Multipurpose Finance Struggles With Profitability as Rising Costs and Credit Risk Weigh on Earnings

Kathmandu — Multipurpose Finance Limited has reported a weak and uneven financial performance for the third quarter of fiscal year 2082/83, highlighting growing pressure on profitability despite visible expansion in its balance sheet. According to the unaudited financial results, the company managed to post a cumulative profit of around Rs. 5.32 million over nine months, but the latest quarter alone slipped into a net loss of approximately Rs. 2.51 million, signaling a deteriorating earnings trend.

The institution’s core income stream, interest income, has remained largely stagnant. Total interest income stood at around Rs. 187.55 million, slightly lower than the corresponding period last year. At the same time, interest expenses continued to remain elevated at over Rs. 134 million, leaving net interest income at Rs. 53.15 million. This suggests that the company is facing margin compression, likely due to increased competition for deposits and limited opportunities to deploy funds into higher-yielding assets.

Non-interest income has also failed to provide meaningful support. Fee and commission income declined compared to the previous year, indicating slower transaction volumes and limited diversification of income sources. Although there has been some contribution from other operating income, the overall impact has been insufficient to offset the slowdown in core earnings. As a result, total operating income dropped to around Rs. 96.21 million, reflecting a clear decline from the previous year.

One of the most significant pressures on the company’s financial performance has come from provisioning. Multipurpose Finance set aside approximately Rs. 34.97 million as impairment charges for loans and other potential losses. This increase in provisioning points toward rising credit risk within the loan portfolio or a stricter regulatory compliance approach. The direct effect has been a sharp reduction in net operating income, which stood at around Rs. 61.24 million.

At the same time, operating expenses remain relatively high. Personnel costs, administrative expenses, and depreciation together accounted for more than Rs. 52.95 million, consuming a large portion of operating income. This has led to a steep decline in operating profit, which dropped to around Rs. 8.28 million compared to over Rs. 32.54 million in the previous year. The widening gap between income and expenses reflects declining operational efficiency.

The bottom line has been further impacted by non-operating adjustments and tax expenses, ultimately resulting in a quarterly loss. Although the cumulative profit remains positive, the trend suggests that sustaining profitability in the coming quarters may be challenging unless corrective measures are taken.

On the balance sheet side, however, the company has demonstrated notable growth. Total assets increased to approximately Rs. 4.43 billion from Rs. 3.97 billion a year earlier. Loans and advances to customers rose significantly to over Rs. 2.15 billion, indicating continued credit expansion. Investment in securities also increased, suggesting an attempt to diversify income sources and optimize asset allocation.

Deposits from customers climbed to around Rs. 3.64 billion, reflecting stable depositor confidence. However, the credit-to-deposit ratio stands at about 59 percent, which indicates that a significant portion of funds remains unutilized. This underutilization is largely attributed to weak credit demand in the market, a trend affecting much of the financial sector.

Asset quality indicators, however, present a concerning picture. The non-performing loan (NPL) ratio has risen to 7.44 percent, marking a noticeable increase from the previous year. This suggests growing stress in loan recovery and highlights underlying risks in the credit portfolio. While the provision coverage ratio remains relatively strong at over 88 percent, the rising NPL level indicates that asset quality will remain a key area of concern.

Key financial ratios also reflect declining performance. Earnings per share (EPS) dropped sharply to around Rs. 1.16, compared to Rs. 4.73 in the previous year, indicating a significant erosion in shareholder returns. Although the cost of funds has improved to 4.98 percent, this has not translated into better profitability due to weak income growth and rising provisioning costs. Similarly, the base rate has declined, reflecting reduced lending yields in the current economic environment.

The management has attributed the weak performance primarily to broader macroeconomic conditions. Excess liquidity in the banking system, combined with low credit demand, has slowed down lending activities. Additionally, subdued economic growth, lack of productive investment opportunities, and slowdown in the real estate sector have further constrained business expansion.

Internal challenges such as increasing competition in the financial sector, difficulty in managing skilled human resources, and rising compliance and operational requirements have also contributed to the pressure. Furthermore, maintaining asset quality while expanding the loan portfolio remains a delicate balancing act for the company.

Despite these challenges, the company has outlined strategic priorities focused on business expansion, diversification of investment areas, and enhancement of customer service. Plans to adopt modern financial technologies, strengthen internal controls, and improve operational efficiency indicate a forward-looking approach aimed at stabilizing performance.

Overall, Multipurpose Finance’s third-quarter results reflect a difficult operating environment where growth in size has not translated into profitability. Rising credit risk, declining margins, and high operating costs have collectively weakened financial performance. The coming quarters will be crucial in determining whether the company can restore earnings stability and improve efficiency in a challenging economic landscape.