KATHMANDU, Aug 22: The fiscal year 2011/12 ended on July 15. It was the year when the entire banking sector was anticipating huge drop in profit levels due to slow recovery of real estate loans and moribund credit market. Yet Nepal Bangladesh (NB) Bank, which was on the verge of bankruptcy more than half a decade ago, not only resurrected in that year but established itself as the most profitable bank in the country.
The once-troubled bank, whose management was taken over by the central bank in November 2006, posted return on assets of 3.4 percent in the one-year period through July 15 - the highest in the banking industry - unaudited fourth quarter financial reports of 32 commercial banks published till Monday show.
This means, for every Rs 100 invested in assets, NB Bank generated a return of Rs 3.4.
"The performance of the bank improved remarkably last year because of rapid pace in which suspicious and bad loans were recovered," Suresh Devkota, chief financial officer of the bank, told Republica.
The bank, whose non performing loans stood at 17.99 percent of the total credit portfolio in mid-July last year, was able to bring down the level to 4.29 percent by July 15. This gave the leeway to the bank to write back Rs 402.62 million provisioned for possible losses.
All banks and financial institutions have to keep aside one percent to 100 percent of the total loan extended to clients as loan loss provision, depending on the credit´s quality classified as good, substandard, doubtful and bad by the central bank. This mandatory measure is put in place to insulate lenders from risk that arises from borrowers´ inability to pay back loans. The amount, however, can be reclaimed and enrolled as profit in balance sheets soon after the credit is recovered.
As NB Bank recouped over Rs 400 million allocated for losses likely to be triggered by defaults, its net profit rose to Rs 702.90 million in the last fiscal year, as against net losses of Rs 138.15 million recorded a year before.
Although the steep hike in net earnings played a key role in raising bank´s profitability, its performance on the stock market shows it still has not been able to capitalize on the gains made so far.
The bank´s transaction record at Nepal Stock Exchange shows that its shares, which were traded at Rs 146 two weeks ago, at one point fell to Rs 127 before closing at Rs 134 on Tuesday.
"This is because the group that leads the bank has lost trust of investors," a share market analyst told Republica on condition of anonymity, referring to companies like NB Insurance and National Hydropower under NB Group which are hit by scandals of misappropriation of millions of rupees by promoters. "Hence the status of most profitable bank that NB Bank bagged did not mean much to investors."
Other most profitable banks, in terms of return on assets, last fiscal year, were Standard Chartered, Nabil, Agricultural Development and NIC. Standard Chartered Bank posted return on assets of 2.79 percent, followed by Nabil Bank, which reported return on assets of 2.78 percent. Agricultural Development Bank Nepal was the fourth most profitable bank, posting return on assets of 2.61 percent, while NIC Bank recorded return on assets of 2.21 percent.
Although the performance of these established banks were relatively better, their figures could not rescue others and the average on return on assets of commercial banks stood at 1.30 percent, a notch lower than previous fiscal year´s 1.40 percent.
This means higher net profit generated by most of the commercial banks did not have any significance as they could not get as much yield from investment made in assets.
Last fiscal year, commercial banks generated a net profit of Rs 15.49 billion, up 12.56 percent from previous year´s 13.76 billion.