Unaudited financial reports of 19 commercial banks tallied by Republica showed that non-performing loans (NPL) of the category ´A´ financial institutions rose to an average of 3.45 percent of their total loan portfolio in the six months to mid-Jan from 2.86 percent in the similar period a year ago.[break]
“The proportion of bad loans has gone up largely because of the exposure of commercial banks to the real estate sector,” Bhuvan Dahal, chief investment officer of Nabil Bank, told Republica, indicating that the banks are facing problems in recovering loans extended to the sector.
Commercial banks are estimated to have pumped in over Rs 80 billion in the real estate market. However, as transactions of land and houses have virtually come to a halt for more than two years now, a number of investors, who took loans to invest in realty market, have failed to pay back installment, turning the credit amount into bad loans or non-performing loans.
Nabil Bank, Nepal´s largest private sector bank in terms of asset, for instance, reported 81.96 percent rise in NPL to 3.33 percent of its total loan portfolio in the first six months of the current fiscal year. “Almost 90 percent of the bad debt was accumulated because of faulty real estate loans,” Dahal said.
Nepal Investment Bank Limited -- the country´s second largest private sector bank in terms of asset -- too witnessed a sharp rise in its level of bad debts, with the NPL standing at 2.11 percent in the first half of this fiscal year, as against 0.62 percent a year ago. Another renowned bank, Himalayan Bank, also saw the level of NPL rising to 4.5 percent of the credit portfolio, from 3.78 percent in the first half of last fiscal year.
Even conservative lender like Standard Chartered Bank Nepal could not insulate itself from the stress seen in the realty market, with proportion of the bank´s bad loans rising to 1.06 percent in the first six months from 0.59 percent recorded in the similar period a year ago.
As banks are facing problem recovering real estate loans and the chunk of bad debt is rising, they are setting aside more money to put their balance sheets in order - a practice known as provisioning in banking sector - which, in turn, is eating into their profit margins.
Unaudited financial reports of 19 commercial banks showed that only five banks reported growth in net profit level in the first half of the current fiscal year. State-controlled Agricultural Development Bank Nepal, among others, posted a net profit of Rs 688.26 million as against Rs 654.98 million a year ago. Standard Chartered Nepal too reported a growth in net profit to Rs 555.17 million despite setting aside Rs 116.05 million for provisioning.
Everest Bank was also able to report a surge in earnings, with net profit standing at Rs 487.02 million in the first six months of the current fiscal year. The two other banks that reported net profit growth are: Nepal SBI Bank (Rs 204.7 million) and Machhapuchchhre Bank (Rs 5.79 million).
“This dismal situation is indication that the period of banks reporting massive profit growth is over, as they enter into adjustment phase,” a renowned banker told Republica on condition of anonymity.
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