Rising NPA lowers profits

HIMALAYAN NEWS SERVICE

KATHMANDU: The amount of non-performing assets (NPA) with commercial banks has gone up by almost 20 per cent, in the third quarter, pulling down their overall profit.

The average ratio of NPA to the performing loans to total loans in the third quarter of current fiscal year of the 16 commercial banks has reached 2.21 per cent which was 1.81 per cent in the corresponding quarter of previous fiscal year, according to their unaudited financial figures of the third quarter of current fiscal year.

Among the unaudited financial statements released by 16 commercial banks, Nepal Investment Bank, Standard Chartered Bank, Everest Bank, Bank of Kathmandu, NCC Bank, NIC Bank, NMB Bank, Citizens Bank International and Sanima Bank saw their bad loans going up this quarter in comparison to that of the corresponding quarter in the previous fiscal year.

Likewise, Nabil Bank, Nepal SBI Bank, Grand Bank, Lumbini Bank, Global Bank and Agricultural Development Bank seem to have reduced NPA in review period.

The difficulty in recovering loans lent to real estate sector due to the slowdown of the realty sector has weighed in on the debt repayment capacity of the borrowers. NPAs for banks are nothing but loans gone sour that cannot be recovered from customers within the stipulated time.

NPA does not yield any income for the banks in the form of principal and interest payments. NPAs eat into the income of the financial institutions as the primary source of income of financial institutions is the interest payments made by the borrowers.

Moreover, the banks need to provision certain portion of their profit to balance the NPAs so that higher NPAs translate as lower profit. With the growing bad loans of the bank, loan loss provisioning has also scaled up by almost eight per cent, this quarter.

The average loan loss provisioning has reached Rs 3.7 billion which stood at Rs 3.4 billion last quarter. The larger loan loss provisioning for the loans gone bad has eaten up the profit of the banks.

The operating profit of the 16 commercial banks has dropped by 18 per cent. The average operating profit stood at Rs 494 billion in the third quarter while in the corresponding period last fiscal year, banks were enjoying more than Rs 606 million as operating profit.

The mounting number of bad loans, high cost of fund but lowered interest spread has marred the bank’s income. On the other hand, lack of viable projects to finance has led to banks’ investment and lending remaining limited to low yielding investment.

Despite all the problems, Standard Chartered Bank, Nabil Bank and Everest Bank have successfully reaped an operating profit higher than Rs one billion, this quarter.