While most of the BFIs posted impressive profits in the first quarter due to the central bank's relaxation in calculation of loan loss provision, bankers are now worried with the deterioration wrought by the ongoing tensions in Tarai and the ensuing unofficial economic blockade imposed by India. BFIs are now at the last stage of finalizing their report for the second quarter of the current fiscal year.
Loan restructuring and rescheduling, and relaxation on loan loss provisioning facilities provided by the central bank in the aftermath of the earthquake has largely guarded them from the financial fallout.
Net profit of commercial banks had jumped by 48.16 percent in the first quarter that ended on mid-September. Twenty-nine commercial banks, except NMB Bank Ltd, had earned a net profit of Rs 6.43 billion, up from Rs 4.34 billion in the corresponding period of the last fiscal year 2014/15.
As most of the business firms, industries and economic activities have come to a grinding halt, the cash flow problem has hit the ability of borrowers to service their loans.
Bankers say that they are expecting many borrowers to miss the second quarter installment of loans due to shutdown of their businesses for nearly five months. “The crisis has hit the ability of industries, companies and individual borrowers to repay their loans. This is likely to increase the ratio of non-performing loans of the banks, thereby reducing the overall profit,” Bhuvan Kumar Dahal, CEO of Sanima Bank Ltd, said.
BFIs are not only facing the risk of surge in their bad loans. The slowdown in lending is also affecting their growth. With the economic activities coming down and industries shuttered, their lending has also remained stagnant in recent months.
According to Nepal Bankers Association, deposit mobilization of 'A' class commercial banks grew by 15.31 percent to Rs 1.53 trillion and lending by 6.51 percent to Rs 1.15 trillion over the past eight months since April 17 -- a week before the devastating earthquake rocked the country.
However, unlike most bankers, Ashok JB Rana, CEO of Himalayan Bank Ltd, is not much pessimistic about the financial results in the second quarter.
“There will not be any significant impact in the second quarter as most of the business firms or borrowers have their reserves from which they can repay their second quarter installment,” Rana said. “However, this crisis will have impact in the third quarter as the firms, industries and borrowers might face shortage of cash as they will have to pay for raw materials, demurrage charges and other expenses at once if the turmoil comes to an end,” he added.
He also said the results of third quarter will worsen further if the Tarai turmoil and economic blockade continues.
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