Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL) has published its third quarter financial report of the current FY. As per the report, the profit of the microfinance company has seen a sharp decline of 67.75 percent.

The company that earned Rs 480.6 million net profit during the corresponding period earned just Rs 155 million in the review period of the current FY.

Key Financial Indicators: Where did the company go wrong?

According to the report, almost all the major indicators of the company have turned negative. The worst part is the increase in non-performing loans.

Three Main Reasons for Decline in Profits

1. Rising Non-Performing Loans: The NPL of the company has increased from 8.09 percent to 13.99 percent. It is considered to be very risky in the microfinance sector. The recovery process of microfinance seems to have come to a standstill as the borrowers are not able to pay the installments on time.
2. Provisioning burden: With the increase in bad loans, the microfinance company has to set aside Rs 538 million to manage the potential risks. This has had a direct impact on operating profits.
3. Rising costs and economic slowdown: The economic slowdown in the market and the declining ability of borrowers have disrupted the balance between interest income and other operating expenses.

What is the impact on investors?

The fall in earnings per share to Rs 7.54 is not a good sign for investors. This is sure to lead to a drastic reduction in dividends next year. However, the microfinance company is not in a position to collapse due to its net worth per share of Rs 214.43 and a strong reserve fund.