Banking Khabar / The net profit of eight national-level development banks recorded significant growth in the first quarter of the current fiscal year. Their combined net profit increased by 113.23 percent compared to the same period of the previous fiscal year. However, this sharp rise in profit does not reflect an equal improvement in the earnings of all banks.
By the end of Ashoj, the eight development banks had earned a combined net profit of NPR 1.67 billion. During the same period last year, their total net profit stood at NPR 783.4 million. This represents an increase of NPR 887.1 million in their combined profit over one year.
Lumbini Bikas Bank’s turnaround from a loss to a profit made the largest contribution to the overall growth. The bank, which had reported a loss of NPR 348.5 million in the first quarter of the previous fiscal year, earned a net profit of NPR 327.1 million this year. This represents an improvement of NPR 675.7 million in its profit and loss position within a year.
Approximately 76 percent of the total increase in the eight banks’ combined profit came from this improvement at Lumbini Bikas Bank. Therefore, the 113 percent growth in development banks’ overall profit alone is not sufficient to conclude that the financial health of the entire sector has strengthened.
Impact of Changes in Impairment Charges on Profit Growth
The reduction in impairment charges also played a significant role in improving Lumbini Bikas Bank’s profit. The bank had recorded an impairment charge of NPR 708.9 million in the first quarter of the previous fiscal year. This year, it reversed NPR 88 million.
A reduction in impairment charges, or the reversal of provisions previously set aside for potential loan losses, positively affects a bank’s operating and net profit. Although this helps increase reported profit, it does not necessarily mean that regular banking income has improved at the same rate.
The financial statements of other development banks also show a reduction in impairment charges in most cases. Improvements in fee and commission income have also supported profit growth.
Jyoti Records the Highest Profit Growth Rate
Among the individual banks, Jyoti Bikas Bank recorded the highest growth rate in net profit. Its net profit increased from NPR 70.3 million in the first quarter of the previous fiscal year to NPR 200.1 million in the corresponding period this year, representing growth of 184.59 percent.
Similarly, Muktinath Bikas Bank’s net profit increased by 43.44 percent to NPR 322.4 million. Mahalaxmi Bikas Bank recorded a 21.49 percent increase, while Kamana Sewa Bikas Bank’s profit grew by 16.99 percent.
However, not all banks reported positive results. Shangri-la Development Bank’s net profit declined by 62.07 percent to NPR 33.4 million. Garima Bikas Bank recorded a 4.17 percent decline, while Shine Resunga Development Bank’s profit fell by 2.66 percent.
In terms of the size of net profit, Lumbini Bikas Bank ranked first with NPR 327.1 million. Muktinath Bikas Bank followed closely with NPR 322.4 million. Garima Bikas Bank earned NPR 240.1 million, while Kamana Sewa Bikas Bank reported a net profit of NPR 231.1 million.
Moderate Growth in Core Banking Income
Net interest income, the primary source of income for development banks, recorded relatively modest growth. The combined net interest income of the eight banks increased from NPR 5.47 billion in the first quarter of the previous fiscal year to NPR 5.57 billion in the current fiscal year.
Muktinath Bikas Bank led in net interest income, earning NPR 1.21 billion. Garima Bikas Bank reported NPR 920.8 million, followed by Shine Resunga Development Bank with NPR 662.5 million, Jyoti Bikas Bank with NPR 631.8 million, and Kamana Sewa Bikas Bank with NPR 626.4 million.
Similarly, Mahalaxmi Bikas Bank recorded net interest income of NPR 510.4 million, Shangri-la Development Bank earned NPR 509.8 million, and Lumbini Bikas Bank reported NPR 494.4 million.
These figures indicate that changes in loan-loss provisions and other sources of income, rather than growth in net interest income alone, played a significant role in the increase in development banks’ profits.
Shangri-la Faces Pressure from High Non-Performing Loans
Non-performing loans (NPLs) are another important indicator of the financial health of development banks. The figures show considerable differences among the institutions.
Among the eight banks, Shangri-la Development Bank reported the highest NPL ratio at 7.64 percent. Kamana Sewa Bikas Bank had the lowest NPL ratio at 3.93 percent.
A high level of non-performing loans can affect interest income, require banks to set aside larger provisions for potential loan losses, and put pressure on future profitability. Therefore, the quality of loans and the level of NPLs must be considered alongside reported profit growth.
Differences in Capital and Returns
The combined paid-up capital of the eight development banks reached NPR 40.57 billion. Muktinath Bikas Bank had the highest paid-up capital at NPR 8 billion, followed by Garima Bikas Bank with NPR 6.62 billion and Shine Resunga Development Bank with NPR 5.32 billion.
The combined reserve funds of the eight banks stood at NPR 23.97 billion. Muktinath Bikas Bank also led in this category, with reserves of NPR 4.63 billion.
In terms of earnings per share (EPS), Lumbini Bikas Bank recorded the strongest position at NPR 36.11. Kamana Sewa Bikas Bank reported EPS of NPR 23.13, Jyoti Bikas Bank NPR 18.21, and Muktinath Bikas Bank NPR 16.12.
Lumbini Bikas Bank also led in net worth per share, with NPR 216.68. Kamana Sewa Bikas Bank reported NPR 161.84, while Jyoti Bikas Bank recorded NPR 173.59.
Overall, the first-quarter financial statements of development banks show a significant improvement in profitability, but the factors behind this growth vary across institutions. While some banks improved their profits through growth in regular income, changes in loan-loss provisions played an important role in the results of others.
The modest growth in net interest income, declining profits at some banks, and Shangri-la Development Bank’s relatively high NPL ratio indicate that the financial health of the development banking sector is not yet free from challenges.
In the coming quarters, the ability of banks to control non-performing loans, recover outstanding credit, and increase regular income will determine how sustainable the current improvement in profitability will be.
