Kumari Bank Profit Jumps Nearly Fourfold, but Rising Bad Loans Remain a Concern

Kathmandu — Kumari Bank Limited has reported a sharp improvement in profitability for the last fiscal year, with net profit rising nearly fourfold. The bank earned Rs 7.39 billion in net profit during the year, compared with Rs 1.88 billion in the previous fiscal year, representing an increase of about 293 percent.

The scale of the profit growth is significant, but the bank’s underlying income figures show that the improvement did not come from rapid expansion in its core interest business alone. Net interest income increased only moderately, from Rs 11.62 billion to Rs 12.01 billion, or about 3.4 percent.

Income from fees and commissions showed stronger growth. Net fee and commission income increased from Rs 2.66 billion to Rs 3.05 billion, an increase of about 14.5 percent. Total operating income also rose by 7.66 percent to Rs 16.36 billion from Rs 15.19 billion a year earlier.

In contrast to the relatively moderate growth in operating income, operating profit more than doubled to Rs 11.24 billion from Rs 5.59 billion. This wide difference between revenue growth and profit growth suggests that factors beyond ordinary income expansion played an important role in improving the bank’s bottom line.

The published figures alone, however, are not sufficient to determine precisely how much of the improvement resulted from lower impairment charges, recovery of previously stressed loans, provisioning adjustments, cost management or other accounting factors. A detailed assessment of the bank’s notes to the financial statements would therefore be necessary before concluding that the entire rise in profit represents an equally strong improvement in recurring earnings.

The improvement was also reflected in earnings per share. Kumari Bank’s EPS increased to Rs 28.17 from Rs 6.94 in the previous year. This means earnings attributable to each share more than quadrupled during the year.

Another notable change was seen in distributable profit. The bank had reported a negative distributable profit of Rs 3.85 billion in the previous fiscal year. It has now turned positive at Rs 791.6 million.

The return to positive distributable profit is important because accounting profit and the amount actually available for distribution to shareholders are not the same. Despite reporting Rs 7.39 billion in net profit, the bank has only Rs 791.6 million in distributable profit based on the figures provided.

In other words, distributable profit is equivalent to only about 11 percent of the reported net profit. This suggests that the large increase in accounting earnings should not automatically be interpreted as an indication that the bank has an equally large capacity to pay dividends. Dividend distribution will also depend on regulatory requirements, reserves, capital adequacy and other adjustments applicable to banks.

Kumari Bank also expanded its balance sheet during the year, although deposits grew considerably faster than lending. Customer deposits increased by about 10.4 percent to Rs 402.73 billion from Rs 364.63 billion.

Loans and advances to customers, however, increased by only about 4.1 percent, reaching Rs 270.92 billion from Rs 260.32 billion. The difference indicates that the bank mobilised deposits at a considerably faster pace than it expanded its loan portfolio.

Based on these figures, customer loans represented roughly 67 percent of deposits at the end of the latest fiscal year, compared with around 71 percent a year earlier. Although this is not the regulatory credit-to-deposit calculation, the simple comparison indicates that the bank’s deposit base expanded more rapidly than its customer lending.

This could provide the bank with greater room for future credit expansion if credit demand improves and suitable borrowers are available. At the same time, slower loan growth may also reflect a cautious lending strategy at a time when asset quality remains a concern across parts of the banking sector.

The bank’s total assets increased from about Rs 441 billion to Rs 490 billion, an expansion of around 11 percent. Its reserve fund also rose strongly, increasing by about 20.6 percent to Rs 17.77 billion from Rs 14.74 billion.

The stronger reserve position adds to the bank’s financial buffer. Its paid-up capital stood at Rs 26.23 billion, while net worth per share was reported at Rs 170.80.

Despite the improvement in profit and reserves, asset quality remains the most visible weak point in the financial statement. The bank’s non-performing loan ratio increased to 7.46 percent from 6.95 percent in the previous year.

The rise of 0.51 percentage point in the NPL ratio is important because it came even as the bank reported a substantial increase in profit. A higher NPL ratio means a larger proportion of the loan portfolio is under stress, potentially increasing future provisioning requirements and placing pressure on earnings if loan recovery does not improve.

This creates a mixed picture of the bank’s performance. On one side, Kumari Bank has sharply increased profit, restored distributable earnings to positive territory, improved EPS, expanded deposits and strengthened reserves. On the other, credit growth remained relatively modest and the proportion of bad loans moved further upward.

The key question for the bank in the coming quarters will therefore be whether it can convert the current profit recovery into sustainable earnings while improving the quality of its loan book.

If the bank is able to reduce non-performing loans, recover stressed assets and deploy its growing deposit base into quality lending, the improvement reported this year could become more durable. But if bad loans continue to rise, additional provisioning could again weigh on future profitability.

For investors, the financial statement therefore offers more than the headline figure of a 293 percent increase in profit. The turnaround in distributable profit and the rise in EPS are encouraging indicators, but the increase in NPLs and the relatively modest growth in core interest income mean the quality and sustainability of earnings will remain equally important to watch.