Banks profit surges 41% despite higher loan loss provisioning
Published on Tuesday, November 27, 2012
6:25 PM //
Business
First quarter net profits of commercial banks jumped 41.23 percent on
the back of higher net interest income and good recovery of written off
loans.
A total of 32 commercial banks posted net profit of Rs 3.82 billion in the first quarter of the current fiscal year as against Rs 2.70 billion recorded in the same period last fiscal year, unaudited balance sheets of banking institutions published till Monday show.
The banks were able to post higher net profit despite reporting 71 percent hike in amount allocated for losses likely to be triggered by loan defaults, albeit part of this cost was offset by recovery of loan amount of Rs 221.01 million that was previously written off and Rs 1.19 billion that previously went for loan loss provisioning.
The league table on net earnings in the quarter that began in mid-July was led by Nabil Bank, which posted net profit of Rs 588.99 million. Next came Nepal Investment Bank whose net earnings stood at Rs 477.37 million, followed by Standard Chartered Bank Nepal which recorded net profit of Rs 331.82 million. On the heels were Everest Bank and Agriculture Development Bank Nepal which posted net earnings of Rs 327.65 million and Rs 307.12 million, respectively.
The net profit growth in the quarter came as banks reported higher net interest income - the difference between income generated through extension of loans and expenses incurred while paying depositors.
Banks generated net interest income of Rs 9.05 billion in the quarter, up 30 percent, as interest income of Rs 20.99 billion superseded interest expenses of Rs 11.94 billion. They were also able to boost their net interest income in the quarter as most of the banks reduced deposit rates, while keeping lending rates almost flat.
This practice of slashing deposit rates and keeping credit rates at almost the same level as in the past widened interest spread -- the difference between deposit rates and lending rates -- to 4.20 percent in the quarter from 2.67 percent a year ago.
If this trend continues, depositors looking for good returns and borrowers looking for cheaper credit will be hard hit.
Ajay Shrestha, CEO of Bank of Kathmandu, however, said conclusions should not be made by going over first quarter figures. “There has certainly been correction in fixed deposit rates because of liquidity surplus but at the same time lending rates are also coming down. So we can get a complete picture of where the banking sector is heading only at the year end,” he said.
Although what Shrestha said is valid, what is also true is the days of higher deposit rates are over at least for now, while lending rates may not fall as sharply as deposit rates as most of the banks say there are very little viable investment avenues for loans to be soaked up.
This is one of the reasons why deposits and lending growth rates of banks have been shrinking of late.
Deposit growth rate of 32 commercial banks, which stood at 20.45 percent this quarter on year-on-year basis, shrank to 1.58 percent if compared with figures of previous quarter to July 15.
For instance, Standard Chartered was the only bank to report fall in deposits on year-on year basis. But if latest deposit figures are compared with that of previous quarter, they show deposit contraction in at least 13 other banks, including Nepal Investment, Rastriya Banijya Bank, NIC, Nepal SBI, Siddhartha, Laxmi, Bank of Kathmandu, Nepal Bangladesh, Prime, Bank of Asia Nepal, NMB, Grand and KIST.
The trend is the same in case of lending. While the banking industry reported 20.90 percent credit growth rate this quarter as against that of the same quarter a year ago, comparison of first quarter figures vis-a-vis previous quarter shows lending growth rate sliding down to 5.69 percent. Surprisingly, total credit issued by reputed banks like Nabil, Standard Chartered, NIC and Bank of Kathmandu even fell this quarter compared with the figures recorded till July 15.
Top 5 banks in terms of profit:
Nabil Bank - Rs 588.99 million
Nepal Investment Bank - Rs 477.37 million
Standard Chartered Bank Nepal - Rs 331.82 million
Everest Bank - Rs 327.65 million
Agriculture Development Bank - Rs 307.12 million
Source: Republica
A total of 32 commercial banks posted net profit of Rs 3.82 billion in the first quarter of the current fiscal year as against Rs 2.70 billion recorded in the same period last fiscal year, unaudited balance sheets of banking institutions published till Monday show.
The banks were able to post higher net profit despite reporting 71 percent hike in amount allocated for losses likely to be triggered by loan defaults, albeit part of this cost was offset by recovery of loan amount of Rs 221.01 million that was previously written off and Rs 1.19 billion that previously went for loan loss provisioning.
The league table on net earnings in the quarter that began in mid-July was led by Nabil Bank, which posted net profit of Rs 588.99 million. Next came Nepal Investment Bank whose net earnings stood at Rs 477.37 million, followed by Standard Chartered Bank Nepal which recorded net profit of Rs 331.82 million. On the heels were Everest Bank and Agriculture Development Bank Nepal which posted net earnings of Rs 327.65 million and Rs 307.12 million, respectively.
The net profit growth in the quarter came as banks reported higher net interest income - the difference between income generated through extension of loans and expenses incurred while paying depositors.
Banks generated net interest income of Rs 9.05 billion in the quarter, up 30 percent, as interest income of Rs 20.99 billion superseded interest expenses of Rs 11.94 billion. They were also able to boost their net interest income in the quarter as most of the banks reduced deposit rates, while keeping lending rates almost flat.
This practice of slashing deposit rates and keeping credit rates at almost the same level as in the past widened interest spread -- the difference between deposit rates and lending rates -- to 4.20 percent in the quarter from 2.67 percent a year ago.
If this trend continues, depositors looking for good returns and borrowers looking for cheaper credit will be hard hit.
Ajay Shrestha, CEO of Bank of Kathmandu, however, said conclusions should not be made by going over first quarter figures. “There has certainly been correction in fixed deposit rates because of liquidity surplus but at the same time lending rates are also coming down. So we can get a complete picture of where the banking sector is heading only at the year end,” he said.
Although what Shrestha said is valid, what is also true is the days of higher deposit rates are over at least for now, while lending rates may not fall as sharply as deposit rates as most of the banks say there are very little viable investment avenues for loans to be soaked up.
This is one of the reasons why deposits and lending growth rates of banks have been shrinking of late.
Deposit growth rate of 32 commercial banks, which stood at 20.45 percent this quarter on year-on-year basis, shrank to 1.58 percent if compared with figures of previous quarter to July 15.
For instance, Standard Chartered was the only bank to report fall in deposits on year-on year basis. But if latest deposit figures are compared with that of previous quarter, they show deposit contraction in at least 13 other banks, including Nepal Investment, Rastriya Banijya Bank, NIC, Nepal SBI, Siddhartha, Laxmi, Bank of Kathmandu, Nepal Bangladesh, Prime, Bank of Asia Nepal, NMB, Grand and KIST.
The trend is the same in case of lending. While the banking industry reported 20.90 percent credit growth rate this quarter as against that of the same quarter a year ago, comparison of first quarter figures vis-a-vis previous quarter shows lending growth rate sliding down to 5.69 percent. Surprisingly, total credit issued by reputed banks like Nabil, Standard Chartered, NIC and Bank of Kathmandu even fell this quarter compared with the figures recorded till July 15.
Top 5 banks in terms of profit:
Nabil Bank - Rs 588.99 million
Nepal Investment Bank - Rs 477.37 million
Standard Chartered Bank Nepal - Rs 331.82 million
Everest Bank - Rs 327.65 million
Agriculture Development Bank - Rs 307.12 million
Source: Republica
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