E-Kantipur

KATHMANDU, NOV 24 -

Owing to the increasing cost of funds and squeeze in the spread rate, commercial banks saw profit slowing down in the first quarter of the current fiscal year. The banks’ net profit shrank to Rs 3.46 billion in the first three months of the current fiscal year from Rs 3.80 billion in the same period last year.

Of the 26 banks, seven saw decline in their profits. Three banks—Commerze and Trust, Janata and Mega—have no records of last year’s profits, as they are the newly established banks.

Nepal Bank Limited saw the biggest decline in profits from Rs794 million last year to Rs 197 billion this year. The Bank, however, has maintained that the net profit slumped due to the provisioning of Rs 750 million it made for its employees’ future benefits.

Deposit and credit growth are essential for banks to earn profits because they make profit mainly with the spread rate and volume of lending. They were making excessive lending during the same period last year and had earned good profit.

But, the situation has changed this year. Lending grew slightly to Rs 481 billion in the first quarter

this year from Rs 462 billion in the fourth quarter of

the last fiscal year. Deposits declined since the

beginning of the new fiscal year despite the addition of new commercial banks. The deposits came down to Rs 620 billion in the first quarter from Rs 631 billion in the end of the last fiscal year.

“The main reason behind the slump in profits is decreased spread rate of the banks,” said Sashin Joshi, president of Nepal Bankers’ Association (NBA). “Interest rates on deposits are growing, but lending rates have not grown accordingly.”

The banks were compelled to increase interest rates on deposit due to the acute liquidity crunch last year. They have largely maintained same interest rates this year too due to the slowing deposits.

As most of the banks are facing had times to maintain credit and deposit ratio as directed by the central bank, they have little space for credit growth.  They have to maintain C/D ratio at 80 percent, which is calculated on the basis of credit for deposit and core capital.

“The operation cost has grown with the rising staff cost, cost of branch expansion and transportation, causing impact on profit growth,” said Joshi. He added that slowing economic activities, which have a direct impact on lending, resulted in decline in profits.

According to Joshi, their income from foreign exchange has also come down due to declining export and slow growth of remittance. NRB officials are also of the view that the banks may have to see difficult days in terms of profit this year. “Increased cost of funds is mainly responsible for decline in profit of the banks,” said a senior NRB official.

With the central bank limiting exposure to realty sector, the banks have few opportunities to lend of late. Good clientele of the productive sector may not accept high interest rate on loans to keep the spread rate high.

“That’s why, banks are compelled to keep the tighter spread rate amid fierce competition,” said the central bank official. The NRB has taken a number of measures through monetary polices to stop excessive lending of the banks especially in the non-productive sector.

The decreased income of the banks means they will be unable to give huge return to the shareholders. “Return on equity has also come down due to problems facing the banks,” said NBA president Joshi.

Banks’ net profit

fy 09-10    Profit    Change    Pc Change

Q1    Rs 3.80b        —

Q2    Rs 7.49b    Rs 3.69b    97.11

Q3    Rs 10.31b    Rs 2.82b    37.65   

Q4    Rs 14.31b    Rs 4b    38.79

fy 10-11

Q1    Rs 3.46 b

 

Posted on: 2010-11-24 08:41

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