Kathmandu. Laxmi Sunrise Bank’s financial position is under pressure as it enters the second quarter of the current fiscal year. With the rise in non-performing loans (NPLs), there has been an abnormal increase in the provision amount that banks have to set aside for loan loss management. This has a direct impact on the profit and loss statement of the bank.
According to the financial statement released by the bank in the second quarter, the provision amount for loan loss management increased by 131.85 percent to Rs 4.47 billion. In the same period of the last fiscal year, such provision amount was only Rs 1.92 billion. This amount seems to be the highest among commercial banks. This indicates that the bank’s risk profile is becoming serious.
Laxmi Sunrise Bank has reported a loss of Rs 27.36 crore in the second quarter of the current FY. The bank had posted a net profit of Rs 1,160 crore in the same quarter last year. The loss from profit to loss in a year is seen as a major decline in the financial performance of the bank.
During the period, the bank’s distributable profit stood at Rs 84.27 crore. Although the bank has a paid-up capital of Rs 26.78 billion and reserve fund of Rs 18.58 billion, there is a risk that continuous losses and increasing provisions will put pressure on the capital structure in the future.
Laxmi Sunrise Bank’s non-performing loan has reached 5.50 percent in mid-January from 4.25 percent in mid-July last year. Although the non-performing loans have decreased slightly compared to the previous year’s January, the increase in the last 6 months indicates that the loan recovery has started showing weakness again.
With the rise in non-performing loans, banks have to set aside large amounts of money to manage loan losses. Analysts say that this has shrunk the operating profit and ultimately pushed the bank towards losses.
In the second quarter, the bank’s earnings per share was negative at Rs 2.04. The net worth per share stands at Rs 166.23. Such indicators indicate that there is a problem in the immediate operational capacity of the bank rather than the long-term basis.
Laxmi Bank and Sunrise Bank were merged in July 2080. The merger was expected to strengthen stability, efficiency and risk management in Laxmi Sunrise Bank. However, in recent times, complaints of irregularities, mismanagement and internal weakness have started to arise from the employees in the bank.
Under the leadership of Chief Executive Officer Ajay Bikram Shah and Chairman of the board Raman Nepal, the decision making process has become one-sided and non-transparent. Such allegations have raised serious questions about the internal governance of the bank.
Laxmi Sunrise Bank has been facing regulatory action for not fully complying with the directives of Nepal Rastra Bank. Current financial pressures, rising non-performing loans and large provisions indicate that regulatory oversight of banks will be tightened.
