Kathmandu: Nepal’s commercial banking sector delivered higher overall profits in the second quarter of the current fiscal year, even as asset quality pressures intensified and lenders set aside significantly more money to cover potential loan losses.
Financial statements released by all 20 operating commercial banks show combined net profit rose 11.5 percent year-on-year to about Rs 30.6 billion, up from Rs 27.4 billion in the same period last year. Eleven banks increased earnings, while nine reported declines.
The profit growth came despite a sharp rise in non-performing loans and heavier provisioning. Stronger net interest income and gains in fee and commission earnings at many banks helped offset the drag from deteriorating credit quality. Sector-wide loan loss provisions climbed 16.5 percent to Rs 28.8 billion, reflecting a more cautious stance as stressed loans increased.
Laxmi Sunrise Bank stood out for the wrong reasons, reporting a net loss after setting aside the largest provisioning amount in the system, Rs 4.47 billion. Its non-performing loan ratio rose to 5.5 percent by mid-January, up from 4.25 percent at the end of the last fiscal year, forcing the bank to make heavy buffers against possible defaults. While its bad loan ratio is still slightly lower than a year ago, the recent uptick underscores renewed stress.
Across the system, most banks saw non-performing loans rise, though a few, including Nabil Bank, Nepal SBI Bank and Siddhartha Bank, managed to reduce their bad loan ratios. The central bank had earlier relaxed the regulatory ceiling on non-performing loans from 5 percent to 8 percent, giving lenders more room as asset quality worsened. Still, several institutions are now approaching that upper threshold. Himalayan Bank reported the highest bad loan ratio at nearly 8 percent, with Prabhu Bank, Nepal Investment Mega Bank and NIC Asia also close behind.
Provisioning burdens surged at several lenders. Nepal Investment Mega Bank increased loan loss provisions by nearly 75 percent, while Agricultural Development Bank and NMB Bank recorded especially steep jumps. In contrast, Kumari Bank reduced its provisioning. Nabil Bank even recorded a net provision write-back after recovering previously fully provisioned exposures.
That recovery helped Nabil post the highest profit in the sector, around Rs 4.76 billion, with earnings jumping nearly 47 percent. A legal victory abroad allowed the bank to reclaim funds linked to a hydropower counter-guarantee, enabling it to reverse part of earlier provisions. Kumari Bank showed one of the most dramatic turnarounds, with profit surging more than eightfold, while Global IME Bank and Everest Bank also posted gains.
Not all results were positive. Profits fell at NIC Asia, Citizens Bank, Agricultural Development Bank, Prabhu Bank, Himalayan Bank and Standard Chartered Bank Nepal. Laxmi Sunrise remained in the red. Analysts note that although interest collections improved in the second quarter compared to the first, the strong asset quality rebound seen at the end of the last fiscal year has not been sustained. Financial disclosures suggest that asset quality at some banks continues to deteriorate, keeping pressure on earnings going forward.
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