Banks weather quake, blockade to record profitsA majority of commercial banks have weathered the earthquake and border blockade with most of them posting handsome profit in their third quarter.
A majority of commercial banks have weathered the earthquake and border blockade with most of them posting handsome profit in their third quarter.
Out of the 26 commercial banks that have published their financial report for third quarter of the fiscal year 2015-16, all but Standard Chartered Bank Nepal have recorded a growth in net profit compared to corresponding period of last year.
Nabil Bank has topped the chart with a profit of Rs 2.06 billion, up from Rs 1.63 billion for the period last fiscal. Six other banks have crossed the billion mark in their net profit. Nepal Investment Bank stood second on the list with Rs1.86 billion, followed by Nepal Bank, Himalayan Bank, Agriculture Development Bank, Everest Bank and Global IME Bank. Bankers have attributed write backs of loans and cost management as major reason behind the surge in profits rather than growth of business. “We made some write backs and our cost management was also very effective, which led to the growth in net profit,” said Sashin Joshi, CEO of Nabil Bank. Surge in profit was also the reflection of the aggressive lending exercised by the commercial banks, he added.
The ability of the businesses to pass on their increased cost to their customers was another factor that contributed to the rise in profit, bankers pointed out. “Both industrialists and traders faced rise in cost of goods due to supply disruption,” said a banker, requesting anonymity. “But they were able to pass that overhead cost on to the customers to secure profit. As a result, they managed to sail through the adverse business environment and served their loans.”
Similarly, the bankers have also observed that industrialists and traders in Nepal generally have high profit margin and hence higher capacity to absorb risks associated with the increased cost. “For example, cement industry are one of the largest consumers of fuel. Their fuel cost surged considerably during the blockade as they had to buy it from black market,” said the banker. “Their cost of production increased but they were able to pass it on to their customers.”
Nevertheless, a few sectors were badly affected by the earthquake and unofficial blockade. Travel and tourism business as well as a few hydropower plants suffered setback due to the earthquakes and the blockade.
But a timely regulatory relaxation extended by central bank prevented loans provided to those sectors from going bad. “Banks were allowed to restructure such loans,” said Joshi. “Therefore, balance sheets of the banks largely remained unaffected.”