Profitability of commercial banks took a beating last fiscal year, as capital fund bulged, while earnings grew moderately.
Average return on equity (RoE) — a measure to gauge profitability — of 30 commercial banks stood at 19.23 per cent in mid-July, as against 22.19 per cent in the same period the previous fiscal. (The RoE was calculated by comparing capital fund of mid-July, 2013 with net profit of fiscal 2013-14 that ended in mid-July, 2014.)
This means every Rs 100 in capital fund of commercial banks generated a return of Rs 19.23 in the last fiscal, compared with Rs 22.19 a year ago.
Profitability of commercial banks took a downturn due to sluggish performance of private sector-led banks.
Average RoE of 27 private sector-led banks stood at 14.18 per cent in the last fiscal, as against 17.18 per cent in the same period a year ago.
The drop was reported as Grand Bank incurred a net loss of Rs 1.61 billion in the last fiscal, while Kist Bank booked negative net earnings of Rs 240.61 million in the year.
“Also, there was a big difference in capital and income growth of many banks,” Sanima Bank CEO Bhuvan Kumar Dahal said.
Commercial banks held a capital fund of Rs 124.13 billion in mid-July, 2013, up 27.88 per cent than in mid-July, 2012.
But net profit of 30 commercial banks grew by just 9.37 per cent to Rs 20.97 billion in the same period. In the previous fiscal year, profit of commercial banks had jumped by around 40 per cent.
Net profit of many commercial banks tapered in the last fiscal as they had to limit interest spread at five per cent, which exerted pressure on income.
This affected institutions like Agricultural Development Bank,
Janata Bank, Bank of Kathmandu and Sunrise Bank, which saw a drop in their profitability level last fiscal.
Other class ‘A’ financial institutions that reported lower RoE last fiscal were: Nabil Bank, Everest Bank, Nepal Investment Bank, Himalayan Bank, Global IME Bank, Laxmi Bank and NCC Bank.
Despite witnessing downturn in profitability, banks like Nabil, Everest and Nepal Investment booked one of the highest RoE in the industry in the last fiscal.
Nabil Bank’s profitability topped 34.66 per cent, while RoE of Everest Bank and Nepal Investment Bank stood at 32.16 per cent and 27.78 per cent, respectively.
Overall, state-owned Rastriya Banijya Bank topped the profitability league table, registering RoE of 136.26 per cent, followed by state-run Nepal Bank Ltd, which recorded RoE of 46.99 per cent.
RoE is an indicator to measure efficiency in terms of use of available capital. Higher RoE means optimum use of shareholders’ money and it also raises chances of financial
institutions booking better profit in the subsequent year as a bigger chunk of retained earning provides leverage to expand investment.
However, RoE is a short-term indicator of profitability and not a complete diagnosis of financial health, as it does not take factors like borrowings of companies into account.
Average return on equity (RoE) — a measure to gauge profitability — of 30 commercial banks stood at 19.23 per cent in mid-July, as against 22.19 per cent in the same period the previous fiscal. (The RoE was calculated by comparing capital fund of mid-July, 2013 with net profit of fiscal 2013-14 that ended in mid-July, 2014.)
This means every Rs 100 in capital fund of commercial banks generated a return of Rs 19.23 in the last fiscal, compared with Rs 22.19 a year ago.
Profitability of commercial banks took a downturn due to sluggish performance of private sector-led banks.
Average RoE of 27 private sector-led banks stood at 14.18 per cent in the last fiscal, as against 17.18 per cent in the same period a year ago.
The drop was reported as Grand Bank incurred a net loss of Rs 1.61 billion in the last fiscal, while Kist Bank booked negative net earnings of Rs 240.61 million in the year.
“Also, there was a big difference in capital and income growth of many banks,” Sanima Bank CEO Bhuvan Kumar Dahal said.
Commercial banks held a capital fund of Rs 124.13 billion in mid-July, 2013, up 27.88 per cent than in mid-July, 2012.
But net profit of 30 commercial banks grew by just 9.37 per cent to Rs 20.97 billion in the same period. In the previous fiscal year, profit of commercial banks had jumped by around 40 per cent.
Net profit of many commercial banks tapered in the last fiscal as they had to limit interest spread at five per cent, which exerted pressure on income.
This affected institutions like Agricultural Development Bank,
Janata Bank, Bank of Kathmandu and Sunrise Bank, which saw a drop in their profitability level last fiscal.
Other class ‘A’ financial institutions that reported lower RoE last fiscal were: Nabil Bank, Everest Bank, Nepal Investment Bank, Himalayan Bank, Global IME Bank, Laxmi Bank and NCC Bank.
Despite witnessing downturn in profitability, banks like Nabil, Everest and Nepal Investment booked one of the highest RoE in the industry in the last fiscal.
Nabil Bank’s profitability topped 34.66 per cent, while RoE of Everest Bank and Nepal Investment Bank stood at 32.16 per cent and 27.78 per cent, respectively.
Overall, state-owned Rastriya Banijya Bank topped the profitability league table, registering RoE of 136.26 per cent, followed by state-run Nepal Bank Ltd, which recorded RoE of 46.99 per cent.
RoE is an indicator to measure efficiency in terms of use of available capital. Higher RoE means optimum use of shareholders’ money and it also raises chances of financial
institutions booking better profit in the subsequent year as a bigger chunk of retained earning provides leverage to expand investment.
However, RoE is a short-term indicator of profitability and not a complete diagnosis of financial health, as it does not take factors like borrowings of companies into account.
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