Himalayan Bank Reports NPR 703 Million Profit for Q1 FY 2025/26

7th November 2025, Kathmandu

Himalayan Bank Limited (HBL) has released its unaudited financial statement for the first quarter of fiscal year 2025/262, painting a complex picture of moderate income growth shadowed by significant asset quality challenges.

Himalayan Bank Reports Profit

While the bank managed to clock a Net Profit of NPR 703 million, this figure represents a 3.24% decline from NPR 726.4 million reported in the same quarter last fiscal year. The report’s most striking highlights, a sharp decline in operating profit, a soaring Non-Performing Loan (NPL) ratio, and a negative reserve position, underscore the pressures currently facing the Nepalese banking sector and HBL’s critical need for strategic balance sheet management.

The Core Concern: Operating Profit Plummets by Over 41%

The most alarming metric in HBL’s Q1 report is the drastic fall in its Operating Profit, which plummeted by 41.72% to NPR 1.05 billion from NPR 1.81 billion a year earlier. This substantial decline signals a significant squeeze on the bank’s core profitability, which is largely driven by its lending activities.

The Domino Effect of Non-Performing Loans

The primary catalyst for the steep drop in operating profit is the mandatory increase in provisioning for potential loan losses. As the bank’s Non-Performing Loan (NPL) ratio surged from 4.98% to a high of 7.39%, the Nepal Rastra Bank (NRB) regulations require banks to set aside a larger portion of their revenue as an impairment charge. This provisioning is deducted directly from the operating profit, causing it to shrink dramatically.

Provisioning Impact: Increased provisions essentially act as a protective measure against future losses but reduce current profitability. The significant leap in HBL’s NPL ratio above the critical 5% regulatory threshold forces this heightened provisioning, absorbing a substantial chunk of the income that would otherwise flow through to operating profit.

Asset Quality Deterioration: The NPL ratio of 7.39% suggests that a much larger percentage of the bank’s loan portfolio is currently delinquent and not generating the expected interest income. This is a direct measure of deteriorating asset quality and raises concerns over the bank’s credit underwriting standards in the recent past, especially in a challenging economic climate.

Analyzing the Pressure Points: Negative Reserves and Dividends

Another critical red flag in the financial statement is the presence of a Negative Reserve Fund and a corresponding Negative Distributable Profit, both standing at NPR 7.54 billion. This negative balance is a strong indicator of historical losses or significant write-offs and is heavily influenced by the adoption of more stringent accounting standards and regulatory requirements, such as those related to the Nepal Financial Reporting Standards (NFRS) carve-outs.

Restricted Dividends: A negative distributable profit balance means the bank cannot legally distribute cash or stock dividends to its shareholders. This is a major concern for investors who rely on consistent dividend payouts for their return on investment. The bank must first generate sufficient profits in future quarters to wipe out this deficit before any distribution can be considered.

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Regulatory Reserves: A portion of a commercial bank’s earnings is often mandated by the central bank (NRB) to be placed into various regulatory reserves, such as a general loan loss provision, which is necessary to maintain capital adequacy. When a bank faces substantial losses, particularly due to large-scale loan write-offs and elevated provisioning, these reserve funds and retained earnings can become negative. This reflects the deep impact of the current asset quality issues on the bank’s accumulated financial strength.

Revenue Streams and Per-Share Metrics

Despite the substantial profit pressure, the bank’s core income generation showed resilience.

Net Interest Income (NII): The NII, which is the difference between interest earned on loans and paid on deposits, registered a modest growth of 2.29%, rising to NPR 2.51 billion from NPR 2.45 billion. This growth indicates that the bank’s fundamental lending business is still functional and managing to slightly expand its interest margin, although the gains are being consumed by provisioning.

Per-Share Performance: The bank’s key per-share metrics, while remaining positive, reflect the overall profitability strain. The annualised Earnings Per Share (EPS) stood at NPR 12.45, which is low for a commercial bank of HBL’s size and reflects the decline in net profit. The Net Worth Per Share remains relatively strong at NPR 177.63, though the significant erosion of retained earnings (contributing to the negative reserve) has placed downward pressure on this figure as well. With a paid-up capital of NPR 22.58 billion, HBL is well-capitalised in terms of mandatory equity, but its immediate profitability and asset quality are under intense scrutiny.

Outlook and Investor Considerations

Himalayan Bank’s Q1 results serve as a wake-up call, emphasizing the urgent need for robust bad loan recovery and stringent credit monitoring. The primary focus for the bank’s management must be on:

Asset Quality Management: Aggressively reducing the NPL ratio, potentially through restructuring or recovery efforts, to lower the provisioning burden.

Internal Capital Generation: Boosting future profitability to offset the negative distributable profit and restore reserves, thus creating a pathway back to potential dividend distribution.

For investors, the moderate NII growth provides a glimmer of hope for the bank’s long-term earning potential, but the current figures confirm that the bank’s capital structure and immediate ability to reward shareholders are severely hampered by legacy asset quality issues and the resulting provisioning requirements.

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