February 3: The return on investment of banks is declining compared to their capital. The rate of return has been declining as banks have been burdened with excessive capital. 

According to the Nepal Bankers' Association, the average return on capital (return on equity) as of January 2022 in the current Fiscal Year (FY) is 12.51 percent. In the corresponding period of the previous fiscal year, the return on equity of banks was 12.70 percent. Compared to the previous year, the returns of 18 banks have decreased this year while the returns of only nine banks have increased. 

The Confederation of Banks and Financial Institutions Nepal (CBFIN), an umbrella organisation of chairpersons and directors of banks and financial institutions, has also drawn the attention of Nepal Rastra Bank (NRB) saying that the returns of banks are declining and this is discouraging investors. 

"There is rumor in the market that banks and financial institutions are making huge profits and NRB has also issued directives accordingly," reads a study report submitted by CBFIN to NRB Governor Maha Prasad Adhikari in December. "Even though the capital of banks has increased four folds, the return on investment has been declining." 

Stating that the rate of return of banks and financial institutions have been declining continuously since 2073, the report urged the central bank to allow the interest rate to be determined according to the concept of open market instead of limiting the spread rate in order to meet this challenge. 

Similarly, the return on investment of banks is also declining. According to CBFIN, the return was 19 percent in 2068 which reached 23 percent in 2073. After that, it decreased to 12 percent in 2077.  

Prakash Kumar Shrestha, executive director of the research department of NRB, says that the return on investment of banks and financial institutions is not bad. "The rate of return of banks is declining," he said, "However, it is still higher than the return on bank deposits."  

Banker Analraj Bhattarai says that is no need to panic because banks have been set up with long-term investment.