Q3 reports are on the way; see what President of NBA has to say regarding the profits of Commercial Banks in this quarter  

From the second quarter to now, the market has gone through a lot and especially the commercial banks are in a lot of pressure. Being the most heavily regulated sector of the country, Banks have had a hard time making profits, all the while meeting the requirements set by the Nepal Rastra Bank (NRB).

After the last instruction of NRB to hike the paid-up capital of Commercial banks to Rs. 8 arba, banks have also come under intense pressure to expand their network to remote local bodies with Ashad, 2075. As of now, majority of Banks through variety of measures have met their capital requirement, which is the good news. However, despite such shortage of liquid funds in the market, banks are instructed to expand their branches in an average of 17 new branches per bank.

Thus in such situation the question that arises in the minds of the shareholders is, “Will the banks be able to earn profit?” 

That was the same question we asked to Mr. Gyanendra Dhungana, CEO of Nepal Bangladesh Bank and President of Nepal Bankers’ Association, and his response to our question was:

"In third quarter, the overall cost has increased for the banks. The cost of deposits has gone up and in addition a lot of new branches are being established, which has significantly increased the operating expenditures. In our case i.e. Nepal Bangladesh Bank, the operating expenses have doubled as the number of employees has increased, the branches to maintain has increased and all other expenses has increased. However, the returns won’t come right away. It’ll take time and in case of the remote branches they’ll take at least 3 years to breakeven.

So because of that very high profits can’t be expected. Some banks might show slight growth but as far as NBB is considered, the growth is in negative as compared to last years’.

So in average, I think you’ll see growth but it’ll be very nominal. The Q3 reports are coming soon, and maybe you’ll see some banks with extraordinary growth but that growth is unnatural and unsustainable. When we go for excessive growth without strong internal fundamentals, accidents might happen. And regarding this, I think the regulator is also watching.

The nature of banking is such that, its growth must be in line with the economy’s growth. Unnecessary growth in short period of time increase the chances of errors and makes the company vulnerable. So for long-term sustainability stabilized growth is necessary. In our market, the deposits are mostly short-term, whereas the lendings are long-term. So there is a mismatch between the duration, which has made us more cautious in creating further credit.”