Commercial banks seem to have recovered from shadows of bad loans made in the past, as they registered a whopping rise in net profit last fiscal year.

The net profit of class ‘A’ financial institutions increased by 40 per cent in the last quarter of fiscal year 2012-13, according to their recently published unaudited financial reports. The 31 commercial banks have earned a net profit worth Rs 20.1 billion, which stood at Rs 14.3 billion in the corresponding period of the previous fiscal year. Only Kist Bank registered a loss.

Among 31 banks, profit of two banks — Agriculture Development Bank (ADBL) and Nabil Bank — crossed Rs two billion as they earned Rs 2.25 billion and Rs 2.23 billion as net profit, respectively. Likewise, five more banks — Everest Bank, Himalayan Bank, Nepal Investment Bank, Rastriya Banijya Bank (RBB) and Standard Chartered Bank Nepal — earned more than Rs one billion as net profit last fiscal.

The growing income of the banks can be attributed to lowering non-performing assets (NPA) since quite some time. Bad loans as measured by NPA declined to 2.5 per cent at the end of the fourth quarter that stood at three per cent by the end of the third quarter.

Less toxic assets means less provisioning, thus the profit of banks increases. Even borrowers who have not been able to pay the principal amount have been paying the interests regularly, hence, banks have been able to increase their net profit.

“Recovery of real estate loans, though still a concern, is on track so banks can be little less worried about that,” said CEO of Commerz and Trust Bank Nepal Anal Raj Bhattarai. “Profit is growing because the service sector as a whole in the country is doing well, and short-term trading loans have become a major source of income for banks at present,” he added.

The state run banks — ADBL, RBB and Nepal Bank Ltd (NBL) — continued to show profits thanks to the write back of loans worth Rs 2.3 billion. ADBL — a profit making bank — got loans worth Rs 1.2 billion written back from the amount provisioned earlier against bad loans. Moreover, these banks have become successful in bringing down their NPA as well.

“The progress in terms of loan recovery has increased the income of the banks and has also pulled down bad loans,” said CEO of RBB Krishna Prasad Sharma. RBB’s NPA is down to 5.31 per cent now from 7.27 per cent. Likewise, NBL has reduced it bad loans to 4.53 per cent from 5.58 per cent and ADBL’s NPA is at 5.72 per cent from 8.98 per cent in mid-July 2012.

source:the himalayan times,21 august 2013