Net profits of banks and financial institutions (BFIs) declined by 14.71 percent in the first four months of the current fiscal year, reflecting the pressure of the ongoing economic slowdown.
According to Nepal Rastra Bank (NRB), BFIs in three categories—commercial banks, development banks, and finance companies—earned Rs 21.31 billion between mid-July and mid-November. This is significantly lower than the Rs 24.99 billion earned during the same period last year (excluding microfinance institutions).
Bankers attribute the decline to weakened banking activity caused by economic stagnation, disruptions from the Gen-Z movement, and falling interest income following a steep reduction in lending rates.
Commercial Banks See Double-Digit Profit Decline
Net profits of 20 commercial banks fell by 13.11 percent, reaching Rs 19.37 billion, compared to Rs 22.29 billion last year.
However, four commercial banks achieved profit growth:
- Rastriya Banijya Bank: +105.23%
- Sanima Bank: +19.65%
- Global IME Bank: +18.91%
- Everest Bank: +0.27%
In terms of profit volume:
- Global IME Bank led with Rs 2.51 billion
- Nabil Bank followed with Rs 2.46 billion
Meanwhile, 16 commercial banks posted profit declines ranging from 0.75% to 132.90%.
Development Banks & Finance Companies
Among development banks:
- Garima Bikas Bank: Rs 397.7 million
- Muktinath Bikas Bank: Rs 384.2 million
- Shine Resunga: Rs 302.5 million
Among finance companies:
- Goodwill Finance: Rs 52.8 million
- ICFC Finance: Rs 40.8 million
- Manjushree Finance: Rs 23.5 million
Interest Rates Fall to Multi-Year Lows
Interest rates have dropped sharply:
- Weighted average lending rate of commercial banks: 7.38%
- Base rate: 5.41% (lowest in years)
BFIs now hold excess loanable funds exceeding Rs 1.1 trillion, causing the credit-to-deposit ratio (CD ratio) to drop to 74.12 percent, far below NRB’s limit of 90 percent.
For comparison:
- Weighted average lending rate in Feb 2021: 9.44%
- Base rate in Feb 2021: 13.03%
- Previous premium rate: up to 5%
- Current premium rate: around 1.5%
The significant decline in lending rates and lower credit demand have heavily affected profitability across the banking sector.
