Himalayan Bank Profits Dip 15% as Non-Performing Loans Hit Critical 7.96% Mark
Author
NEPSE TRADING
KATHMANDU – Himalayan Bank Limited (HBL) has reported a significant decline in its financial performance for the second quarter of the current fiscal year. The bank, which recently expanded its footprint through a major merger with Civil Bank, is now facing intense pressure as deteriorating asset quality eats into its bottom line.
According to the unaudited financial statement for the period ending mid-January, the bank’s net profit dropped by nearly 15%, falling to NPR 1.29 billion. This is a notable decrease from the NPR 1.52 billion earned during the same period in the previous fiscal year.
The NPL Crisis and Distributable Deficit The most alarming metric in the report is the sharp rise in Non-Performing Loans (NPL). The bank's bad loan ratio surged from 4.98% to 7.96%, one of the highest among the country's "A-class" commercial banks.
This spike in bad debt has forced the bank to allocate a massive portion of its income toward impairment charges (loan-loss provisions). Consequently, the distributable profit has plunged to a negative NPR 9.07 billion. This deficit indicates that the bank is currently in no position to offer dividends to its shareholders and must focus entirely on debt recovery to stabilize its books.
Shrinking Core Revenue and Margins The bank’s core business also showed signs of cooling:
Net Interest Income: Fell by 10.18% to NPR 4.70 billion, down from NPR 5.23 billion last year.
Operating Profit: Witnessed a drastic slide, crashing from NPR 3.12 billion to NPR 1.85 billion.
Key Financial Indicators at a Glance:
Paid-up Capital: NPR 22.58 billion.
Earnings Per Share (EPS): Dropped to NPR 11.45.
Net Worth per Share: NPR 174.23.
Provisioning Impact: The increased impairment charges necessitated by rising NPLs were the primary driver behind the contraction in operating and net profits.
Detailed Interpretation: The Post-Merger Struggle
Himalayan Bank’s current situation is a classic textbook example of "Merger Indigestion." While the acquisition of Civil Bank increased HBL’s capital and branch network, it also brought a significant volume of legacy bad loans into the portfolio.
Asset Quality Concerns: An NPL ratio nearing 8% is a major red flag for investors and regulators alike. It suggests that nearly one-twelfth of the bank's total loan book is currently not yielding interest and is at risk of default.
Dividend Drought: With a distributable deficit of over 9 billion rupees, shareholders should manage their expectations for the next few cycles. The bank’s primary mission now is "Recovery Mode." Every rupee recovered from these bad loans will directly reduce that negative balance.
Profitability vs. Stability: The drop in EPS to NPR 11.45 reflects the heavy cost of maintaining stability. For a bank with a capital base of over 22 billion, this level of earnings is insufficient to sustain high valuations in the stock market.
