Business

Profit growth of banks likely to take a hit

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Kathmandu :

It is likely that the profit of commercial banks will face a sharp decline this fiscal as the first quarter’s financial results of commercial banks have revealed low growth.

As per the unaudited financial statements of the first quarter, published by 10 commercial banks out of 28 in operation, the banks have recorded marginal growth in profit.

The net profit of 10 banks increased by just 6.14 per cent in the first quarter compared to over 40 per cent in the corresponding period of the previous fiscal. Top profit makers of the previous fiscal Nabil Bank, Everest Bank and Himalayan Bank have recorded low profit compared to the previous fiscal, according to the financial reports published by these banks.

The banks’ profit sharply came down as they were more cautious while lending following the incident of loanable fund crunch of last fiscal. According to the bankers, high cost for deposit collection is the major reason behind the slow profit growth. Interest rate spread of the banks has been squeezed more than the permissible level allowed by the central bank.

Net profit of Nabil Bank in the first quarter stood at Rs 851.41 million compared to Rs 798.37 million of the previous fiscal. Likewise, Everest Bank’s profit was Rs 531.47 million in the first quarter compared to Rs 531.42 million last year.

Meanwhile, NMB Bank was able to earn substantial profit among the 10 banks as it generated a profit of Rs 451.35 million in the first quarter compared to Rs 353.69 million in same period of the previous fiscal. Similarly, profit of Prime Bank also increased by Rs 90.69 million in the first quarter to Rs 341.75 million compared to Rs 251.06 million in the corresponding period of the previous fiscal.

Average interest rate spread — difference in interest rare in deposits and lending — of the banks stood at 3.86 per cent compared to 4.67 per cent in the same period of the previous fiscal.

Among the banks that published the financial results of the first quarter, interest rate spread of Nabil and Everest Bank stood at 4.83 per cent, while Mega Bank had the lowest interest rate spread of 2.49 per cent.

“The high cost incurred by banks while collecting deposits put a brake on the rapid speed of loan expansion and some of the banks have narrowed down the interest rate spread as they have to collect deposits at a higher interest rate to maintain credit to core capital cum deposit (CCD) ratio,” explained Bhuvan Kumar Dahal, CEO of Sanima Bank.

Nepal Rastra Bank has also warned the banks on the frequent changes made in interest rates. The central bank has directed banks to revise the interest rates only in cases of fluctuation in the base rates. The base rate is calculated on the basis of the expenses incurred by BFIs in deposit collection and 80 per cent of the overhead cost plus 0.75 per cent profit.

Banks can adjust the interest rate of the client based on the ups and downs in the base rate only after a gap of three months, which also affected the banks’ profits to some extent, according to bankers.

Published: November 03, 2017, 4:55 am