Economic contraction takes toll on commercial banks’ profits: Report

KATHMANDU: Amidst the ongoing economic downturn, the repercussions of the contraction are vividly evident in the financial reports of commercial banks for the month of Poush (Mid Dec-mid Jan). Data reveals a substantial 6.5 percent decrease in the individual profits of commercial banks during this period.

As of the current fiscal year until Poush, collective net profits of banks have reached approximately NPR 28.76 billion. In contrast, during the same period last year, banks had reported a net profit of NPR 30.76 billion. The decline in profits can be attributed to a surge in bad debts and impairment costs faced by some banks.

The second quarter of the fiscal year has brought a positive turn for the Agricultural Development Bank, showcasing improvement despite consecutive losses in previous months. The bank has successfully recorded a net profit of NPR 2.24 billion in the second quarter alone, contributing to a total net profit of NPR 1.35 billion in the initial four months.

Nabil Bank, however, has experienced a 6.5 percent decline in profits compared to the corresponding period last year. Despite outperforming other banks in terms of profits, Nabil Bank managed to earn NPR 3.20 billion in net profit during the second quarter of the current fiscal year.

Standard Chartered Bank reported a net profit of NPR 1.72 billion in the second quarter of the current fiscal year, showing a decrease of about 1.75 percent compared to the last fiscal year. In contrast, Himalayan Bank has seen a profit increase from NPR 970 million to NPR 1.50 billion in the same period.

The scenario for most commercial banks is disheartening, as distributable profits from the previous fiscal year have turned into distributable losses. Among the banks grappling with distributable losses, Machhapuchchhre Bank stands out, experiencing a significant drop in net profit to NPR 805 million.

Bhuvan Dahal, a former banker, sheds light on the situation, attributing the decline in bank profits to the overall economic contraction. Dahal states, “Looking at the initial figures, we can see that the profits of banks have decreased. Some banks have reduced interest rates after a 28 percent decrease in profits. While some have been successful in reducing bad debts, others have increased. Overall, with the contraction in economic activities, the impact is visible in the profits of banks.”

In response to the economic downturn, banks have initiated a reduction in interest rates after a 28 percent decline in profits during the first quarter of the current fiscal year.

Dahal emphasizes that the continuous reduction in interest rates is policy-driven, thanks to the central bank’s interest rate cut. With the central bank lowering the policy rate under the monetary review, banks have been consistently reducing deposit and lending rates, aiming to make loans more affordable for borrowers.