Prabhu Bank Reports NPR 558.4 Million Profit in Q1 FY 2025/26

7th November 2025, Kathmandu

Prabhu Bank Limited has released its unaudited financial results for the first quarter (Q1) of the fiscal year 2025/26, presenting a complex picture for stakeholders. While the bank successfully boosted its core revenue stream, Net Interest Income, its overall Net Profit took a significant year-on-year hit.

Prabhu Bank Reports Profit

The reported net profit stood at NPR 558.4 million, which marks a substantial 46.33% decline from the NPR 1.04 billion recorded in the corresponding period of the previous fiscal year. This article dissects the key factors driving this performance shift, which reflects broader sector-wide challenges in Nepal’s commercial banking landscape.

The Core Contradiction: Revenue Growth vs. Profit Dip

The most striking element of Prabhu Bank’s Q1 report is the simultaneous rise in core earnings and a sharp drop in the final profit figure.

Net Interest Income Surges

The bank’s Net Interest Income (NII), which represents the difference between the interest earned on loans and the interest paid on deposits, increased by a commendable 10.14% to NPR 2.89 billion from NPR 2.62 billion last year. This growth is a positive sign, indicating that the bank has effectively managed its lending portfolio and maintained a strong interest spread in a competitive market environment. A rising NII suggests robust business activity and the bank’s ability to capitalize on the prevailing interest rate structure.

The Plunge in Operating and Net Profit

Despite the NII growth, the Operating Profit declined by 16.51% to NPR 1.17 billion. This drop in operating profit, which is the profit before provisions and taxes, is the primary immediate cause for the fall in net profit. The difference between the rising NII and the falling Operating Profit suggests a significant increase in other operational expenses or, more critically, the impact of loan-loss provisioning, which often falls under the operating expense head for accounting purposes.

Since Net Profit is Operating Profit minus taxes and, importantly, specific provisions, a sharper decrease in Net Profit than Operating Profit points toward an elevated impact from provisioning.

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The Rising Tide of Non-Performing Loans (NPL)

The key culprit behind the significant profit decline appears to be the deterioration in asset quality, a common trend currently affecting many commercial banks in the nation. Prabhu Bank’s Non-Performing Loan (NPL) ratio saw an increase from 4.94% to 5.78% year-on-year.

The surge in NPLs directly necessitates higher impairment charges or loan-loss provisions. As per regulatory guidelines from the Nepal Rastra Bank (NRB), banks are required to set aside a certain percentage of their profit as a provision against potential losses from non-performing assets. A higher NPL ratio means the bank must allocate a significantly larger amount to these provisions, which directly eats into the operating and, consequently, the net profit. In an environment where the economic slowdown has impacted borrowers’ repayment capacity, this is a sector-wide challenge, and Prabhu Bank’s results vividly illustrate its impact. The sheer magnitude of the profit decline (46.33%) relative to the relatively smaller decrease in Operating Profit (16.5%) strongly implies a substantial increase in provisioning compared to the prior year.

Stability and Solvency Metrics

Amidst the short-term profitability pressures, the bank’s core financial structure demonstrates resilience, which offers a degree of confidence to investors.

The Paid-up Capital remains robust at NPR 23.54 billion, providing a strong capital base as mandated by the regulator. Furthermore, the bank’s Reserve Fund has grown to NPR 14.55 billion. A particularly noteworthy positive is the significant jump in Retained Earnings, soaring to NPR 406 million from a mere NPR 34.7 million in the previous period. Retained earnings represent the portion of a bank’s profit that is kept to reinvest in the business or pay off debt rather than being paid out as dividends. The dramatic increase here suggests a prudent move by the management to bolster the bank’s internal capital base, indicating a focus on long-term financial stability.

The bank’s per-share metrics, however, reflect the impact of the lower profit. The Earnings Per Share (EPS) stood at NPR 9.49, while the Net Worth Per Share was recorded at NPR 163.55.

Investor Outlook and Future Strategy

The Q1 results for Prabhu Bank Limited can be viewed as a micro-reflection of the macro-economic reality facing the entire Nepalese banking sector. While the core banking activity, as measured by Net Interest Income, remains healthy and expansive, the prevailing high-interest rate regime and economic sluggishness are translating into higher credit risk, forcing banks to increase their provisioning.

Management’s ability to grow distributable profit and reserves, as noted in the report, provides a stable foundation to weather these sectoral challenges. The immediate focus for Prabhu Bank will undoubtedly be on aggressive NPL management and recovery. Successfully bringing the NPL ratio down from 5.78% will be crucial for releasing the financial pressure imposed by high provisioning, thereby allowing the robust Net Interest Income growth to translate fully into enhanced profitability in the subsequent quarters. For investors, the long-term viability will depend on the bank’s strategic effectiveness in navigating the credit cycle and maintaining asset quality while continuing its core lending growth.

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