MONEY»
Profit growth slows for banks
KATHMANDU, AUG 24 -
Profit growth slowed for commercial banks amid a liquidity crunch, squeeze in the spread rate and increasing cost of fund. The unaudited fourth quarterly report of 27 commercial banks shows their net profits rising by only Rs. 60 million in the last fiscal year.
The commercial banks raked in Rs. 14.2 billion in net profits the last fiscal year. There was an impressive 33 percent growth in 2008-09. Profits took a serious beating in the second half of the last fiscal year due to a liquidity crunch. The country’s commercial banks had made a net profit of Rs. 7.49 billion in the first half of last fiscal year which dipped to Rs. 6.79 billion in the second half.
Bankers said profits had been affected as they couldn’t increase the flow of loans due to the liquidity crunch. “A squeeze in the spread rate due to an increase in the interest on deposits was a major factor in the decline in net profits,” said Sashin Joshi, president of the Nepal Bankers Association (NBA).
“The slackness in the lending growth of commercial banks in the second half slowed their profit growth,” said an NRB official. The second half of the last fiscal year
saw a drop in lending due to the liquidity crunch and the central bank’s tightening of credit to real estate and housing. The liquidity crisis forced banks to hike the interest rate on deposits to double digits. “Banks went into panic mode and increased the deposit rates, but they couldn’t increase the lending rates in the same proportion,” said Joshi.
Even large commercial banks had been forced to pay interest of up to 14.5 percent to manage the liquidity situation in the third quarter of the last fiscal year.
Banks witnessed fluctuations in their transactions last year due to the liquidity crunch and a balance of payments deficit. As a result, they stopped new lending for real estate, shares and hire purchase. They had to go for inter-bank lending by offering a high rate of interest, and they also increased the interest on deposits as they failed to attract adequate deposits.
Bankers said the cost of operation had also increased, further squeezing their profit. “Expenditure on manpower and operation has surged tremendously,” said a banker. Aggressive branch expansion also cut the net profit, said Joshi.
Rastriya Banijya Bank (RBB) was the highest earner with its net
profit crossing the Rs. 2 billion mark. RBB’s net profit went up to Rs. 2.01 billion from Rs. 1.92 billion, an
increment of 4.68 percent. The Agricultural Development Bank Limited (ADBL) followed with a net profit of Rs. 1.45 billion.
Among private commercial banks, Nepal Investment Bank Limited (NIBL) earned the highest net profit of Rs. 1.26 billion. NIBL’s net profit increased by 33.24 percent in 2009-10 from Rs. 900.61 million in the previous year.
According to bankers, next year will be tough for the banking sector. With the political situation remaining volatile credit expansion will be affected, they said.
Also, the impact of the increment in the interest rate will only be seen in this fiscal year. With deposit mobilization improving slightly by the end
of the last fiscal year, banks are
under pressure to reduce the interest on lending. “There is pressure to reduce the interest on large corporate loans,” said Joshi.
Net Profit
Year Profit (in billions of Rs)
2009-10 14.2 billion
2008-09 14.14 billion
2007-08 10.63 billion
2006-07 7.82 billion
Fiscal Year 2009-10
First half Rs 7.49 billion
Second half Rs 6.71 billion
Fiscal Year 2008-09
First half Rs 6.44 billion
Second half Rs 7.7 billion
Fiscal Year 2007-08
First half Rs 4.27 billion
Second half Rs 6.36 billion
Posted on: 2010-08-25 08:22
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