NMB Bank’s Profit Jumps 40.6 Percent, but Rising Bad Loans Cloud Strong Earnings Growth

Kathmandu — NMB Bank Limited reported a sharp improvement in earnings in the fiscal year 2082/83, supported by higher interest income, stronger fee-based revenue and continued expansion of deposits and lending. However, the rise in non-performing loans indicates that the bank’s asset quality remains under pressure despite the improvement in profitability.

According to the bank’s unaudited financial statements for the fourth quarter, its net profit increased to Rs 4.01 billion from Rs 2.85 billion in the previous fiscal year. This represents year-on-year growth of 40.60 percent. The increase is significant because profit expanded considerably faster than the bank’s core income and overall business volume, suggesting improved operating performance as well as the possible effect of lower impairment pressure or better management of expenses and recoveries.

The bank’s net interest income—the difference between interest earned from loans and investments and interest paid to depositors—rose by 17.52 percent to Rs 9.42 billion. It had recorded net interest income of Rs 8.02 billion in the previous year. The increase shows that the bank was able to earn more from its interest-bearing assets despite continued competition among banks for deposits and quality borrowers.

Income from fees and commissions also increased from Rs 2.14 billion to Rs 2.59 billion, a rise of about 21 percent. This category includes revenue generated from services such as remittances, card transactions, guarantees, digital banking, trade finance and other banking operations. Growth in non-interest income is important because it reduces excessive dependence on lending spreads, which can fluctuate with interest rates and regulatory changes.

NMB Bank’s operating profit increased by 29.06 percent to Rs 6.11 billion. Although operating profit grew strongly, it remained below the growth rate of net profit. This indicates that factors occurring after the operating-profit stage, including taxation, loan-loss provisions, recoveries or regulatory adjustments, may also have contributed to the faster rise in the bottom line.

After regulatory provisions and adjustments, the bank reported total distributable profit of Rs 1.87 billion. Once the amount attributable to permanent non-cumulative preference shareholders was deducted, Rs 1.75 billion remained available for ordinary shareholders. The distributable profit per ordinary share stood at Rs 9.08.

The difference between reported net profit and distributable profit is substantial. Although the bank earned more than Rs 4 billion in net profit, less than half of that amount was available for distribution after regulatory reserves, prior-year adjustments and preference-share considerations. Therefore, the increase in accounting profit should not automatically be interpreted as an equivalent increase in the dividend-paying capacity of the bank.

NMB Bank also recorded steady growth in its balance sheet. Customer deposits increased from Rs 280.92 billion to Rs 315.12 billion, an expansion of Rs 34.20 billion, or approximately 12.2 percent. Loans and advances to customers rose from Rs 228.45 billion to Rs 249.80 billion, representing growth of around 9.3 percent.

Deposits grew faster than lending during the year. Based on the reported customer deposit and loan figures, the loan-to-deposit ratio declined from roughly 81.3 percent to about 79.3 percent. This suggests that the bank expanded its funding base more rapidly than its credit portfolio. The development may provide the bank with additional liquidity and room for future lending, but it could also limit profitability if surplus funds cannot be deployed in adequately yielding assets.

The bank’s total assets increased from Rs 351.59 billion to Rs 397.38 billion, a rise of about 13 percent. The pace of asset growth was higher than loan growth, indicating that part of the additional resources may have been placed in investments, liquid assets or other balance-sheet items rather than being used entirely for new credit.

The bank had paid-up capital of Rs 22.28 billion, while its reserves reached Rs 15.77 billion. It also issued Rs 3 billion worth of permanent non-cumulative preference shares carrying an 8.25 percent dividend rate. The instrument has been recognised as additional Tier-1 capital, strengthening the bank’s capacity to absorb unexpected losses and comply with regulatory capital requirements.

Following the issuance, NMB Bank’s total capital adequacy ratio stood at 12.73 percent. Its Common Equity Tier-1 ratio was 8.99 percent, while the overall Tier-1 capital ratio reached 9.90 percent. These ratios remained above the minimum levels prescribed by Nepal Rastra Bank, providing the bank with a regulatory buffer.

The additional capital improves the bank’s ability to withstand financial shocks and support future business expansion. However, preference capital is not cost-free. Preference shareholders receive priority over ordinary shareholders in dividend distribution, which may reduce the portion of distributable earnings available to common shareholders.

Despite strong income and profit growth, the deterioration in loan quality remains the most important concern in the financial results. The bank’s non-performing loan ratio increased from 4.11 percent to 4.91 percent. This rise of 0.80 percentage points means that nearly five rupees out of every Rs 100 in the bank’s loan portfolio were classified as non-performing at the end of the fiscal year.

The increase in bad loans was faster than the growth of the overall credit portfolio. This indicates that the problem was not simply caused by the expansion of lending. It reflects continuing repayment difficulties among borrowers at a time when Nepal’s economy has faced weak domestic demand, subdued business activity, pressure in the construction and real-estate sectors, and slower recovery in several industries.

NMB Bank said it maintained potential loan-loss coverage of 92.57 percent. A high coverage level provides protection against possible losses if borrowers fail to repay their obligations. Nevertheless, the figure does not eliminate the underlying asset-quality problem. If non-performing loans continue to rise, the bank may need to allocate more income to impairment provisions, which would reduce future profitability and distributable earnings.

The bank has stated that it follows the expected credit-loss requirements under the Nepal Financial Reporting Standards-9 framework. Under the arrangement, it provides for credit losses based on whichever amount is higher between the expected-loss calculation and the regulatory requirement. This is intended to ensure that potential deterioration in credit quality is recognised before an actual default loss is fully realised.

Management has identified rising operating expenses, difficulty in retaining skilled employees, political uncertainty, weak economic activity, fluctuating liquidity and increasingly difficult loan recovery as key challenges. Nepal’s continued presence on the Financial Action Task Force’s grey list has also increased the importance of stronger anti-money-laundering controls, customer verification and regulatory compliance across the banking sector.

In response, the bank plans to strengthen loan recovery by deploying specialised personnel at the provincial level. It also intends to control operating costs, expand digital services and focus future lending on energy, agriculture, manufacturing and retail customers. These sectors may offer long-term opportunities, although lending expansion will need to be balanced against credit concentration and repayment risks.

Overall, NMB Bank’s financial statements present a mixed but largely improved performance. The strong rise in net profit, interest income, fee revenue and operating profit shows that the bank’s earnings capacity strengthened during the year. Deposit growth, additional Tier-1 capital and capital ratios above the regulatory minimum have also improved its financial foundation.

The central weakness is the increase in non-performing loans. Unless the bank improves recovery and prevents further deterioration in newly issued credit, rising provisions could weaken future earnings. NMB Bank has therefore entered the new fiscal year with stronger profitability and capital, but its ability to convert that strength into sustainable shareholder returns will depend largely on controlling bad loans, maintaining credit discipline and using its expanded deposit base efficiently.