Impact of Lockdown on Banks’ Financial Statements

Net Profit of 5 Banks Decline by an Average of 13.21%

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Impact of Lockdown on Banks’ Financial Statements

CEO of Nabil Bank Anil Keshari Shah (R) and actress Priyanka Karki during a programme in this file photo.

 

Bank

Profit (Billion)

Interest Income (Billion)

EPS (Rupees)

2077

2076

2077

2076

2077

2076

Bank Of Kathmandu

1.49

1.89

3.58

3.77

17.26

23.53

Citizens

1.11

1.46

2.88

2.68

12.92

17.49

Nabil

3.56

4.23

7.02

7.15

37.66

50.57

Nepal

2.55

2.81

5.61

6.18

22.66

26.99

Siddartha

2.09

2.25

5.58

4.66

21.38

23.07

Source: Fourth Quarterly Report of the Previous Fiscal Year of the Respective Banks

August 14: The impacts of the four-month long lockdown, enforced by the government to control the spread of coronavirus, has been quite conspicuous in the previous fiscal year’s annual financial statements of commercial banks. The lockdown has affected many indicators such as the banks’ interest income, profit, distributable profit, earning per share, etc.

The government had enforced the lockdown from March 24 to July 23 in order to control the spread of coronavirus. Banks had to face the lockdown for 20 days in their third quarter and the entire fourth quarter. The annual financial statements of the last fiscal year have been affected due to the absence of economic as well as banking activities during the lockdown period.

As of Thursday (August 13), commercial banks including Nabil, Nepal Bank, Citizens Bank International, Siddhartha Bank and Bank of Kathmandu have published their annual financial statements of the last fiscal year. According to these statements, the net profit of all of these five banks have decreased by an average of 13.21 per cent.

Their interest income, operating profit and the earning per share have also decreased. In addition, the banks claimed that their distributable profits have also decreased as compared to the previous year.

As compared to the previous year, the net profit of Bank of Kathmandu, Citizens, Nabil Bank, Nepal Bank and Siddhartha Bank have decreased by 22.21 per cent, 23.72 per cent, 15.85 per cent, 1.55 per cent and 7.30 per cent respectively.

Interest from loans is the major source of income for banks. However, Nepal Rastra Bank extended the interest payment period till the end of Ashad (mid-July) considering the impact of the lockdown on debtors. In addition to this, the central bank also directed the banks to reduce the interest rates on loans by 2 percentage points. As a result, the banks could not earn the interest income that they had expected in the early days. Banks informed that the interest they did collect was less than anticipated.

The banks were expecting to collect the interests within the end of Ashad (mid-July). However, Nepal Rastra Bank announced that the loan payment period would further be extended under the monetary policy after which, the debtors didn’t pay the loan and the interest that they owed to the banks. As a result, other indicators of the financial statements also had to suffer.

Banks mostly invest on the industrial sector by providing them with loans. They had also increased their investments in the tourism sector due to the tourism year (Visit Nepal 2020). Banks are currently not in a position to recover these loans because of the impact of the lockdown on the tourism sector.

Furthermore, there have been no income from the Letter of Credit (LC) transactions and foreign currency exchange. Bankers stated that the income of banks have decreased due to these reasons while the expenses remained the same, which ultimately led to a decrease in the profit as well as other indicators.

Bankers say the rate of profit was already not very satisfactory in the beginning of the previous fiscal year. The rate of profit had already shrunk to a single-digit number in the beginning of the year of the same banks that used to earn a double-digit rate of profit in the previous years. However, they noted that the profits might become negative by the end of this fiscal year.

The Chief Executive Officer (CEO) of Nabil Bank Anil Keshari Shah said that the lockdown has greatly affected the banking sector in a small period of time. He believed that the extension of the loan payment period and the decrease in the interest rates were the reasons for the decrease in the profits of banks.

“Rastra Bank directed the banks to reduce their interests on loan but not on deposits. In addition to this, the expenses related to salary of the employees, operating costs remained the same,” he said, adding, “We had to face expenses like these in the fourth quarter with no income. As a result, our annual financial statements got affected.” He added that the financial statements of Nabil Bank needs to be looked at positively despite the decrease in profits.

He explained that the banks need to focus more on making their financial statements instead of focusing on the profits. “If we become profit-centric now, we may have to face another challenge again. That’s why we need to move forward with policies that reduce the operating cost and protects the customers.”

Surendra Bhandari, the Chief Executive Officer (CEO) of Kumari Bank said that the profit and the distributable profit of Kumari Bank has decreased.

“Acquisition of Deva Bikash Bank has not impacted Kumari Bank as much as we had thought it would,” he said, “It is very much evident that the profit of all of the banks have decreased in the last fiscal year. This is seen in the financial statements of the banks that have been published so far. All of the banks are facing a common challenge right now.”

 Gunakar Bhatta, the spokesperson for Nepal Rastra Bank, said that the banking sector will get revived quickly if the economic activities resume in the coming days. “The banks have made a huge sacrifice right now. Many policies introduced by the Nepal Rastra Bank have made things easier for them,” he said, “If the economic activities keep going in this rate, the banks will get revived in no time.”


 

 

 

 

 

 

 

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