ADBL Profit Drops 29.5 Percent as Higher Credit Provisions Weigh on Earnings

Kathmandu — Agricultural Development Bank Limited’s profitability weakened in the fiscal year 2082/83 despite a notable expansion in deposits and lending. According to the bank’s unaudited fourth-quarter financial statement, net profit fell by 29.52 percent to Rs 2.63 billion, compared with Rs 3.73 billion in the previous fiscal year.

The decline indicates that growth in the bank’s overall business volume did not translate into stronger earnings. While deposits and loans increased at double-digit rates, pressure on interest income, operating profit and credit-loss expenses reduced the bank’s bottom line.

Net interest income, the bank’s main source of operating revenue, declined by 3.45 percent to Rs 9.12 billion from Rs 9.45 billion a year earlier. The fall is relatively modest compared with the decline in net profit, suggesting that weaker interest income was not the only factor affecting profitability. Nevertheless, the decrease points to pressure on the bank’s interest spread, possibly because of lower lending rates, higher deposit costs or a combination of both.

Operating profit dropped more sharply, falling by approximately 24.32 percent to Rs 3.94 billion from Rs 5.21 billion in the previous year. This shows that the bank’s earnings weakened before the final calculation of net profit. The decline may reflect higher impairment expenses, operating costs or weaker income from activities outside regular interest-based banking.

The most significant pressure came from the rise in loan-loss provisions. The bank set aside Rs 1.72 billion against potential credit losses during the year, up from Rs 630.7 million in the previous fiscal year. This represents an increase of about 172 percent.

Higher provisioning does not automatically mean that the same amount of loans has become unrecoverable. Banks are required to make provisions when loans show signs of deterioration or when regulatory rules demand additional safeguards. However, such a steep rise indicates that credit-risk costs increased substantially during the year and absorbed a large part of the bank’s operating income.

The available figures do not include the bank’s non-performing loan ratio or detailed loan classification. It is therefore not possible to determine from provisioning alone whether the bank’s overall asset quality deteriorated significantly. Still, the increase is an important warning indicator because continued growth in provisions could keep profitability under pressure in the coming quarters.

The contraction was even more pronounced in distributable earnings, which determine the bank’s capacity to provide dividends to ordinary shareholders. After regulatory adjustments, net distributable profit stood at Rs 572.6 million, down from Rs 2.43 billion in the previous year. This amounts to a decline of about 76.47 percent.

After adjusting retained earnings and previous cash-dividend payments, the bank reported total distributable profit of Rs 1.26 billion. Distributable profit per ordinary share stood at Rs 6.54. The figure indicates that the bank still has some capacity to distribute returns, but the sharp reduction in distributable earnings limits the room for a large cash dividend. The final dividend will, however, depend on the audited accounts, the decision of the board and approval from Nepal Rastra Bank.

Despite weaker earnings, the bank recorded strong balance-sheet growth. Customer deposits rose by 18.36 percent to Rs 347.21 billion from Rs 293.58 billion. In absolute terms, the bank added around Rs 53.63 billion in deposits during the year.

Loans and advances increased by 16.24 percent to Rs 247.14 billion from Rs 212.67 billion. The bank therefore expanded its lending portfolio by approximately Rs 34.47 billion. The simultaneous rise in deposits and loans suggests that ADBL continued to expand its core banking operations even as profitability declined.

Deposit growth was faster than credit growth, causing the ratio of customer loans to customer deposits to decline from about 72.44 percent to 71.18 percent. This suggests that the bank maintained a relatively comfortable funding position and had more deposit resources available compared with its lending volume.

However, this simple loan-to-deposit comparison should not be treated as the bank’s official regulatory credit-to-deposit ratio, as the calculation of that ratio includes additional regulatory components. It nevertheless shows that liquidity pressure was not the main visible weakness in the reported figures.

The bank’s total paid-up capital stood at Rs 19.74 billion, comprising Rs 14.30 billion in ordinary share capital and Rs 5.43 billion in preference share capital. Reserves and retained earnings lifted total equity to Rs 38.90 billion, providing the bank with a sizeable capital base to absorb financial risks and support future business expansion.

Overall, ADBL’s annual results present a mixed picture. Deposit mobilisation and lending remained strong, while the bank’s capital and funding positions appeared stable. However, falling net interest income, lower operating profit and sharply higher loan-loss provisions weakened net profit and significantly reduced distributable earnings.

The key issue for the bank in the coming fiscal year will be whether it can convert its expanded deposit and credit base into sustainable earnings. Improvement will depend largely on controlling credit risk, recovering stressed loans, maintaining a healthy interest spread and limiting further increases in impairment expenses.