KATHMANDU, Nov 10: The non-performing loans (NPL) of a number of commercial banks in Nepal have crossed seven percent, after the banks failed to recover loans from their clients.
Due to the rise in NPLs, the banks have allocated an additional amount of Rs 11 billion for provisioning in the first three months of the current fiscal year (FY) as per the regulatory norm mandated by Nepal Rastra Bank (NRB). As per the unaudited financial reports unveiled by 20 commercial banks, their average NPL has reached 4.86 percent, up from 4.04 percent a year ago.
As per the NRB rules, banks and financial institutions (BFIs) have to maintain provisioning ranging from 1-100 percent of amounts in outstanding loans. The more a borrower delays in repaying the loan, the larger the amount the banks have to allocate in provisioning.
However, once the borrowers repay the loan, the banks can write back the amount separated for provisioning, while they can consider the amounts for return to provide to the shareholders. Out of 20 commercial banks, only five had their provision written back whereas 15 were compelled to add an extra burden for their provisionings.
Lending slows as banks focus on recovery of loans at fiscal yea...
As per the reports, Himalayan Bank’s NPL stood the highest at 7.39 percent whereas a total of nine commercial banks had their NPL above five percent. Everest Bank has the least NPL of 0.74 percent, followed by Standard Chartered Bank with 1.71 percent.
Bankers said economic slowdown seen in a number of sectors including real estate, small and medium enterprise and construction, among others, have largely affected the banks in recovering their outstanding debts. In addition, the Gen Z movement and violence have made the debtors unable to pay back their outstanding dues on time.
“The volatility seen in political and economic areas of the country has further worsened the situation,” said a banker on condition of anonymity.
The adverse effect in the banking business has led to a notable decline in the net profits of the commercial banks. In the review period, their overall net profits declined by 18.67 percent.
The banks posted a combined net profit of Rs 13.14 billion during mid-July and mid-October this year, down from Rs 16.12 billion in the same period a year ago. Fifteen banks reported a drop in profit, while Citizens Bank International posted a loss of Rs 2.04 billion.
Global IME Bank earned the highest profit at Rs 1.85 billion, up 22.92 percent year-on-year. Nabil Bank, last year’s top earner, slipped to second with Rs 1.75 billion.
Only five banks including Global IME, Everest, Rastriya Banijya, Sanima and NIC Asia Bank saw profit growth. Rastriya Banijya Bank recorded the strongest surge, with profit rising by 295.72 percent year-on-year.
The depleting financial health of the commercial banks also seems likely to affect their dividend distribution capacity if they fail to improve their financial indicators in the remaining three quarters. As of the first quarter, seven banks have posted negative distributable profits.
