Banks Report Over Rs 40.5 Billion in Real Profit; Policy Relaxations Reduce Non-Performing Loans

Key Highlights: Commercial banks have recorded a net profit of Rs 4.921 billion up to the third quarter of the current fiscal year 2079/80. The central bank’s lenient policies on loan loss management have contributed to increased profits and reduced non-performing loans (NPLs). Nabil Bank posted the highest profit of Rs 676 million, while Global IME Bank reported the largest loan loss amounting to Rs 391 million.

As of 15 Baishakh, Kathmandu, commercial banks earned a real profit exceeding Rs 40.5 billion by the third quarter of fiscal year 2079/80. When including accrued interest yet to be collected, total profits surpassed Rs 49 billion. The quarterly report shows that 20 commercial banks earned a net profit of Rs 4.921 billion by the end of Chaitra in the current fiscal year. However, after excluding accrued interest that has not been collected, actual profits stand at only Rs 40.5 billion.

According to the NFRA accounting system, accrued but unrealized interest can be recognized as income. Banks reported accrued interest income of Rs 849 million during this period. Including accrued interest, banks posted Rs 4.921 billion in net profits, marking a 19.29% increase compared to Rs 4.125 billion in the same period last year.

The central bank’s accommodative policies on loan classification and management have played a significant role in improving bank profitability and reducing NPLs this fiscal year. The NPL amount among commercial banks decreased by the third quarter. The central bank reduced the NPL ratio for performing loans to 1% and adopted flexible policies on loan classification. The bank regulatory authority also allowed loans undergoing auction processes to be classified as performing, provided repayments are regular.

Loans extended to firms or companies engaged in land development and building construction, registered and operating under government-approved bodies, can be restructured or rescheduled upon borrower request. This involves revising business plans, analyzing cash flow, and collecting at least 10% interest. Borrowers affected by the Janajati protests categorized under ‘abnormal conditions’ are also eligible for loan restructuring and rescheduling.

Similarly, loans up to Rs 2 crore disbursed in problematic sectors can be restructured or rescheduled with borrower requests after thorough analysis of business plans and cash flows, with a minimum 10% interest collection. Since these sectors have the highest default rates, the availability of such restructuring facilities has contributed to the reduction in NPLs.

Loans extended to contractors with secured government projects—either completed or ongoing—are also eligible for restructuring or rescheduling at a minimum 10% interest rate. These policies have collectively helped improve bank profits and reduce bad debts.

However, accrued interest has increased up to Chaitra. While banks had Rs 849 million in accrued but unrealized interest by the current fiscal year’s third quarter, last year, the figure was Rs 264 million.

Sudesh Khaling, CEO of Everest Bank, said that while some banks show signs of business improvement, the overall banking sector’s condition is still not encouraging. He stated, “Most banks except a few are yet to recover satisfactorily. The policies on loan loss provisioning, restructuring, and rescheduling have shown improvements.”

Khaling noted, “Recently, some banks have displayed better business performance, but interest margins across all banks have declined.” He further mentioned improvements in fee, commission, and other income in the third quarter, but added, “Despite these gains, challenges in the banking sector remain unresolved.”

He cautioned, “Banks without adequate recovery momentum continue to exhibit problems. The overall banking sector recovery depends heavily on future economic conditions.”

By Chaitra end, total bank NPLs stood at Rs 3.565 billion, a reduction of Rs 23 million compared to the previous fiscal year’s Rs 3.523 billion. Nabil Bank recorded the highest profit at Rs 676 million, followed by Global IME Bank and Everest Bank, each posting profits above Rs 400 million.

Four commercial banks reported NPLs exceeding Rs 300 million, with Global IME Bank topping at Rs 391 million, followed by Himalayan Bank (Rs 312 million), Nepal Investment Bank (Rs 305 million), and Prime Commercial Bank (Rs 310 million).

NIC Asia Bank holds the highest accrued interest amount at Rs 191 million as of Chaitra, up from Rs 47.63 million during the same period last year.

Financial statements up to Chaitra show Kumari Bank making notable progress in loan recovery, resulting in Rs 389 million in profits. Kumari Bank earned Rs 418 million by the same period this year compared to Rs 28.58 million last year.

Comparing the two fiscal years, seven banks saw profits decline while 13 banks experienced profit growth by the end of Chaitra.