Shine Resunga’s Profit Surges 83 Percent as Loan-Loss Charges Decline

Kathmandu — Shine Resunga Development Bank reported a sharp rise in profit for the fiscal year 2082/83, helped primarily by a substantial reduction in loan-impairment charges. Although the bank expanded its lending business and strengthened its capital position, an increase in non-performing loans raises questions about whether the profit growth can be sustained.

According to the bank’s unaudited fourth-quarter financial statements, net profit reached Rs 1.18 billion, up 82.97 percent from Rs 645.6 million in the previous fiscal year. The increase was considerably higher than the growth in the bank’s regular operating income.

The bank’s net interest income increased by 6.90 percent to Rs 2.83 billion from Rs 2.64 billion. Net fee and commission income rose by a modest 3.23 percent to Rs 311.6 million, while total operating income increased by 6.39 percent to Rs 3.17 billion.

These figures indicate that the bank’s core banking revenue improved, but not at a rate sufficient to explain the nearly 83 percent rise in net profit. The main contributor was a steep fall in impairment charges—the amount set aside against possible losses from loans and other financial assets.

Impairment charges declined by approximately 78 percent, falling from Rs 950.4 million to Rs 208 million. The reduction relieved the bank of about Rs 742.4 million in provisioning expenses compared with the previous year.

As a result, operating profit climbed by 90.74 percent to Rs 1.74 billion from Rs 911.1 million. The sharp improvement shows that lower credit-loss expenses had a much greater effect on profitability than growth in interest or service-related income.

This also means the latest profit growth may not be fully repeatable. If impairment charges return to a higher level in the coming year, the bank would need stronger growth in interest income, fee income and loan recovery to maintain the same pace of earnings expansion.

The concern is reinforced by the bank’s non-performing loan ratio, which rose to 4.93 percent from 4.27 percent. The increase of 0.66 percentage points indicates that a larger share of the loan portfolio has fallen into the non-performing category.

The combination of rising non-performing loans and declining impairment charges deserves attention. The available figures do not establish whether the decline resulted from recoveries, adjustments, changes in the classification of loans or unusually high provisions in the previous year. A clearer assessment will require the bank’s audited statements and detailed disclosures on loan-loss coverage.

The improvement in accounting profit was not fully reflected in the amount available for distribution to shareholders. Distributable profit increased by 26.63 percent to Rs 846.5 million, substantially below the 82.97 percent growth in net profit.

Distributable earnings per share rose to Rs 16.86 from Rs 13.71. This suggests that the bank’s dividend-paying capacity has improved, but investors should not assume that the entire amount will be distributed. Any dividend will remain subject to the bank’s capital requirements, regulatory adjustments, board recommendation and shareholder approval.

The bank’s earnings per share increased from Rs 13.24 to Rs 23.52, representing growth of about 77.6 percent. The improvement came despite a 3 percent rise in paid-up capital to Rs 5.02 billion, meaning profit expanded much faster than the number of shares used to calculate earnings per share.

Net worth per share also increased to Rs 159.48 from Rs 151.42. The bank reported a price-to-earnings ratio of 17.64, meaning its market valuation was equivalent to around 17.6 times its annual earnings at the reporting date. However, the ratio alone does not determine whether the shares are expensive or inexpensive, particularly when a large part of the profit increase came from lower impairment charges.

Shine Resunga continued to expand its banking business during the year. Customer deposits rose by 8.48 percent to Rs 77.85 billion from Rs 71.77 billion. Loans and advances increased at a faster rate of 11.18 percent, reaching Rs 63.27 billion from Rs 56.91 billion.

Because lending grew faster than deposits, the credit-to-deposit ratio increased to 84.18 percent from 82.60 percent. The rise indicates that the bank used a greater proportion of its deposit resources for lending.

Faster credit growth can support interest income, but it also reduces the bank’s liquidity cushion and increases the importance of maintaining stable deposit growth. If deposits do not keep pace with lending, the bank may face higher funding costs or have less flexibility to expand credit further.

The bank’s total assets increased from Rs 80.35 billion to Rs 87.70 billion, an expansion of around 9.1 percent. Its reserves and surplus rose by 19.11 percent to Rs 2.99 billion, supported by retained earnings of Rs 846.5 million and other reserves of Rs 2.14 billion.

The capital fund-to-risk-weighted exposure ratio improved to 13.70 percent from 12.55 percent. The increase provides the bank with a stronger capital buffer to absorb unexpected losses and support further business growth.

However, the adequacy of that buffer will also depend on future loan quality. Continued growth in non-performing loans could increase risk-weighted assets and require the bank to set aside additional provisions, placing pressure on both capital and profitability.

The bank’s base rate declined to 5.38 percent from 6.41 percent, a reduction of 1.03 percentage points. A lower base rate can make loans more affordable and potentially support credit demand, but it may also reduce the yield earned from new lending.

The interest-rate spread narrowed slightly to 4.01 percent from 4.18 percent. Despite the narrower spread, net interest income increased because the bank expanded its volume of loans and other interest-earning assets.

Overall, Shine Resunga’s fourth-quarter results show a substantial improvement in reported profit, earnings per share, distributable income and capital strength. Its expanding deposit and loan portfolios also demonstrate continued growth in business volume.

The principal weakness is the quality of that profit growth. Core operating income rose by only 6.39 percent, while the decline in impairment charges was responsible for much of the increase in the bottom line. At the same time, the non-performing loan ratio moved upward.

The bank’s performance in the new fiscal year will therefore depend less on repeating the benefit of lower provisions and more on improving loan recovery, controlling new defaults, maintaining deposit growth and generating stronger recurring income. Unless asset quality improves, the exceptional profit growth reported this year may be difficult to sustain.