Banks Earn Over Rs 30 Billion in Six Months, but Distributable Profit Slips into Deficit

Commercial banks earned Rs 30.59 billion in net profit in the first six months of the current fiscal year (FY 2025/26), but their combined distributable profit has slipped into a Rs 14.09 billion deficit, reflecting mounting regulatory adjustments and credit risk provisions.

According to financial statements up to mid-January published by the banks, 20 commercial banks recorded an 11.51 percent increase in net profit compared to the same period of the previous fiscal year, when they had earned Rs 27.43 billion.

Despite the growth in net earnings, banks have little room to distribute dividends. The overall distributable profit turned negative mainly due to large deficits at some banks, including Himalayan Bank and NIC Asia Bank, which significantly dragged down the sector’s aggregate position.

Nepal Rastra Bank’s policy relaxations, improved loan recovery, and growth in non-operating income contributed positively to profitability. However, rising accrued interest yet to be recovered, higher credit risk provisions, and regulatory adjustments related to non-banking assets pushed distributable profits into the red.

All banks profitable except one

During the six-month review period, all commercial banks except Laxmi Sunrise Bank remained profitable. The bank slipped into a loss of Rs 273.6 million after its profit declined by 123 percent compared to the previous year.

Nabil Bank posted the highest profit, earning Rs 4.75 billion, up 46.71 percent year-on-year.

Compared to the same period last fiscal year, profits of 11 banks increased while nine banks saw a decline in profits. In terms of growth rate, Kumari Bank recorded the highest surge, with profit jumping by 886 percent.

Nepal Bankers’ Association President and Machhapuchchhre Bank CEO Santosh Koirala said improved lending growth and recovery boosted profitability in the second quarter.

“Banks’ profits improved in the second quarter compared to the first,” he said. “This also signals a gradual recovery in economic activity.”

Commercial banks’ profits had declined by 18.77 percent in the first quarter due to sluggish economic activity, weak loan recovery, and disruptions linked to loan default movements, which had strained the sector’s financial health.

Bankers say signs of improvement have gradually emerged since mid-January.

Former banker Pashuram Kunwar Chhetri said excess liquidity limited growth in interest income, but higher fee and commission earnings helped improve banks’ financial performance.

“Fee and commission income has improved,” he said. “This suggests economic activity is gradually picking up.”

Distributable profit of nine banks turns negative

As of mid-January, the total distributable profit of commercial banks stood at a deficit of Rs 14.09 billion, despite higher overall earnings.

While 11 banks reported positive distributable profits, nine banks remained in deficit. Everest Bank posted the highest distributable profit of Rs 3.34 billion, whereas Himalayan Bank recorded a deficit of more than Rs 9 billion, according to financial statements. Despite this, Himalayan Bank has the highest dividend distribution capacity at 31.93 percent.

Banks are allowed to classify only the remaining amount as distributable profit after allocating earnings to reserves and mandatory funds. Although accrued interest can be counted as net profit, unrecovered interest must be deducted while calculating distributable profit. In addition, regulatory provisions for various risks further reduce the amount available for dividend distribution.