Analyzing Standard Chartered Nepal’s Q2: Strategic Caution or a Profitability Crisis?

KATHMANDU – For years, Standard Chartered Bank Nepal (SCB) has been the gold standard for banking efficiency in Nepal. However, its second-quarter (Q2) financial results for the current fiscal year suggest that even the most seasoned international players are not immune to the domestic economic slowdown. The bank reported a 16.29% drop in net profit, falling to NPR 1.37 billion. While on the surface this looks like a setback, a deeper look at the data reveals a bank prioritizing "Safety over Scale."

The Net Interest Income Squeeze The most telling figure in SCB’s report is the 9.13% decline in net interest income.

In banking, this is the "bread and butter"—the difference between what a bank pays depositors and what it charges borrowers. The decline suggests that SCB is struggling with a narrowing "spread." As market interest rates drop, the bank has had to lower its lending rates faster than it could adjust its deposit costs, leading to a direct hit on the bottom line.

Conservative Lending: A Double-Edged Sword

The bank’s balance sheet shows a massive disconnect between its ability to collect money and its willingness to lend it. SCB holds NPR 137 billion in deposits but has only disbursed NPR 68.54 billion in loans. This gives them a Credit-to-Deposit (CD) ratio far below the regulatory ceiling of 90%. While this makes SCB the most liquid and arguably the safest bank in Nepal, it is also a "drag" on earnings. By sitting on nearly NPR 68 billion of idle cash that isn't earning interest, the bank is essentially sacrificing short-term profit for long-term stability.

Rising Risk and Impairment Charges

The report mentions a rise in impairment charges, which is the primary reason the net profit took a double-digit hit. This indicates that the bank is being proactive in setting aside money to cover potential "bad loans" (Non-Performing Loans). In an economy where businesses are struggling to repay debt, SCB’s international risk-management standards are forcing it to be more cautious than its local peers, resulting in lower reported profits today to avoid a crisis tomorrow.

Shareholder Outlook: The Dividend Factor

For the shareholders, the drop in Earnings Per Share (EPS) from NPR 32.67 to NPR 27.35 is a concern. However, with a Net Worth per share of NPR 211, the bank remains a fortress of capital. The distributable profit of NPR 91.25 crore suggests that while the dividend might be lower than last year, the bank still has the capacity to reward investors. The market currently prices SCB at a P/E ratio of 23.10, which remains higher than most local banks—a sign that investors are still willing to pay a premium for SCB’s brand and perceived safety.

The Verdict Standard Chartered Nepal is currently in "defensive mode." It is intentionally staying away from aggressive lending to avoid toxic assets. For the bank to bounce back in the next quarter, it will need to find a way to deploy its massive liquidity into high-quality projects without compromising its strict international risk appetite.