Lumbini Bikas Bank’s Profit Surges on Sharp Fall in Credit-Loss Provisioning

Kathmandu — Lumbini Bikas Bank Limited has reported a sharp increase in profit for the fiscal year 2025/26, although the improvement came largely from a steep decline in impairment charges rather than strong expansion in its lending and deposit businesses.

According to the bank’s unaudited fourth-quarter financial statement, net profit rose to Rs 851.02 million in the fiscal year ending mid-July 2026, up from Rs 241.11 million in the previous year. This represents an increase of 252.96 percent, meaning the bank earned more than three-and-a-half times the profit recorded a year earlier.

The most significant factor behind the profit surge was the reduction in impairment charges—the amount set aside to cover possible losses from loans and other financial assets. Such charges fell from Rs 778.75 million to Rs 135.04 million, a decline of about 82.7 percent. The substantially lower provisioning burden allowed a larger portion of the bank’s operating income to flow into profit.

However, the decline in impairment charges should not automatically be interpreted as a broad improvement in loan quality. The bank’s non-performing loan ratio increased from 4.71 percent to 6.94 percent, indicating that the proportion of loans facing repayment problems rose during the year. The combination of higher bad loans and lower impairment expenses means the quality of the profit growth will depend on whether the reduced provisioning resulted from recoveries, regulatory adjustments or other accounting factors disclosed in the detailed financial notes.

The bank’s core interest business recorded moderate growth. Net interest income increased by 7.53 percent to Rs 1.997 billion, from Rs 1.857 billion a year earlier. Total operating income also rose by 6.09 percent to Rs 2.281 billion.

In contrast, net fee and commission income declined by 10.55 percent to Rs 184.30 million. The fall suggests that the bank remained heavily dependent on interest-based earnings, while income from services, transactions and commissions weakened during the year.

Operating profit more than doubled to Rs 1.218 billion, compared with Rs 584.08 million in the previous fiscal year. The increase of 108.50 percent was strong, but considerably lower than the growth in net profit, further demonstrating that reduced impairment expenses were the principal driver of the final earnings increase.

Despite the sharp rise in profitability, the bank’s balance sheet showed little expansion. Deposits collected from customers declined marginally by 0.26 percent to Rs 57.44 billion, while loans and advances remained almost unchanged at Rs 47.06 billion, down by 0.02 percent. The figures indicate that the bank generated substantially higher profit without meaningful growth in its deposit base or loan portfolio.

The credit-to-deposit ratio increased from 85.45 percent to 86.63 percent, meaning a slightly larger proportion of customer deposits was deployed as loans. While this may support interest income, limited deposit growth could restrict the bank’s ability to expand lending unless it mobilises additional funding.

The bank’s base rate declined from 6.82 percent to 5.48 percent, while its interest-rate spread narrowed from 3.90 percent to 3.76 percent. A lower base rate may reduce borrowing costs for customers, but the narrowing spread could place pressure on future interest margins if funding costs do not decline proportionately.

Lumbini Bikas Bank’s distributable profit increased to Rs 615.58 million, compared with Rs 184.37 million in the previous year. Distributable earnings per share consequently rose from Rs 5.09 to Rs 16.99. The figure represents the accounting base available for possible distribution, but it should not be treated as a confirmed dividend, as any payout remains subject to regulatory adjustments, board recommendation and shareholder approval.

Earnings per share climbed to Rs 23.48, from Rs 6.65 a year earlier. Net worth per share also increased by Rs 21 to Rs 213.73, while the price-to-earnings ratio stood at 20.58.

The bank maintained paid-up capital of Rs 3.624 billion. Retained earnings increased to Rs 615.58 million, while reserves reached Rs 3.505 billion. Combined reserve and surplus rose by 26.09 percent to Rs 4.121 billion, taking total shareholders’ equity to approximately Rs 7.745 billion.

The capital fund-to-risk-weighted exposure ratio improved from 13.56 percent to 14.96 percent, strengthening the bank’s capital cushion. Nevertheless, the rise in non-performing loans remains the main area of concern. The bank’s next financial results will be important in determining whether the profit increase reflects a sustainable recovery in operations or primarily a one-year benefit from reduced impairment provisioning.