Dividend Capacity of Commercial Banks Decline

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Dividend Capacity of Commercial Banks Decline

August 16: The profit and dividend capacity of all commercial banks have declined in the last fiscal year due to the crisis caused by the coronavirus pandemic. It is evident from the unaudited financial statements of the commercials banks towards the end of last fiscal year that there has been a decline in the dividends to be distributed to the shareholders.

The financial statements published by the banks show that the twenty-six commercial banks may distribute a dividend of 11.14 per cent on average. This rate is approximately 7.75 per cent less than the previous year. Twenty-eight commercial banks had distributed dividend on an average of 18.92 per cent from the profits of the fiscal year 2075/76.

Nabil Bank has the potential for distributing the highest dividend. Nabil Bank had a distributable profit of 3.4 billion in the last fiscal year. The bank has a potential dividend rate of 30.13 per cent. Nabil had the capability of giving 35.34 per cent dividend in the previous fiscal year. 

Everest Bank has the potential of distributing 19.66 per cent dividend. The financial statements of Nepal Bank show that it can distribute 19.59 per cent dividend from the profits of the last fiscal year. The bank’s statements show that the company has a distributable profit of Rs 2.21 billion.

According to the financial statements of the previous year, Standard Chartered has the capacity to pay 18.92 per cent dividend, NIC Asia Bank 14.83 per cent and Himalayan Bank 13.97 per cent. Similarly, Prime, Lakshmi, and Nepal SBI Bank's ability to pay dividends is around 11 per cent. The government-owned Banijya bank has the capacity of distributing 11.50  per cent dividend.  Similarly, the dividend capacity of Machhapuchhe, Prabhu, Bank of Kathmandu and NMB Bank is around 10 per cent.

Bhuwan Dahal, the Chief Executive Officer (CEO) of Sanima Bank that has a capacity of a potential dividend of 12.72 per cent, said that they had already expected the decline in the bank’s profit and distributable profit after the deterioration of the bank’s condition in the fourth quarter due to the coronavirus pandemic. Dahal, who is also the chairman of Nepal Bankers’ Association, said that the bank was not able to do expected businesses due to the pandemic. According to him, the condition of the banks is deteriorating even after the exemption given by Nepal Rastra Bank on loan classification and loan-loss management.

“The bank’s condition worsened even after receiving the exemption on loan classification and loss management. The conditions would be much worse if we hadn’t received the exemption,” Dahal told New Business Age, adding, “Many people used to comment on banks’ earning a lot. They must know about the reduction in profits and distributable profits now.”

Sunil KC, the CEO of NMB Bank, believes that the dividend they are distributing is fine. He said that the profit and distributable profit of the bank decreased because they had done provisioning (loss management) more than what was required by Nepal Rastra Bank in this condition.

The CEO of Prabhu Bank Ashok Sherchan pointed that the allowances provided by the government to the debtor has reduced the interest income of banks, which ultimately reduced the profit and the dividend. According to him, the financial statements were affected by a reduction of 10 per cent on interest to borrowers and reduction of 2 per cent on interest on loan. “The interest income of a single bank was reduced by about 40 to 45 per cent due to the discount on the interest on loan from Chaitra (mid-March/mid-April) to Ashad (mid-June/mid-July).

The income of overall commercial banks declined by around Rs 10 billion because of this. The income of banks, despite their performance, declined due to the monetary policy and the directives of the central bank,” he said.

The dividend rate of Global IME Bank, which had merged with Janata Bank, has come down to a single digit. Gobal IME Bank was successful in making a distributable profit of Rs 1.73 billion.  Chandra Dhakal, the CEO of Global IME Bank, said that the bank has the potential of distributing a dividend of 9.13 per cent. He also added that all of the sectors have been affected by this pandemic. “Banks are facing a situation where they need to save other businesses as well as themselves. This is also why the profits and the dividends of all banks have decreased,” he stated. He believed that the income of banks are still dependent on how long the coronavirus affects the economy.

Civil Bank has the lowest potential for dividends as of now. The bank has a dividend capacity of only 3.15 per cent. The distributable profit of Civil Bank is Rs 252.1 million.

Nepal Rastra Bank has directed all of the banks to allocate 20 per cent from their net profit to their reserves and 1 per cent to the social security fund before separating the remaining fund as the distributable profit. The banks can then distribute dividends from the distributable profit.

 

 

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