Most commercial banks lower dividend rates

Commercial banks in Nepal are experiencing a decline in dividend capacity due to weak credit demand and high non-performing loan levels amid a prolonged economic slowdown. Most banks declaring dividends for the fiscal year 2023/24 have reduced their payouts, with some opting not to distribute dividends at all.

Of the 20 commercial banks in the country, 11 have decided to distribute dividends from their earnings in the previous fiscal year, while five have opted not to distribute dividends. Four are yet to announce their decision on dividend payouts. Among the 11 banks which provided dividends to their shareholders, seven have reduced their rates compared to the previous fiscal year.

Himalayan Bank Ltd, Machhapuchchhre Bank Ltd, NMB Bank Ltd, Rastriya Banijya Bank Ltd and Prabhu Bank have announced they would not distribute dividends from last fiscal year’s profits. Among these, Machhapuchchhre had distributed 14 percent dividend in 2022/23 (13.3 percent bonus shares and 0.7 percent cash for tax purposes). Rastriya Banijya Bank had provided 5.5 percent cash dividend last year. Himalayan, NMB, and Prabhu Bank did not distribute dividends last year either.

Four commercial banks—Kumari Bank Ltd, Nepal Investment Mega Bank Ltd, Nepal Bank Ltd and NIC Asia Bank Ltd—are yet to make their dividends announcements. Despite low credit expansion, commercial banks posted a profit of Rs 64.15bn in 2023/24, a 13.4 percent compared to net profit of Rs 56.57bn in 2022/23. However, most banks could not increase their dividend payouts as they had to set aside substantial funds for provisioning for their non-performing loans.

Commercial banks set aside a combined Rs 201bn for provisioning in 2023/24, compared to Rs 147bn in 2022/23. Himalayan, NMB and Prabhu have not distributed dividends for two successive fiscal years. Himalayan is not in a position to distribute dividend because non-performing loans of its merging partner—Civil Bank—was 27 percent at the time of the merger which necessitated provisioning of substantial funds. The two Class ‘A’ banks started joint operation after merger on Feb 24 last year.

Four banks have increased their dividend payouts compared to the previous fiscal  year. Standard Chartered Bank Nepal has announced a dividend of 25.5 percent (6.5 percent bonus shares and 19 percent cash) from its profits of 2023/24 compared to 19 percent cash dividend a year earlier. Payout of Nepal SBI’s dividend payout has increased slightly from 10.55 percent (3.75 percent bonus shares and 6.8 percent cash) to 10.65 percent (3.8 percent bonus shares and 6.85 percent cash). Prime Commercial Bank Ltd and Agricultural Development Bank (LTD), which didn’t provide dividends from the earnings last year, have announced five percent cash dividend and 10.53 percent dividend (three percent bonus shares and 7.53 percent cash), respectively, this year. However, Everest Bank Ltd, Nabil Bank Ltd, Global IME Ltd, Laxmi Sunrise Ltd, Sanima Bank Ltd, Citizens Bank International Ltd and Siddhartha Bank Ltd have reduced their dividend rates.