Kathmandu. Himalayan Bank Announces Fiscal Year 2082 To put it in one sentence of the third quarter financial statement of ’83, ‘Smooth outside, slow inside’. The bank has tried to deceive the investors by showing that it has earned a net profit of Rs 76.25 crore and has increased by 52 percent compared to the previous year.
This so-called increase of 52 per cent is not the result of any business efficiency but is just the ‘magic’ of accounting adjustment and provisioning. Because, the operating profit of the bank, which is considered the backbone of the bank, has almost tripled to Rs 1.15 billion, raising serious questions about the bank’s ability to do business.
Himalayan Bank is now in such a clutches of bad loans. Which can push the bank into crisis at any time. At 7.98 per cent, non-performing loans are close to the red zone not only by general banking standards but also from a regulatory point of view. This figure of 8 percent confirms that the bank’s loan recovery mechanism has completely failed and the management has become ‘helpless’.
What is even more frightening is that the bank has to allocate more than Rs 3 billion for provisioning to cover this sinking loan. That’s almost double the number of previous years. The fact that they have to spend a large chunk of their earnings to fill the bad loan gap shows how bleak the future of the bank is.
Interest rates are falling in the market. The cost of funds has come down to 5.46 percent. Even in such a favorable time, the bank’s spread rate has shrunk to 2.84 percent and the net interest income has decreased by Rs 1 billion. Although the size of deposits and loans has increased, it has not been able to create value in the banks’ coffers. This is called ‘growth without quality’ in banking parlance. Which ultimately hollows out the bank.
The most serious and objectionable aspect is the accumulated loss of Rs 10.46 billion of the bank. Showing that profits have increased in the face of such a huge financial gap and distributable profits are positive is only shown by using ‘regulatory loopholes’.
With EPS of Rs 4.50 per share and return on equity of 2.69 per cent, it is like pouring water on sand to invest in Himalayan Bank. It is a shame that the returns to investors are lower than the current inflation rate.
This financial picture of Himalayan Bank clearly shows that the bank is now ‘ICU’. If management doesn’t immediately improve loan quality, aggressively recover and cut unnecessary operating costs, the 52 per cent profit margin will turn into a “fake smile”.
The regulator Nepal Rastra Bank (NRB) has also been slow to keep a strict vigil on Himalayan Bank’s ‘paper profit’ and ‘increasing bad loans’.
