Mero Microfinance Reports Profit Decline in Q3 Despite Asset Growth, Operational Pressure Persists

Mero Microfinance Laghubitta Bittiya Sanstha Limited has published its unaudited financial results for the third quarter of fiscal year 2082/83, revealing a mixed performance marked by declining quarterly profit but gradual expansion in assets and lending operations. The figures suggest that while the institution continues to grow in size, profitability remains under pressure due to rising costs and sector-wide challenges.

During the review period, the company reported a net profit of NPR 148.57 million on a year-to-date basis. However, on a quarterly basis, profit stood at NPR 50.06 million, which is significantly lower compared to NPR 125.70 million recorded in the same quarter last year. This sharp decline highlights the impact of increased operating expenses and higher impairment charges on earnings.

The core strength of the microfinance institution—its lending portfolio—has continued to expand. Loans and advances to customers increased to NPR 15.56 billion from NPR 14.79 billion in the previous year. This growth indicates sustained demand for microfinance services, particularly in rural and underserved areas. Similarly, total assets rose to NPR 18.30 billion, up from NPR 15.30 billion, reflecting overall balance sheet expansion.

Interest income, the primary revenue source, showed growth and reached over NPR 1.44 billion on a year-to-date basis. However, the rise in interest expenses has narrowed net interest margins. Net interest income stood at NPR 832.31 million, indicating that while lending activity is increasing, the cost of funds remains a significant burden.

Another major pressure point is impairment charges on loans. The institution reported a notable increase in impairment expenses, which directly impacted net operating income. This suggests a rise in credit risk or cautious provisioning in line with regulatory requirements, especially amid concerns about loan repayment behavior in the microfinance sector.

Operating expenses have also surged during the period. Personnel expenses, administrative costs, and other operating expenditures collectively increased, reducing overall profitability. Despite this, the institution managed to maintain an operating profit of NPR 212.25 million on a cumulative basis, showing some resilience in its core operations.

From a capital and shareholder perspective, the company’s earnings per share (EPS) stood at NPR 13.33 (annualized), while net worth per share reached NPR 151.87. The price-to-earnings (P/E) ratio remains relatively high at around 56 times, indicating that the stock may be trading at a premium compared to its current earnings level.

On the distributable profit side, the company reported NPR 113.26 million available for distribution after necessary appropriations and regulatory transfers. This translates to a distributable profit per share of NPR 10.16, suggesting moderate capacity for future dividend distribution.

However, management has acknowledged several structural and operational challenges. Issues such as loan repayment resistance among borrowers, negative campaigns against microfinance institutions, rising competition, and lack of skilled human resources have affected overall performance. Additionally, external factors like economic slowdown and policy uncertainties continue to pose risks.

Despite these challenges, the institution remains focused on expanding financial inclusion. Currently operating across 64 districts with 149 branches, it serves over 159,000 clients. Management has emphasized plans to strengthen outreach in rural areas and adopt modern technologies to improve service delivery.

In conclusion, Mero Microfinance’s third-quarter performance reflects a phase of transition—where growth in lending and assets is evident, but profitability is being tested by rising costs and sectoral risks. The coming quarters will be crucial in determining whether the institution can stabilize margins while sustaining its expansion trajectory.