Kathmandu. NIC Asia Bank is in the current fiscal year 2082. The financial results for the third quarter of FY83 have been disappointing. This financial statement does not only present the fact that profits have decreased. Rather, it has raised serious questions about the overall future and business model of the bank.
A modest net profit of Rs 140.3 million, a decline of 10.5 per cent and weak return indicators have added to concerns not only about the bank’s current situation but also about the future course of its journey.
The bank has aggressively increased provisioning to control risky loans. Even if it reduces profits in the short term, it can be considered positive for long-term stability. However, the question arises that if the credit quality of the bank was strong, then why was such a large amount of provisioning needed?
The rise in total non-performing loans from 5.75 per cent to 8.85 per cent indicates how risky the bank’s previous credit expansion strategy was.
While the decline in net non-performing loans (NPAs) to 0.49 per cent may appear to be positive on the surface, it is mainly due to higher provisioning. The real risk has not gone away entirely. This bank has not yet been able to recover the loans it had given in the past. This is increasing the pressure on the bank.
Looking at the income structure, the bank’s base seems to be weakening. The sharp decline in net interest income, limited operating profits, and the shrinking of margins due to falling interest rates all indicate that the bank’s core income capacity is under pressure. In such a situation, the question of how to sustain sustainable profits in the long term has become more serious.
The most serious condition is negative accumulated profits. The accumulated loss of more than Rs 13.65 billion is a clear indication that the bank will not be able to distribute dividend in the near future. This has a direct impact on investor confidence. It is even more sad that the bank, which has not been able to pay dividends to investors in the past years, has not been able to improve its position.
Earnings per share of Rs 1.27 and return on equity (ROE) of 0.73 per cent also indicate poor capital utilisation effectiveness of the bank.
These indicators raise a big question: Is NIC Asia Bank’s aggressive expansion model no longer sustainable? This shows that the bank is now forcibly shifting from ‘growth’ to ‘sustainability’. Now the bank has taken the risk with it. Most importantly, the key question remains whether the bank can restore its credibility.
According to bank officials, the bank is currently in the ‘clean-up phase’. Where the past risks are being managed. However, this process does not seem to be short. If the reduction of non-performing loans, expansion of quality credit, and reinvigorating sources of income do not proceed effectively, the bank could be under even greater pressure in the long run.
In the current situation, it seems that it will take more than 4 years for the bank to rise. Until then, there is no record of how far the trust of the customers in the bank will fall.
