The dividend capacity of commercial banks has reduced despite a 1.4 percent growth in net profit over the first nine months of fiscal year 2024/25. The third-quarter data of banks and financial institutions released by the Nepal Rastra Bank (NRB) shows the average Return On Equity (RoE) of commercial banks dropped to 7.73 percent over the review period, down from 8.34 percent in the same period of the previous fiscal year. The average RoE was 13.17 percent in the third quarter of 2022/23.
RoE refers to the return that investors receive on their total capital. An average RoE of 7.73 percent means investors received a return of Rs 7.73 for every Rs 100 invested. A lower RoE can indicate that the company is struggling to earn a high return on the capital raised from investors. Twelve out of 20 commercial banks in the country saw their RoE drop in the review period, while eight managed to increase it. Only six banks—Everest Bank, Standard Chartered, NMB, Sanima, Nepal Bank, and Nabil Bank—have RoE in double digits. Everest Bank recorded the highest RoE of 15.82 percent in the third quarter ending mid-April, while NIC Asia has the lowest at just 0.71 percent.
Data shows Nabil Bank, Global IME Bank, Nepal Investment Mega Bank, Everest Bank, NMB Bank, Sanima Bank, Machhapuchhre Bank, and Nepal Bank managed to increase their RoE in the review period, while Prime Commercial Bank, Standard Chartered Bank, Himalayan Bank, Prabhu Bank, Laxmi Sunrise Bank, Agricultural Development Bank, Nepal SBI Bank, Rastriya Banijya Bank, Citizens Bank, Siddhartha Bank, Kumari Bank, and NIC Asia Bank saw their RoE drop.
Distributable profits plummet
The distributable profits of commercial banks have also turned negative. The combined distributable profit of 20 commercial banks as of the third quarter of fiscal year 2024/25 is negative by Rs 1.67bn. In the same quarter of 2022/23, these banks had distributable profits exceeding Rs 15.28bn. Specifically, the distributable profits of Kumari Bank, Himalayan Bank, NIC Asia Bank, Prabhu Bank, Nepal Investment Mega Bank and Rastriya Banijya Bank are collectively negative by more than Rs 22bn. As a result, even though 14 other banks have positive distributable profits, the overall figure for the banking sector remains negative.
By the end of the third quarter, six banks have negative distributable profits. Four others have distributable profits below three percent, which means they are highly unlikely to pay dividends to their shareholders. Among the 20 commercial banks in the country, Everest Bank has the highest dividend-paying capacity at 34.09 percent, followed by Standard Chartered Bank at 19.35 percent and Sanima Bank at 18.92 percent. Only eight banks have a dividend capacity exceeding 10 percent.
