Kathmandu, February 15

Profit of commercial banks has increased by an eye-popping 126 per cent in the last two years — from Rs 9.48 billion in the first half of fiscal 2014-15 to Rs 21.48 billion in the first half of current fiscal 2016-17.

As per the financial statements published by the 28 commercial banks operating in the country for the second quarter of this fiscal, year-on-year profit growth of class ‘A’ financial institutions stood at 45.5 per cent. Their profit had increased by 41 per cent in the first half of last fiscal as compared to the corresponding period of the prior fiscal.

Six banks — Nepal Bank, Nabil Bank, Nepal Investment Bank, Rastriya Banijya Bank, Prabhu Bank and Himalayan Bank — booked profit of above Rs one billion in the first half of this fiscal. Only four banks — Nepal Bank, Nabil Bank, Nepal Investment Bank, Rastriya Banijya Bank — were in the billion-rupee club in the first half of last fiscal. Meanwhile, performance of Nepal Credit and Commerce Bank, Janata Bank, Civil Bank, Century Bank and Kumari Bank was weak in the review period.

Profit growth in the second quarter of this fiscal shows that the annual profit growth of the commercial banks will also surge in this fiscal as the credit expansion of the banks has gone up by 30 per cent in the first half of this fiscal as compared to average annual lending growth of last five years, which stood at around 19 per cent.

As the interest income is considered to be the major income of the banks, they have expanded credit rapidly in the aftermath of capital increment requirement of Nepal Rastra Bank. However, the central bank has warned them against aggressive lending in high-risk areas because the chances of loan default is high in areas like real estate, hire purchase, over draft and margin lending.

As the banks have expanded credit aggressively overlooking the deposit growth in the first half of this fiscal, their capacity to issue fresh loans has been saturated since the end of second half of this fiscal (mid-January).

Commercial banks had expanded credit worth Rs 204 billion in the first half of this fiscal against the deposit collection of Rs 155 billion. As per the rule of the central bank, banks can lend up to 80 per cent of the sum of core capital and deposit in local currency, which is known as credit to core capital cum deposit (CCD) ratio.

However, bankers continue to cling to the hope that the current situation of credit crunch will be resolved once the government’s capital expenditure gathers momentum. They have also been seeking refinancing facility of around Rs 11 billion from NRB to expand credit. Though refinancing from NRB would not help banks in CCD calculation, they would be able to lend the central bank’s fund by maintaining the five per cent spread rate. Banks are allowed to take refinancing facility of up to 25 per cent of their core capital or tier one capital.