In the first six months of the current financial year (from July to December), the profit growth rate of commercial banks has been negative by 4.36 percent. The financial situation of banks and financial institutions has been affected by the inability of economic activity in the economy.

Banks have reported that the profit of the banks has been affected due to the decrease in interest income of the last 6 months, the increase in bad loans and the increase in provisioning for bad loans. 

The net profit of 20 commercial banks in the first six months of the current financial year is 27 billion 437 million rupees. By the second quarter of the last financial year, they had earned 28 billion 688 million profit. Out of 20 operating commercial banks, 9 have decreased in profit while 11 banks have increased. There is a problem in recovery in the banking sector due to the failure of the economy to make payments to construction workers and the business of small and medium businessmen.

The President of Nepal Bankers Association Santosh Koirala said that the financial condition of the banks is a direct indication that the economy is not in good condition due to the increase in bad loans, non-expected loan expansion and recovery. "The financial condition of the bank has been affected due to various reasons, due to the economic situation, the inability to increase loan demand, and a lot of pressure on loan recovery," he said.

Bad loans of banks have increased significantly during the same period of the current financial year compared to the first 6 months of the last financial year. According to which, the average bad loan of banks is 4.33 percent till last December. Bad loans of banks were 3.27 percent till the first month of last financial year. 

Although there are many reasons for the increase in bad loans, experts say that the main factor is the relaxation seen in the economy. Through the current fiscal year's monetary policy, the National Bank had given facilities to the builders, even if the loans exceeded the quota, they would not have to be placed in bad loans and the borrowers would not have to be blacklisted until last December. This facility has expired after the end of November. Banks and financial institutions also have to make provision for bad loans for loans that have been extended to builders. Banks have said that this is why the bad loans of banks have increased. Although recently, the National Bank has been strict in loan rescheduling and restructuring, the effect of which is the increase in bad loans of banks, they say. 

Ramu Paudel, the spokesperson of Nepal Rastra Bank, accepted that due to the economic situation, the provision for bad loans has increased. As of last December, the bad loans of four banks have reached more than 5 percent. 18 have above 4 percent. Most banks' bad loans have increased, while only two have decreased. Paudel said that this has challenged the banks to improve the quality of loans. 

As long as banks have the ability to return deposits, there is no reason to fear the rise in bad loans. So far, the cash assets of all the commercial banks are more than the limit prescribed by the National Bank. Now the distributable profit of many banks has decreased and some are negative. Distributable profit has decreased due to bad loan loss provisions. "As soon as the bad debt is recovered, the provisions for today's losses will come into distributable profits," said Paudel.