Banking News – Kumari Bank has begun regaining its financial momentum after facing rising non-performing loans (NPLs) and high provisioning pressure over the past four years following its merger with Nepal Credit and Commerce (NCC) Bank.

The bank has reported a significant improvement in its financial performance during the last fiscal year. Its fourth-quarter financial statement for fiscal year 2082/83 shows improvements in net profit, distributable profit, NPL management and retained earnings, indicating that the bank’s overall financial position is gradually strengthening.

By the end of Ashadh last fiscal year, Kumari Bank posted a net profit of Rs 7 arab 38 crore 71 lakh, compared with Rs 1 arab 81 crore 96 lakh in fiscal year 2081/82. The bank had earned only Rs 46 lakh in fiscal year 2080/81, while its net profit stood at Rs 1 arab 95 crore in fiscal year 2079/80.

Over the past four fiscal years, Kumari Bank has gradually improved its financial position. Following its merger with NCC Bank, the bank had been in accumulated losses from fiscal year 2079/80, preventing it from distributing dividends for three consecutive fiscal years.

For shareholders, distributable profit is particularly important because it determines the bank’s capacity to distribute dividends. Kumari Bank had previously faced significant pressure on its distributable profit, which affected its dividend-paying capacity.

However, the bank’s dividend-paying capacity improved last fiscal year. Its distributable profit turned positive and reached Rs 79 crore 16 lakh, compared with negative distributable profit of Rs 3 arab 84 crore in the previous fiscal year.

The bank had previously faced pressure on loan quality, with rising NPLs requiring substantial allocations for loan-loss provisioning. This directly affected its net profit and the amount available for distribution to shareholders.

Last fiscal year, however, Kumari Bank improved its NPL management and reduced provisioning pressure, contributing to improvements in both operating income and net profit.

During the year, the bank recorded net fee and commission income of Rs 3 arab 4 crore 88 lakh, total operating income of Rs 16 arab 35 crore 84 lakh, and operating profit of Rs 11 arab 23 crore 55 lakh.

NPL Management Remains a Major Challenge

Loan quality has remained a major challenge for Nepal’s banking sector since the COVID-19 period, and Kumari Bank has also been affected.

The bank’s NPL ratio has continued to fluctuate over the past four years and remains under pressure. Its NPL ratio increased to 7.46 percent in the last fiscal year from 6.95 percent a year earlier.

The bank’s NPL ratio stood at 6.42 percent in fiscal year 2081/82 and 5.96 percent in fiscal year 2080/81.

The continued increase in NPLs can raise provisions required for potential loan losses, directly affecting profitability. Therefore, effective NPL management remains one of the bank’s key priorities.

Despite the increase in NPLs last year, Kumari Bank wrote back Rs 1 arab 43 crore 99 lakh from previously allocated loan-loss provisions. The provision write-back also contributed to the improvement in the bank’s profitability.

The bank had spent Rs 3 arab 45 crore on provisioning in the previous fiscal year, while it allocated approximately Rs 2 arab for provisions last fiscal year.

Other Financial Indicators Also Improve

Kumari Bank’s profitability improved alongside an increase in net interest income. The bank’s net interest income increased to Rs 12 arab 1 crore last fiscal year from Rs 11 arab 62 crore in the previous fiscal year.

The bank currently has paid-up capital of Rs 26 arab 22 crore 58 lakh and reserves of Rs 18 arab 56 crore 82 lakh.

By the end of Ashadh, Kumari Bank had collected deposits of Rs 4 kharab 2 arab and extended loans of Rs 2 kharab 70 arab.

With the increase in profitability, the bank’s earnings per share (EPS) rose to Rs 28.17.

Challenges Ahead for Kumari Bank

Despite improvements in most financial indicators, Kumari Bank continues to face several challenges.

The bank still needs to focus on controlling NPLs, increasing loan recovery, reducing provisioning pressure and expanding quality business.

Maintaining operating costs at an appropriate level also remains a challenge. According to the bank, improving operational efficiency, mitigating underlying risks and managing non-performing loans will remain among its major priorities going forward.