Increased letter of credit (L/C) business looks likely to help an anticipated surge in profits at Nepal's commercial banks.

Profits are expected to have grown by almost 50 per cent in the quarter to 15 January 2017 according to results announced by most of the country's commercial banks.

Indicators

A total of 25 commercial banks generated a net profit of 19.4 billion Nepalese rupee (Rs19.4 billion - US$177 million) between mid-July and mid-January, up 49 per cent compared with the same period a year ago, according to unaudited balance sheets published by the banks.

Three commercial banks are yet to publish balance sheets for the second-quarter of the Nepalese fiscal year.

L/C business

Amongst the 25 banks that have published balance sheets, non-interest income, which includes L/C issuance, increased by 37.5 per cent to Rs10.7 billion.

Non-interest income also includes revenue generated from fees imposed on remittance services and card issuance.

Trade boost

Nepal's banking business received a boost in the quarter after a trade blockade imposed by India was lifted.

"Banks' profits grew as the normalisation of the supply situation following the end of blockade unleashed pent-up demand for loans," according to the CEO of Sanima Bank, Bhuvan Kumar Dahal.

Under pressure

Despite surging profits, the banking sector is facing problems keeping within lending boundaries because decelerating in remittance inflows are causing deposit growth to slow down.

In this context, higher demand for L/Cs and other trade credit since the end of the Indian trade embargo is putting pressure on the banks.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.