KATHMANDU: The dividend distribution capacity of most commercial banks declined in the last fiscal year, FY 2023/24, with four banks unable to distribute dividends at all.
According to the unaudited financial statements published by commercial banks for the last fiscal year, while the number of banks unable to distribute dividends decreased in the fourth quarter compared to the third quarter, investors of most banks will still see limited returns.
Nepal Investment Mega Bank, Kumari Bank, NIC Asia Bank, and Himalayan Bank reported in their financial statements that they have no capacity to distribute dividends. In addition to these four banks, Laxmi Sunrise Bank, Nepal Bank, NMB Bank, Global IME Bank, Machhapuchhre Bank, and Siddhartha Bank had negative distributable profits in the third quarter of last year. However, six of these banks were able to distribute some dividends in the last quarter.
Besides those unable to distribute dividends, 10 other commercial banks saw a decrease in their dividend distribution capacity compared to the previous year. These banks include NMB Bank, Siddhartha Bank, Global IME Bank, Rastriya Banijya Bank, Machhapuchhre Bank, Citizens Bank, Laxmi Sunrise Bank, Sanima Bank, Standard Chartered Bank, and Everest Bank.
Former banker Bhuwan Dahal attributed the decline in dividend distribution to high non-banking assets and failure to collect interest. He noted earlier in May that many commercial banks were unable to show profits because they could not collect interest due from the borrowers.
"As per the instructions of Nepal Rastra Bank (NRB), the amount equal to the interest that has not been collected cannot be shown in the distributable profit as regulatory adjustment is required," Dahal explained.
NRB's regulatory adjustments include accrued interest, provisioning on non-banking assets, and potential losses on investments. Despite the overall decrease in dividend capacity, Everest Bank had the highest dividend capacity last year at 29.86 percent, down from 38.42 percent in FY 2022/23.
Standard Chartered Bank was second with a dividend capacity of 26.5 percent, slightly lower than the previous year's 28.75 percent. The Agriculture Development Bank ranked third with a dividend capacity of 17.37 percent, an increase from the previous year's 9.24 percent.
Among the 20 commercial banks, NMB Bank had the lowest dividend capacity, at just 1.3 percent, down from 6.21 percent in FY 2022/23. In the same year, eight other commercial banks did not distribute dividends to shareholders.
Investors are concerned that the decreasing dividend capacity and rates may reduce the attraction towards shares of commercial banks. NRB has allowed banks and financial institutions to include interest up to mid-August in their financial statements up to mid-July. This provision means there could be some changes in the profit and dividend capacities once the audited financial statements are released.
