Profits Of Banks Fell In First Quarter, Six Reasons Why?

November 30, 2020 | DWAIPAYAN REGMI

The First Quarter of the year did not go in favor of banks this year. Out of 27 commercial banks, only 8 were able to make a profit at a wider scale in comparison to the first quarter of the previous fiscal year. This has created a certain fear among investors and has disappointed the banks as a whole. Before entirely analyzing the company – it is important to know why the profit slides down in such a manner. Here we discuss the reasons behind the fall over the profit.

For banks like Kumari Bank, Mega Bank, Prime Bank, or even Global IME Bank – they got the opportunity of the merger to increase up the volume of business despite the period of a pandemic. However, for others – they had to be a victim of COVID19, and stay out isolated from booming business. There could be several internal issues as well, but from the surface level, the following are the key reasons for the decreased first-quarter performance of commercial banks.

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COVID19’s Impact

It’s no wonder why the profitability of the entire banking industry fell was because of the huge impact over COVID19. This pandemic not only hampered the economy as a whole but also decreased the cash playing businesses. As a result, loan clients could not make a timely payment over their dues. This hampered the data as a whole, and a large number of loans had to go under the provision. Uncollected EMIs, interests all led to decreased profitability at a larger scale.

Competition in Interest Rate

There appeared huge competition over the interest in between the same time. Almost all banks have been offering loans at an interest of single-digit – and the competition of interest rate falling, making the loan cheapest made the banks earn lower profit in comparison to previous quarters. Yes, the rate in saving is lowered too, but the difference has been getting small – making lower profits.

Reduction over the Charges or Commission fees

In this specific period, banks had to minimize a large number of their commissions and charges. First of all, because of COVID19’s impact – there had been costless ATM facilities that the bank offered for interbank drawings. This made ATM transactions free even while conducting Interbank transactions. In the meantime, banks also offered free fund transfer facilities via mobile banking. That is not all up to it, there had been various fees and commissions waived creating ease in the business environment. Banks and Financial Institutions even offered free service to those features from where it had been obtaining fees and commissions previously. This led to diminished income, somehow.

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Decreased charm in Lending

It should be because of the impact over COVID, the lending charm has drastically diminished. The number of customers applying for loans year back has decreased in large quantity – that should be because of unemployment increment, or slow business growth that the firms had been having. When people are not willing to buy the money (take a loan), that is obvious that an increased supply of money would rather bring the cost to the banking industry ultimately leading to declining in profit.

Other Policies

There exist other policies around, which has been helping the business firm one way or the other. Like, waving off the interest fees; postponing the date of payment for the affected ones – which has been delaying the collection procedures. Further, policies like ‘don’t go for the auction’ has created difficulties around. Monetary policy was in the same favor, and neither did fiscal policy address the profitability of the banking industry as a whole.

Employee’s productivity

This should be because of the COVID impact, that employee has been working with fear every day. Their regular speed has drastically reduced. More than 4000 employees have already been tested COVID positive from commercial banks themselves including top-level managers. This fearful environment in the workplace should have been a minor reason as well for decreased productivity leading to lowered profit.

Conclusion

They say – morning shows the day, and for analysis of the Banking industry, the first quarter will indicate how the days ahead will be. However, the case could be different, because it took a while for Banks to decide what to do in the next phase as well. Further, there had been various complications that banks have been facing – like they have not hired new staff for a pretty long time, their operation cost in the title of COVID19 has led to further increased expenses, etc. There were efforts from the banking side as well to lower their expenses – like they did try to convince their landowner to reduce the rent for a while, or banks even deducted allowances from their staffs to cope up. Still, there are days ahead – which is yet to be seen.

From The Author:

5 Reasons For Rise In Remittance Flow During COVID19

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[Mr. Dwaipayan Regmi is currently working as the Assistant Manager in Rastriya Banijya Bank]

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