KATHMANDU, Nov 1: Commercial banks of Nepal earned net profit of Rs 19.145 billion in the first three months of the current Fiscal Year (FY), an increase of 45.58 percent compared to the same period last year due to a reduction in loan loss provisioning and lower costs of funds.
During the corresponding period of the last FY, the 20 commercial banks earned profits of Rs 13.15 billion, according to the financial reports of the banks.
The rise in commercial banks' profits is attributed to a reduction in loan loss provisioning and a decrease in the cost of deposits amid their reduction in interest income due to a slowdown in credit disbursement. By the end of the first quarter of the current fiscal year, banks have made provisions totaling Rs 10.99 billion. During the same period last year, this figure stood at Rs 20.04 billion.
With credit expansion remaining sluggish over the past two to three years, banks have not seen the expected growth in interest income. On the other hand, the decline in deposit interest rates has lowered the banks' cost of funds, which has helped reduce interest expenses.
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Furthermore, improvements in loan recovery have led to a decrease in the amount that must be set aside for potential losses. According to bankers, the reduction in the provisioning amount, which has been cut by half, has contributed to an increase in profits.
As the amount required to be set aside for loan loss provisions has decreased, a larger portion of the banks' operating profit has translated into net profit. Additionally, an increase in income from service charges and commissions has also contributed to this growth in profits.
Nabil Bank recorded the highest profit during the review period with its net profit growing by 45.43 percent year-on-year, to reach Rs 2.55 billion. Global IME Bank earned a net profit of Rs 2.31 billion. Additionally, seven banks reported a net profit exceeding Rs 1 billion.
A total of 17 banks had their net profit inclined, while three banks experienced a decline. In the first quarter of the current FY, Standard Chartered Bank, Himalayan Bank and Prime Commercial Bank witnessed a fall in their profits. Standard Chartered's profit fell by 2.99 percent, Himalayan Bank's by 6.84 percent and Prime Commercial Bank's by 5.62 percent.
Meanwhile, Everest Bank leads in terms of dividend distribution capacity per share, standing at 40.77 percent. Similarly, Rastriya Banijya Bank has a dividend distribution capacity per share of 35.11 percent.
Standard Chartered Bank’s dividend distribution capacity per share is 34.61 percent. Of 20 commercial banks, the dividend distribution capacity of the remaining banks stands below 30 percent. Furthermore, Nepal Investment Mega Bank’s dividend distribution capacity is negative, while four other banks have not disclosed their dividend distribution capacity per share in their financial statements.
Despite earning a notable amount of net profits, banks have been facing an increasing pressure of bad loans, giving rise to a surge in their non-performing loans (NPLs).
The NPLs of commercial banks have risen to an average of 5.64 percent over the past one year. According to unaudited financial statements for the first quarter of the current FY 2026/27, the NPL ratio—which stood at 4.858 percent during the same period of the previous FY—has increased to 5.641 percent. During this period, the NPL ratio has risen by 0.783 percentage points.
Among the 20 commercial banks, 12 have seen an increase in their non-performing loans, while 8 have experienced a decrease. Prabhu Bank holds the highest level of non-performing loans. Its NPL ratio has climbed from 5.78 percent in the first quarter of the previous year to 14.80 percent during the same period of the current FY.
