chartered Bank’s profit declined 7.51 percent to Rs 3.03 billion, Nepal SBI Bank’s profit dropped 9.86 percent to Rs 1.80 billion, and Citizens Bank reported a 2.08 percent fall to Rs 1.29 billion.
On the other hand, Nabil Bank posted the highest profit at Rs 7.13 billion, followed by Nepal Investment Mega Bank with Rs 6.76 billion, Global IME Bank with Rs 6.20 billion, Prabhu Bank with Rs 5.44 billion, and Everest Bank with Rs 4.92 billion.
Earnings per share (EPS) performance
EPS improved for 15 banks, while five—including NIC Asia, Standard Chartered, Nepal SBI, Citizens, and Global IME—saw declines. Everest Bank recorded the highest EPS at Rs 37.99, followed by Standard Chartered at Rs 30.17, despite a profit drop, and Agricultural Development Bank at Rs 27.63.
Net interest income trends
Eight banks saw declines in net interest income, particularly those that had recently merged, as the temporary spread rate concessions expired. Prabhu Bank recorded the sharpest fall at 39.47 percent, followed by Himalayan Bank at 9.99 percent and Laxmi Sunrise at 7.99 percent. Standard Chartered’s net interest income dropped 12.56 percent, Nepal Investment Mega Bank by 6.54 percent, NIC Asia by 4.71 percent, Agricultural Development Bank by 6.93 percent, and Global IME by 0.93 percent.
In contrast, Everest Bank led with a 19.36 percent increase in net interest income, followed by Nepal Bank (16.82 percent), Machhapuchhre Bank (15.41 percent), Prime Commercial Bank (11.92 percent), Citizens Bank (11.20 percent), and NMB Bank (11.14 percent).
Dividend prospects
Most banks are now positioned to distribute dividends, unlike last year when more than half refrained. However, four banks—Himalayan, NIC Asia, Kumari, and Nepal Bank—still have accumulated losses and may struggle to distribute dividends.
Everest Bank leads in dividend capacity at 38.27 percent, followed by Sanima Bank at 20.47 percent, although regulatory restrictions may affect Sanima’s payout. Eleven banks are in a position to declare double-digit dividends this year.
Comment Here