November 5: The effects of slowdown in economic activities due to the Covid-19 pandemic and the Russia-Ukraine war have now started to be seen in the financial statements of banks.

According to the unaudited financial statements issued by commercial banks, there has been a significant decline in the profits of banks in the first quarter of the current fiscal year (FY), while bad debts have increased.

The average bad loan of commercial banks, which was 1.71 percent in the first quarter of the last fiscal year, has reached 3.40 percent in the first quarter of this year.

Although the profit growth rate decreased in the first, second and third quarters of last year, there was an improvement in the fourth quarter. Similarly, bad loans, which had been rising continuously since the beginning of last year, also improved by the end of the year.

The profit of banks during last year increased by 5.94 percent in the first quarter, 11.10 percent in the second quarter and 11.67 percent in the third quarter. In the fourth quarter, the profit growth rate reached 24.93 percent.

However, the improvement was short lived. In the first quarter of the current fiscal year, the performance of banks has not been satisfactory. The profit of banks decreased by 19 percent in the first quarter of the current year.

By the end of the first quarter of the current fiscal year, commercial banks have earned a total of Rs 13.47 billion in net profit. During this period, the profit of 12 banks decreased while that of eight banks increased.

The profit of Agriculture Development Bank was negative. With the increase in bad loans of the banks, the amount to be set aside for risk management has increased, and the profit has been affected.

The average bad loans of banks were 1.71 percent in the first quarter of last year, 2.31 percent in the second quarter and 3.04 percent in the third quarter. Bad loans were reduced to 2.8 percent in the fourth quarter of last fiscal year, but it reached 3.40 percent in the first quarter of the current fiscal year.

The non-performing loans of Agriculture Development Bank reached the highest at 5.33 percent, followed by Kumari Bank at 4.89 percent, Nepal Investment Mega’s NPL stood at 4.83 percent in the review period, followed by Laxmi Sunrise Bank at 4.69 percent, Himalayan Bank at 4.67 percent and Global IME Bank at 4.38 percent.

Bad loans have increased along with the decline in economic activities, affecting the recovery of banks' loans. The increase in bad loans indicates that risks are increasing in the financial sector. As the net profit of commercial banks has decreased, the distributable profit to their shareholders has also weakened.

Banks have earned a distributable profit of Rs 17.26 billion in the first quarter of the current year. This profit is 61 percent less than compared to the same period of last fiscal year.