Commercial banks’ Q1 profit rise by 46% despite rising bad loans

The country’s 20 commercial banks posted a combined net profit of NRs 19.15 billion in the first quarter (mid-July to mid-October 2026) of fiscal year 2026/27, marking a staggering 45.6% rise in profits from the previous 13.14 billion. 

The sharp rise in profitability was largely driven by a significant decline in loans, and lower interest expenses, rather than substantial growth in core interest income.

Banks’ combined loan-loss provisions fell by over 62% to NRs 11.09 billion from NRs 29.27 billion a year earlier. Improved loan recovery and regulatory concessions introduced by the central bank helped this reduction. 

The central bank lowered the mandatory provisioning requirement for performing loans from 1.1% to 1% and introduced greater flexibility in restructuring and rescheduling certain loans.

However, core interest income remained relatively flat with net interest income increasing by less than one percent to NRs 49.67 billion from NRs 49.20 billion. 

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Among the 20 banks, Nabil Bank reported the highest net profit of NRs 2.55 billion, while NIC Asia recorded the lowest with NRs 127 million.

Commercial Banks Q1 report FY 2026/27 (In NRs billion)

Despite stronger reported earnings, the sector continues to face concerns over deteriorating loan quality. The average non-performing loan (NPL) ratio increased to 5.64% from 4.85% a year earlier and 5.56% at the end of the previous fiscal year.

The banking sector is also operating amid abundant liquidity, declining interest rates, and relatively modest credit growth. Banks have 

The current liquidity is over NRs one trillion, while the weighted average lending rate of commercial banks in the first two months of the fiscal year stood at 6.38%, down from 7.66% in the corresponding period of the previous fiscal year. Similarly, the average deposit rate declined to 3.11% from 3.96% during the same period.

During the first two months of 2026/27, banks and financial institutions lent an additional NRs 93.52 billion to the private sector. This represents a 1.6% increase in private sector credit. In the review period between, private-sector credit expanded by 7.2%.