Lower Impairment Charges Lift Kamana Sewa’s Profit by 33.51 Percent

Kathmandu — Kamana Sewa Bikas Bank Limited has reported a sharp improvement in profitability for the fiscal year 2025/26, supported mainly by business expansion and a substantial decline in impairment charges.

According to the bank’s unaudited financial statement for the fourth quarter, its net profit increased to Rs 894.17 million from Rs 669.75 million in the previous fiscal year. This represents year-on-year growth of 33.51 percent, or an increase of around Rs 224.42 million.

The figures, however, indicate that the improvement in profit was driven more by a reduction in credit-related expenses than by rapid growth in core banking income. The bank’s impairment charges fell by 67.34 percent to Rs 136.54 million from Rs 418.10 million a year earlier.

The decline means the bank set aside about Rs 281.56 million less for possible loan losses compared with the previous fiscal year. This reduction made a significant contribution to the increase in both operating and net profit.

The bank’s operating profit rose by 32.87 percent to Rs 1.38 billion. The growth rate of operating profit remained broadly in line with the rise in net profit, highlighting the positive effect of lower impairment expenses on the bank’s overall financial performance.

Growth in core interest-based earnings was comparatively modest. Net interest income increased by 3.98 percent to Rs 2.41 billion, while total operating income reached Rs 2.84 billion.

The slower growth in net interest income, despite an 8.25 percent expansion in lending, suggests that lower interest rates and pressure on lending margins may have limited income growth. The bank’s base rate declined to 5.53 percent from 7.07 percent in the previous year, while its interest rate spread stood at 3.98 percent.

A falling base rate may benefit borrowers by reducing lending costs. For banks, however, it can create pressure on interest income unless the decline in funding costs is matched by stronger loan growth and effective pricing of credit risk.

The bank collected deposits worth Rs 66.18 billion by the end of the fiscal year, an increase of 5.32 percent. Loans and advances grew at a faster rate of 8.25 percent to Rs 54.21 billion.

The faster expansion of lending compared with deposits indicates that the bank used a larger portion of its available resources for credit mobilisation. Its credit-to-deposit ratio stood at 86.34 percent, showing relatively high utilisation of deposits for lending activities.

While stronger credit expansion can support future interest income, it also requires careful liquidity and loan-quality management. A continued gap between the growth of loans and deposits could place pressure on the bank’s funding position if deposit mobilisation does not accelerate.

The bank’s distributable profit stood at Rs 601.11 million, increasing by only 2.30 percent from the previous year. Distributable earnings per share amounted to Rs 15.16.

The modest growth in distributable profit compared with the 33.51 percent rise in net profit is an important point for shareholders. It indicates that the increase in accounting profit did not translate into an equally large increase in the amount available for dividend distribution.

Distributable profit was equivalent to around two-thirds of the bank’s net profit. The remaining amount may have been adjusted for regulatory requirements, reserves, previous losses or other items that cannot immediately be distributed to shareholders.

The bank’s earnings per share rose to Rs 22.75 from Rs 19.08 in the previous year. Although net profit increased by more than 33 percent, earnings per share grew by a comparatively lower rate because the bank’s paid-up capital also expanded significantly.

Paid-up capital increased by 19.97 percent to Rs 4.21 billion. As the number of shares increased alongside capital, the profit was distributed across a larger equity base, limiting the pace of growth in earnings per share.

The bank’s reserves and surplus increased by 13.01 percent to Rs 2.74 billion. The rise in reserves strengthens its capacity to absorb future losses and provides additional support for business expansion.

Its capital adequacy ratio stood at 14.16 percent of risk-weighted exposure. The figure indicates that the bank maintained a capital buffer to support its lending activities and manage financial risks.

The bank reported a net worth per share of Rs 171.01. Its price-to-earnings ratio stood at 20.84 times, meaning investors were valuing the bank’s shares at nearly 21 times its annual earnings per share.

Despite the improvement in profitability, asset quality remained an area of concern. The bank’s non-performing loan ratio increased to 3.77 percent from 3.49 percent in the previous fiscal year.

The rise of 0.28 percentage points indicates that a larger portion of the bank’s loan portfolio had stopped generating regular repayments. Although the increase appears moderate, it contrasts with the sharp decline in impairment charges.

This combination will require close attention in the coming quarters. If non-performing loans continue to rise, the bank may again need to increase provisions for possible loan losses, which could reduce future profits.

The bank has linked the pressure on loan recovery to the slowdown in economic activity and weakening repayment capacity among borrowers. The condition reflects wider challenges faced by Nepal’s banking sector, where subdued business activity has affected cash flow and debt-servicing capacity.

Overall, Kamana Sewa’s annual financial results show stronger profitability, expanding lending and an improved capital base. The decline in impairment charges provided the most significant boost to earnings, while growth in regular interest income remained limited.

For the bank to maintain the current level of profit growth, it will need to improve loan recovery, control the increase in non-performing assets and generate stronger income from its expanding credit portfolio. The sustainability of its financial performance will therefore depend not only on lower provisions but also on the quality of future lending and growth in core banking revenue.