Kathmandu - Two of Nepal's prominent commercial banks have opened the new fiscal year with strong earnings. NMB Bank and Sanima Bank both reported sharp growth in net profit for the first quarter of fiscal year 2083/84, with NMB's profit rising 27.11 percent to Rs 1.16 billion and Sanima's surging 131.13 percent to more than Rs 1 billion, according to a report published by Rato Pati. Covering the same three-month period for both institutions, the results reflect a combination of lower provisioning costs, improved asset quality and stronger core income, and they mark a notably brighter start to the year for the two lenders.

NMB Bank: lower provisions and stronger interest income

NMB Bank earned a net profit of Rs 1.16 billion in the first quarter of fiscal year 2083/84, up 27.11 percent from Rs 915.9 million in the same quarter a year earlier. According to the report, two factors did most of the work: a reduction in loan loss provisions and an increase in net interest income.

Loan loss provisions are the amounts a bank sets aside to absorb loans that borrowers may fail to repay. When fewer such set-asides are required, a larger share of operating income flows straight to the bottom line. Net interest income, meanwhile, is the difference between what a bank earns on loans and advances and what it pays on deposits and borrowings, and it serves as the core engine of earnings for Nepali commercial banks. Growth on both fronts, as reported by NMB, indicates that the quarterly improvement came from the bank's fundamental business rather than from one-off gains.

A 27.11 percent rise in quarterly profit is a substantial jump for an established lender, and it hands NMB a firm starting position for the remainder of the fiscal year.

Sanima Bank: net profit more than doubles

Sanima Bank delivered the more dramatic headline of the two. Its net profit jumped 131.13 percent year on year to over Rs 1 billion in the first quarter, compared with about Rs 454.2 million in the corresponding period of the previous year. In other words, the bank earned more than twice as much in three months as it did in the same stretch a year earlier.

The improvement was not limited to the headline figure. Sanima also reported higher earnings per share, a better return on equity and a reduction in bad loans, three indicators that together point to broad-based strengthening of the bank's financial position. Rising earnings per share means each share is backed by a bigger slice of profit, while an improved return on equity shows the bank is generating more income from the capital entrusted to it by shareholders. A decline in bad loans, meanwhile, eases the provisioning burden that weighs on future profits and signals a healthier loan portfolio.

Key first-quarter indicators

  • NMB Bank net profit: Rs 1.16 billion, up 27.11 percent from Rs 915.9 million
  • Sanima Bank net profit: over Rs 1 billion, up 131.13 percent from about Rs 454.2 million
  • NMB's main drivers: lower loan loss provisions and higher net interest income
  • Sanima's other gains: improved earnings per share, higher return on equity and fewer bad loans

Reading the results

Taken together, the two reports point to a common theme: asset quality supporting faster profit growth. For NMB, the drop in loan loss provisions freed up earnings that would otherwise have been absorbed by set-asides against problem loans. For Sanima, the reported reduction in bad loans points in the same direction, since banks carrying fewer impaired loans generally need to allocate less toward provisions and can extend credit with greater confidence.

The strength of net interest income at NMB is equally significant. In Nepal's banking industry, where institutions earn a large share of their income from the spread between lending rates and deposit rates, expansion in this line is one of the clearest signs that a bank's core business is performing. Combined with lighter provisioning, it allowed NMB to convert its quarterly operations into a 27.11 percent profit increase over the year-ago period.

For investors and depositors, quarterly figures such as earnings per share and return on equity offer a snapshot of how effectively a bank is being run. Sanima's improvement across those measures, as reported by Rato Pati, will be read as a sign that its profit surge rests on more than a single favorable line item.

Both banks now move into the rest of fiscal year 2083/84 with far stronger opening numbers than they recorded a year ago. Much will depend on how credit demand, interest income and loan quality evolve in the coming quarters, but the first-quarter results have given NMB Bank and Sanima Bank a solid earnings base, and in Sanima's case a profit figure that has already crossed the billion-rupee mark within the first three months of the year.