Finance companies swing to profit of Rs 32.15 million but bad loans soar to 55% in some firms

KATHMANDU: Nepal’s finance companies have staged a dramatic turnaround from losses to profit in the current fiscal year, but the recovery is overshadowed by a surge in non-performing loans (NPLs), with bad debt ratios climbing as high as 55 percent in some institutions — a worrying signal for Nepal’s financial stability, banking sector reform, and credit risk management.

By the end of the second quarter of FY 2082/83 (mid-January 2026), finance companies collectively posted a net profit of Rs 32.15 million, a sharp reversal from the Rs 662.24 million net loss recorded during the same period last fiscal year.

The shift indicates that Nepal’s struggling finance sector has technically returned to profitability after being mired in prolonged financial distress.

However, the improvement in earnings is being viewed cautiously by market analysts and financial sector observers, as asset quality deterioration continues to threaten the sustainability of this recovery.

Profit Rebound Across Finance Sector

Among the strongest performers, Central Finance recorded the highest profit growth, with earnings jumping 965 percent to Rs 39.19 million. Goodwill Finance also reported a 965 percent surge, posting Rs 111.71 million in profit. Manjushree Finance increased its profit by 15.62 percent to Rs 135.38 million.

Other finance companies reporting profits during the six-month review period include:

Despite the broader rebound, some institutions saw profit declines. Shree Investment Finance posted a 14.10 percent drop to Rs 12.16 million. Multipurpose Finance saw profit fall 36.76 percent to Rs 7.83 million, while ICFC Finance suffered a steep 70.65 percent decline, earning Rs 32.03 million.

Meanwhile, several companies remain in the red. Nepal Finance recorded a loss of Rs 87.34 million, Progressive Finance lost Rs 29.25 million, and Janaki Finance reported a Rs 22.38 million loss.

Asset Quality Crisis Deepens

Even as profitability returns, the sector’s credit risk profile has worsened sharply. The average NPL ratio of finance companies rose to 13.86 percent, up from 12.48 percent a year ago — an increase of 1.37 percentage points.

The most alarming figure comes from Janaki Finance, where the NPL ratio has climbed to 55.26 percent, up from 40.88 percent last year. This represents a 14.38 percentage point deterioration in just one year, placing the company among the most stressed financial institutions in Nepal.

Other major increases in bad loans include:

Some Firms Improve Loan Recovery

Seven finance companies, however, managed to reduce their bad loans, signaling improved recovery and risk management in selected institutions:

Sector at a Crossroads

The finance sector’s return to profit offers temporary relief for Nepal’s financial markets, investors, and depositors, but the steep rise in non-performing loans highlights structural weaknesses, poor credit underwriting during the pre-slowdown period, and the lingering effects of economic stress.

With NPL ratios in several companies remaining far above prudential comfort levels, the focus now shifts to regulatory oversight, capital adequacy, and recovery mechanisms. Without aggressive loan restructuring, asset recovery, and governance reforms, analysts warn that profitability gains could prove fragile in Nepal’s evolving financial and macroeconomic environment.