KATHMANDU: Nepal’s development banks posted a sharp improvement in profitability in the last fiscal year, with their combined net profit rising 64.5% to Rs 9.33 billion in FY 2025/26.

According to unaudited financial statements published by the banks, 16 development banks earned a combined net profit of Rs 9.33 billion in FY 2025/26, compared with Rs 5.67 billion in FY 2024/25.

Nepal currently has 17 development banks, but Karnali Development Bank has been classified as a troubled institution and is under the management of Nepal Rastra Bank.

Improved management of non-performing loans, lower provisioning requirements and growth in net interest, fee and commission income contributed to the improvement in profitability, the banks’ financial statements show.

Garima Bikas Bank posted the highest net profit among development banks, earning Rs 1.68 billion during the year. Muktinath Development Bank, Shine Resunga Development Bank and Jyoti Development Bank also reported net profits of more than Rs 1 billion.

The eight national-level development banks collectively earned Rs 8.65 billion in net profit. Narayani Development Bank was the only bank among the group to report a loss, posting a deficit of Rs 53.7 million.

Despite the strong rise in net profit, however, development banks’ distributable profit stood at only Rs 5.67 billion, significantly below their reported net earnings.

The gap between net and distributable profit reflects higher outstanding interest, additional allocations for credit risk and non-banking asset risks, and other regulatory adjustments required before profits can be distributed to shareholders.

Garima Development Bank also recorded the highest distributable profit at Rs 1.21 billion. Muktinath Development Bank, despite reporting a net profit of Rs 1.51 billion, had distributable profit of only Rs 670 million.

Four development banks—Corporate Development Bank, Salapa Development Bank, Sindhu Bikas Bank and Narayani Development Bank—reported negative distributable profits during the fiscal year.

The banks’ management reports attributed continued pressure on their financial performance to weak economic activity and sluggish loan recovery. Banks also cited campaigns encouraging borrowers not to repay loans as a factor affecting collection efforts.

The Gen-Z-led protests, political instability and intense competition in the financial market also affected the banking sector, according to management analyses accompanying the financial statements.

The latest figures suggest that while development banks have made a significant recovery in headline profitability, the much lower level of distributable earnings indicates that asset quality, loan recovery and regulatory provisions remain important constraints on their ability to translate accounting profits into shareholder returns.