Siddhartha Bank’s Profit Growth Remains Modest Despite Strong Expansion in Deposits and Revenue

Kathmandu — Siddhartha Bank Limited reported a modest increase in net profit for the fiscal year 2082/83, even as its interest income, fee-based revenue and deposit base expanded at stronger rates. The bank’s unaudited fourth-quarter financial statements present a mixed picture: core income improved and liquidity strengthened, but distributable profit declined and the proportion of non-performing loans increased.

The bank earned a net profit of Rs 3.52 billion during the fiscal year, up 4.54 percent from Rs 3.37 billion in the previous year. In absolute terms, its annual profit increased by around Rs 152.8 million.

The growth in net profit was considerably slower than the expansion in operating income. This suggests that higher expenses, credit-loss provisions, taxes or other adjustments absorbed a significant portion of the additional revenue generated during the year. A precise explanation would require detailed expense and impairment figures from the bank’s full financial statements.

Core banking income improves

Net interest income increased by 7.24 percent, rising from Rs 8.44 billion to Rs 9.05 billion. The bank generated approximately Rs 611.4 million more in net interest income than in the previous fiscal year.

Net interest income represents the difference between interest earned from loans and investments and interest paid to depositors and other funding sources. Its growth indicates that Siddhartha Bank expanded its interest-earning assets or managed its funding costs effectively despite declining market interest rates.

Fee and commission income recorded a stronger increase. It rose by approximately 17.7 percent, from Rs 1.58 billion to Rs 1.86 billion. This means the bank added about Rs 280.4 million in revenue from services such as card transactions, digital banking, trade finance, guarantees, remittances and account-related activities.

The faster growth in fee income is positive because it diversifies the bank’s revenue sources. Banks that rely heavily on interest spreads can face pressure when lending rates decline or competition for quality borrowers intensifies. Growth in service-based income can provide a more stable source of earnings.

Total operating income increased by 8.59 percent to Rs 12.05 billion. However, operating profit rose by only 3.78 percent, reaching Rs 5.16 billion from Rs 4.97 billion.

The slower growth in operating profit compared with operating income suggests that the bank’s operating costs or provisioning requirements increased faster than revenue. It indicates that although the bank generated more business, only a limited portion of the additional income was converted into profit.

Distributable profit declines

Despite the increase in reported net profit, distributable profit declined by 7.19 percent. It fell from Rs 1.84 billion to Rs 1.71 billion, a reduction of approximately Rs 132.2 million.

This distinction is important for shareholders. Net profit measures the bank’s accounting earnings, while distributable profit represents the amount potentially available for dividends after regulatory reserves, loan-loss adjustments and other mandatory appropriations.

The decline means the improvement in headline profit did not translate into stronger dividend-paying capacity. Based on the year-end paid-up capital, distributable earnings were equivalent to approximately Rs 9.32 per share. This is a measure of potential capacity rather than a guaranteed dividend rate.

Any actual dividend will depend on the bank’s capital position, regulatory requirements, the board’s recommendation, Nepal Rastra Bank’s approval and the decision of the annual general meeting.

EPS shows only marginal improvement

The bank’s earnings per share increased slightly from Rs 22.76 to Rs 23.06. The increase of 30 paisa represents growth of only about 1.3 percent, lower than the 4.54 percent rise in total net profit.

The limited improvement in EPS reflects the expansion of the bank’s share capital. Following the distribution of bonus shares, paid-up capital increased from Rs 14.09 billion to Rs 18.29 billion—an increase of nearly 30 percent.

When additional shares are issued, the bank’s profit is distributed across a larger number of shares. As a result, total profit may rise while earnings attributable to each share improve only marginally.

The relationship between the reported capital increase and EPS should nevertheless be interpreted carefully. Depending on the timing of the bonus-share adjustment, the bank may have used a weighted average number of shares or restated the previous year’s EPS for comparison.

Deposits grow much faster than lending

Siddhartha Bank recorded strong growth in customer deposits. Deposits increased by approximately 16.66 percent, rising from Rs 280.32 billion to Rs 327.02 billion.

The bank added nearly Rs 46.70 billion in deposits during the year. This is substantially larger than the increase in its loan portfolio and indicates that the bank strengthened its funding and liquidity base.

Loans and advances increased by about 9.05 percent, from Rs 214.46 billion to Rs 233.87 billion. The bank expanded credit by approximately Rs 19.42 billion during the year.

Because deposits grew faster than loans, the ratio of customer loans to customer deposits declined from approximately 76.5 percent to 71.5 percent. This calculation is based on the disclosed customer deposit and loan figures and is not necessarily identical to the regulatory credit-to-deposit ratio.

A lower loan-to-deposit ratio generally gives a bank more liquidity and additional capacity to extend credit. It also reduces immediate dependence on expensive wholesale funding.

However, excessive growth in deposits without corresponding credit expansion can create another problem. Deposits carry interest costs, and if the bank cannot deploy the additional funds into sufficiently productive loans or investments, surplus liquidity may weaken interest margins and overall profitability.

Lower base rate could support credit demand

The bank’s base rate declined from 6.42 percent to 5.02 percent, a reduction of 1.40 percentage points. This represents a relative decline of nearly 22 percent.

A lower base rate can reduce borrowing costs for customers and help stimulate demand for housing, business and personal loans. It may therefore support future credit expansion.

For the bank, however, falling lending rates can compress returns from new loans. The financial effect will depend on whether deposit costs decline at a similar or faster pace and whether the bank can compensate for narrower margins through higher lending volumes and fee income.

Non-performing loans rise from a low base

The bank’s non-performing loan ratio increased from 0.66 percent to 1.06 percent. The deterioration amounts to 0.40 percentage points, or a relative increase of around 61 percent.

The ratio remains low compared with institutions carrying substantially larger bad-loan burdens. Nevertheless, the direction of movement is negative and should not be dismissed merely because the final figure is close to 1 percent.

A rising NPL ratio means a larger proportion of borrowers are failing to make repayments according to the agreed schedule. If the trend continues, the bank may need to allocate more money for expected credit losses, reducing future operating profit and distributable earnings.

The increase is particularly relevant because Siddhartha Bank expanded lending by more than Rs 19 billion during the year. The bank will need to ensure that new credit growth does not weaken underwriting standards or create additional repayment problems in subsequent periods.

Capital base expands substantially

Following the bonus-share distribution, the bank’s paid-up capital reached Rs 18.29 billion. It also held approximately Rs 16.92 billion in reserves.

The larger capital and reserve base strengthens the bank’s ability to absorb unexpected losses and provides room for future business expansion. It is also important as banks must maintain minimum capital levels against the risk associated with their loans and investments.

However, a larger capital base raises the amount of profit required to maintain returns on equity and per-share earnings. Unless profit grows at a pace comparable to the expansion in capital, returns to shareholders may become diluted.

Financial result gives mixed signals

Overall, Siddhartha Bank’s financial performance shows that its core business continued to grow. Net interest income, fee income, deposits and loans all increased, while the sharp rise in deposits strengthened the bank’s liquidity position.

The quality of the profit growth is less convincing. Operating income rose by 8.59 percent, but operating profit increased by only 3.78 percent and net profit by 4.54 percent. This indicates that the bank was unable to convert the full benefit of higher revenue into bottom-line earnings.

The decline in distributable profit is another weakness. It means the bank entered the new fiscal year with higher accounting profit but reduced immediate capacity to distribute dividends to shareholders.

The increase in non-performing loans also requires monitoring. Although the NPL ratio remains comparatively manageable, continued deterioration could increase provisioning expenses and further restrict profit growth.

Siddhartha Bank therefore starts the new fiscal year with a stronger deposit base, larger capital and improved core income. Its next challenge will be to deploy excess liquidity profitably, control operating costs, prevent further deterioration in credit quality and convert revenue growth into stronger distributable returns for shareholders.