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Commercial banks net better than expected profits


Contrary to the expectations of most of the bankers, the net profit of the majority of the commercial banks grew reasonably at the end of the last fiscal year, suggest un-audited financial highlights released by the commercial banks.

Until a few months back, bankers were predicting a poor result owing to problems like large volume of idle funds due to suppressed credit demand, poor recovery of the real estate loan, increasing provisioning or the possible loan loss and ‘squeezed spread rate’ between the interest rates of deposit and credit. But once the banks started publishing their financial highlight, the result was completely different to what was being expected.

Twenty-one out of the total 27 commercial banks that have published their financial highlights has recorded a growth in net profit in the fiscal year 2011-12 compared to corresponding period in the last fiscal.While some of the banks have realised a phenomenal growth in profit, others have only enjoyed a marginal growth.

The Agriculture Development Bank has topped the chart, posting a whopping Rs 1.86 billion in net profit—a significant climp-up from last years’ Rs 1.57 billion. Similarly, the financial highlights of Bank of Kathmandu, Standard Chartered Bank and Nepal SBI Bank, among others suggest that they have attained only a marginal growth in their net profit.

There have been mixed reactions to the financial highlights, with some of the bankers attributing the recovery in capital market as life line to banking industry.

“There was recovery in the share market and also the transaction in real estate was not as poor as it was in the past,” said Anil Gnawali, CEO of Nabil Bank which posted a net profit of Rs 1.71 billion—a phenomenal growth compared to Rs 1.33 billion in the previous year.

BN Gharti, DGM of the Kist Bank which saw its net profit rise to Rs 100.23 million from the previous fiscal’s Rs 54.07 million, said that increase in loans and advances by the commercial banks during the last
quarter of the fiscal year was instrumental in increasing their profit. “Commercial banks were aggressive in lending during the fourth quarter of the fiscal year 2011-12,” said Gharti. “The cost of fund also decreased during the period allowing the banks to reduce the interest rate.” A majority of the commercial banks did not renew the high cost fixed deposits they collected a year back.

Some other bankers, however, have indicated that a majority of the banks were involved in faulty account management in order to post a higher profit. “The profits of the banks are inconsistent to that of thethird quarter of the fiscal year,” said Ashoke Rana, president of the Nepal Bankers’ Association. “It is really surprising how they managed topost such a large profit within a quarter,” he said, adding that this rise in profit is unsustainable.

NIC Bank CEO Sashin Joshi also expressed doubt over the sustainability of such profit in the current economic scenario. There isalso suspicion that the banks used ‘window dressing’ by lending out surplus amount to clients to serve interest to their previous loans. This way, not only have the banks projected old loans as good ones but have also counted interest as real income. “Such a growth in profit became possible as a majority of the banks were involved in window dressing,” said a CEO of a commercial bank seeking anonymity.

“Historically, the commercial banks were making high profit and were under severe pressure in the last fiscal too to show high return in their books,” said the banker. “But this will not sustain. We will be able to see a clearer picture by the end of the first quarter of this fiscal year.”

Even, NRB’s Annual Supervision Report 2011 has pointed out the tendency of making loans ever green as a big challenge facing the banking sector. Nevertheless, all the bankers agreed that banks will have a tough time in coming days as Janata Bank CEO Bijay Pant says: “The country has come to standstill and business environment has not improved at all.”

Source: The Kathmandu Post

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