KHATMANDU: Profit growth of commercial banks in the first quarter of this fiscal year slowed down heavily compared to the corresponding period of the previous fiscal. Commercial banks achieved profit growth of 3.06 per cent in the review period compared to around 45 per cent in the first quarter of the previous fiscal.
Commercial banks had generated attractive profit in the first quarter of previous fiscal as the banks were following an aggressive lending policy along with the regulatory introduced by the central bank to raise paid-up capital by the end of last fiscal. However, the banking industry faced a crisis of loanable funds due to aggressive lending policy by the middle of last fiscal, which ultimately exerted pressure on them to maintain the credit cum core capital to deposit (CCD) ratio.
Banks started collecting deposits at a higher interest rate to maintain CCD as well as for loan expansion. However, they had to slow down their lending as the cost of deposits shot up. On the other hand, demand for loans also came down due to the high interest rates of the banks, which ultimately hurt the profit of the commercial banks, according to bankers.
The profit generated by banks plunged heavily when Nepal Rastra Bank (NRB) raised the paid-up capital requirement of the banks from Rs two billion to Rs eight billion. By expanding the capital base of the banks, the central bank had expected that the resilience of the banks would be strengthened and their lending capacity would also improve.