Profit for financial sector slumps end of second quarter
The financial sector, which includes banks and nonbanks, recorded a profit of Nu 310.22mn as of June 2016.
According to the Royal Monetary Authority’s (RMA) Financial Sector Performance Review Report, June 2015-16, this was a satisfactory performance by the financial sector, given that the net profit of the financial sector decreased by Nu 272mn, from Nu 582.73mn in June 2015 to Nu 310.22mn in June 2016.
The banks earned a profit of Nu 30.39mn in June 2016 compared to Nu 345.90mn in June 2015. The central bank attributed the decrease in the net profit of the banks to increase in operating expense by 13% and also due to increase in Non Performing Loans (NPL) by Nu1.03mn, which again required the financial institutions to provide high provisioning of Nu1.48bn.
Comparatively, the nonbanks performed better, recording a net profit of Nu 279.83mn during the period under review. The net profit of the non-banks also increased from Nu 236.83mn in June 2015 to Nu 279.83mn in June 2016 indicating an increase of Nu 42.99mn.
The increase in profit of the financial sector was mainly attributed to the increase in interest income by Nu 891.35mn. According to the RMA’s report, the interest income increased from Nu 3.99bn in June 2015 to Nu 4.88bn in June 2016. This was mainly due to increase in interest income from loans and advances and fixed deposits by Nu 752.15mn and Nu 37.45mn respectively.
Similarly, the interest expense also increased by Nu 511.09mn, from Nu1.84bn in June 2015 to Nu 2.36bn in June 2016, out of which Nu1.32bn relates to interest paid on time deposits, Nu 430mn as interest on demand deposits and Nu 373mn relates to interest on bonds and borrowings.
The report states that though the interest expense increased by Nu.511.09mn, the increase in interest income offset the increase in interest expense.
The RMA report states that one of the important parameters to assess the performance of the financial sector is the earning trends. “The continued viability of the financial institutions depends on its ability to earn an appropriate return on its assets which enables the institutions to fund business expansion and remain competitive,” says the report.