Nabil Bank’s Profit Jumps 33.5 Percent, but Lower Credit-Loss Expenses Drive Much of the Gain

Kathmandu — Nabil Bank Limited reported a net profit of Rs 7.91 billion for the fiscal year 2025/26, an increase of 33.50 percent from Rs 5.92 billion in the previous year. Its unaudited fourth-quarter financial statement shows broad growth across profit, deposits, lending, assets and distributable earnings.

The headline profit growth is strong, but the underlying figures show that a substantial part of the improvement came from a decline in credit-loss expenses rather than an equally rapid expansion in core banking income.

The bank’s net profit increased by approximately Rs 1.98 billion during the year. Over the same period, its impairment charge fell by Rs 1.53 billion—from Rs 4.20 billion to Rs 2.67 billion. The reduction in the amount set aside against possible loan losses therefore explains a large part of the increase in earnings.

Lower impairment expenses provide an immediate boost to profit because less income is absorbed by provisions against risky or potentially unrecoverable loans. However, such gains may not be repeated every year. Sustainable profit growth will require the bank to expand interest income, fee-based revenue and operating efficiency while keeping new credit losses under control.

Interest income grows, but more slowly than profit

Nabil Bank’s net interest income rose from Rs 16.32 billion to around Rs 17.01 billion, representing growth of approximately 4.2 percent. The increase confirms that its core lending and deposit business continued to generate additional income, but the pace was modest compared with the 33.5 percent rise in net profit.

The difference between the growth rates indicates that the bank’s improved annual result was not driven primarily by a sharp expansion in the spread between lending and deposit income. Lower impairment expenses and expense management appear to have played a more decisive role.

Nepal’s banking sector has been operating in an environment of declining interest rates, abundant liquidity and subdued demand for private-sector credit. Under such conditions, banks face pressure on their net interest margins as they compete to lend available funds at lower rates.

A bank can offset this pressure by expanding its loan portfolio, reducing funding costs or increasing non-interest income. Nabil’s double-digit credit growth helped support its interest earnings, but the limited rise in net interest income suggests that lower rates continued to restrict the return generated from each unit of lending.

The bank’s operating profit increased by 25.22 percent, from Rs 9.24 billion to Rs 11.56 billion. This rise was considerably stronger than the growth in net interest income, again showing the importance of lower impairment costs and tighter management of expenses.

Distributable profit strengthens dividend prospects

Nabil reported Rs 4.69 billion in distributable profit after regulatory adjustments. Including accumulated earnings from the previous year, total distributable profit reached Rs 5.17 billion.

Distributable earnings attributable to ordinary shareholders stood at Rs 19.10 per share. This provides the bank with a stronger basis for paying dividends than in the previous year.

The figure should not, however, be treated as a confirmed dividend rate. The final distribution will depend on the audited financial statements, capital adequacy requirements, regulatory adjustments, Nepal Rastra Bank’s approval and the decision of the bank’s annual general meeting.

The bank may also choose to retain part of its distributable earnings to support future credit expansion, technology investment or additional protection against loan losses. A high distributable profit indicates capacity, but it does not require the bank to distribute the full amount.

Nabil’s earnings per share stood at Rs 28.36, while net worth per share reached Rs 247.28. At a reported price-to-earnings ratio of 18.86 times, investors were valuing the bank at a substantial multiple of its annual earnings.

Such a valuation reflects expectations regarding profitability, dividend payments, market position and future growth. It also means the share price could become more sensitive if earnings growth weakens or credit quality deteriorates.

Deposits and lending record double-digit expansion

Customer deposits increased by 12.95 percent to Rs 592.55 billion, up from approximately Rs 524.65 billion a year earlier. The bank consequently added nearly Rs 68 billion in customer deposits during the fiscal year.

Loans and advances expanded by 12 percent to Rs 460.31 billion. The broadly similar rates of deposit and credit growth suggest that Nabil maintained a relatively balanced expansion of its funding and lending operations.

A simple comparison shows that loans were equivalent to around 77.7 percent of customer deposits at the end of the review period. This is not the official regulatory credit-to-deposit ratio, which follows Nepal Rastra Bank’s prescribed calculation, but it provides a broad indication of how the deposit base was being deployed.

Unlike banks where deposits have grown far more rapidly than credit, Nabil appears to have converted a significant portion of its additional funding into loans. This can support interest income, provided the new lending is directed towards borrowers with adequate repayment capacity.

Rapid credit expansion carries a second-order risk. Lending more during a period of weak economic activity can increase future defaults if credit standards are relaxed merely to use excess liquidity. The quality of the new loan portfolio will therefore be as important as its rate of growth.

The bank’s total assets rose by 15.38 percent, from Rs 636.78 billion to Rs 734.73 billion. The increase of nearly Rs 98 billion indicates substantial balance-sheet expansion.

Asset growth above the rate of loan growth suggests that investments, liquid assets, placements or other balance-sheet items also increased. These assets may strengthen liquidity and reduce concentration risk, but they generally produce lower returns than well-performing commercial loans.

Additional Tier 1 capital strengthens loss-absorption capacity

During the review period, Nabil issued Rs 5 billion worth of 8 percent perpetual non-cumulative preference shares. The issuance comprised 50 million shares with a face value of Rs 100 each and was recognised as additional Tier 1 capital.

Unlike an ordinary fixed-term borrowing, a perpetual capital instrument does not have a conventional maturity date. The non-cumulative feature means unpaid dividends do not automatically accumulate as a future obligation in the same manner as cumulative preference dividends.

Recognition as additional Tier 1 capital strengthens the bank’s regulatory capital position and increases its capacity to absorb unexpected losses. It also creates room for further asset and credit expansion without immediately breaching capital adequacy requirements.

The instrument is not cost-free. The bank must generate sufficient returns on the additional capital to cover its 8 percent dividend expectation and prevent dilution of returns available to ordinary shareholders.

If the added capital supports productive lending and profitable growth, it can improve long-term earnings. If it remains underused because of weak credit demand, it may reduce capital efficiency and place pressure on return on equity.

The bank reported paid-up capital of Rs 32.06 billion and total equity of Rs 71.91 billion. The sizeable equity base provides a substantial cushion against financial shocks, but it also raises the amount of profit required to maintain attractive shareholder returns.

Gross bad loans remain elevated despite lower net exposure

Nabil’s non-performing loan ratio stood at 4.20 percent, while net non-performing assets were limited to 0.58 percent. The wide difference between the two figures suggests that provisions and other eligible adjustments cover a significant portion of the bank’s problematic loans.

The low net NPA ratio is reassuring because it indicates that the bank’s residual exposure after provisions is considerably smaller than its gross non-performing loan level. However, a gross NPL ratio above 4 percent remains material and should not be overlooked.

Non-performing loans do not generate regular interest income and require additional recovery efforts, legal processes and management attention. They can also produce new provisioning expenses if the value of collateral falls or borrowers’ financial conditions deteriorate further.

The decline in impairment charges should therefore be interpreted alongside the gross NPL figure. Lower annual provisioning is positive, but a durable improvement in asset quality would be clearer if the gross non-performing loan ratio also declined over successive reporting periods.

The bank said it maintained provisions according to the higher of the expected credit loss calculated under the relevant financial-reporting standard and the amount required under Nepal Rastra Bank’s prudential rules.

This approach provides an additional buffer against potential defaults. It may reduce reported and distributable profit in the short term, but it protects depositors and shareholders from the risk of understated credit losses.

Digital expansion creates both efficiency and security demands

Nabil said it would continue expanding digital banking through platforms including DigiBank. The bank has invested in information-technology infrastructure, process automation, cybersecurity, data protection and internal control systems.

Digitalisation can reduce transaction costs, shorten service-delivery times and generate additional fee income. It can also allow the bank to serve customers without expanding its physical network at the same rate as its balance sheet.

The strategy carries significant operational risks. As more transactions move online, the bank becomes more exposed to phishing, account takeover, payment fraud, data theft, ransomware and system outages.

Technology investment must therefore extend beyond customer-facing applications. It requires continuous threat monitoring, secure software development, strong authentication, employee training, data-recovery systems and clear procedures for responding to cyber incidents.

A major digital failure could impose financial losses and damage customer confidence even if the bank’s conventional credit and capital indicators remain strong.

Weak credit demand remains an economic constraint

Nabil identified weak economic growth, limited credit demand, non-performing loan management, liquidity fluctuations and interest-rate risk as major internal challenges. It also cited geopolitical uncertainty, low government capital expenditure and rising cyber risks as external concerns.

The bank’s double-digit loan growth suggests it performed better than the broader narrative of weak credit demand might imply. However, sustained lending expansion will depend on whether Nepal’s private sector develops sufficient viable investment opportunities.

Lower interest rates alone cannot produce a durable credit cycle. Businesses borrow when they expect stronger demand, stable policies, timely public spending and adequate returns on investment.

Slow government capital expenditure affects banks indirectly by delaying payments, weakening demand for construction and industrial inputs and reducing private-sector cash flows. These effects can simultaneously suppress new borrowing and weaken repayment capacity among existing borrowers.

Nabil plans to address these risks through asset-liability management, cost control, increased non-interest income, further digital investment and employee-capacity development.

Strong recovery, but earnings quality requires continued scrutiny

Nabil Bank’s financial statement presents one of the stronger headline performances among major commercial banks. Net profit rose by more than one-third, operating profit improved, deposits and lending expanded at double-digit rates, and distributable earnings strengthened.

The additional Tier 1 capital has also increased the bank’s capacity to absorb losses and support further growth. Its low net NPA ratio indicates that provisions cover a large share of identified problem loans.

The performance is not without qualifications. Approximately three-quarters of the increase in net profit was matched by the decline in impairment expenses, while net interest income grew by only about 4.2 percent. Gross non-performing loans remained above 4 percent, and the larger capital base will require stronger future earnings to preserve shareholder returns.

The quality of Nabil’s performance in the coming year will therefore depend on whether it can sustain loan growth without creating new bad debts, generate stronger recurring interest and fee income, and convert its expanded capital base into profitable assets.

The latest figures show a financially stronger bank, but lasting improvement will be confirmed only when profit growth is increasingly driven by recurring business income rather than lower credit-loss provisions.