Banking sector's return continues to decrease

The return of the investors in the banking sector is squeezing due to slowdown in the profit growth rate lately.

The industry average of the listed commercial banks’ return has been continuously decreasing since last three years, though the banking sector can still distribute 21.78 per cent dividend in an average from the profits it recorded in the fiscal year 2011-12, but it differs from institution to

institution, according to their individual profit.

Some half dozen banks including Agriculture Development Bank, Nabil Bank, Nepal Investment Bank, Standard Chartered Bank Nepal, Everest Bank and Himalayan Bank have recorded over a billion rupees profit, whereas some of the banks have failed to post the profit equal to that of last fiscal year.

The listed 26 commercial banks posted a net profit of Rs 13.49 billion in the last fiscal year, and from the net profit, after separating 20 per cent in the reserve and surplus fund which is mandatory according to the central bank regulation, they can distribute Rs 10.79 billion — which is an average of 21.78 per cent dividends — to the share holders.

“The average dividend yield or the return has been decreasing since last couple of years, said share market analyst Rabindra Bhattarai.

In the last fiscal year 2011-12, the total paid up capital of the listed 26 commercial banks stood at Rs 49.54 billion and their net profit stood at

Rs 13.49 billion.

Of the total net profit, they have to separate 20 per cent in the reserve and surplus fund, according to the central bank. However, in the fiscal year 2010-11, an average return of the listed commercial banks was 31.96 per cent, and a fiscal year ago in 2009-10, it was 38.93 per cent.

Due to low confidence of the private sector, the banks are sitting on surplus cash currently, which will not only hit the profit growth rate but also overall economy as the banks and financial institutions are the financial intermediaries and they do not invest themselves.

The private sector borrowing could not be increased, unless the investors have confidence on government and guarantee of security of their investment and return. With limited sectors to invest in, the banks might feel heat in the current fiscal year.

However, the commercial banks’ profit growth rate will not go down, though it might slowdown, according to chief executive officer of Everest Bank PK Mohapatra.

 

Banking sector average return

2009-10 — 38.93 per cent

2010-11 — 31.96 per cent

2011-12 — 21.78 per cent