Banks can distribute 1.44 per cent to 38.27 per cent dividend subject to central bank approval

Due to central bank’s flexible policy most of the commercial banks appear to be able to provide dividends to shareholders from last fiscal year’s profit, as their balance sheets are comparatively better than last year.

Of the 20 commercial banks in operation, all except 4 will be able to distribute dividends to shareholders, according to their unaudited balance sheets of the last fiscal year 2024-25.

Based on last fiscal year’s profits, the banks’ capacity to distribute dividends ranges from 1.44 per cent to 38.27 per cent thanks to the Monetary Policy 2025-26 brought by the Nepal Rastra Bank (NRB) that has given a breathing space to the overburdened banks with toxic assets and non-performing loan (NPL). 

Among the 20 commercial banks, Everest Bank has the highest dividend-paying capacity at 38.27 per cent, while Nepal Investment Mega Bank’s capacity stands at 1.44 per cent. On an average, banks have a dividend-paying capacity of 10.33 per cent.

Central bank governor Bishwonath Poudel has also encouraged the banks to pay cash dividends, and that too before the Dashain festival, according to the bankers.

However, Nepal Bank, Kumari Bank, Himalayan Bank, and NIC Asia Bank will not be able to distribute any dividends to shareholders this year.

As of the last fiscal year 2024-25, the commercial banks reported a combined profit of Rs 71.18 billion, which is 43.68 per cent increase compared to the previous fiscal year.

Declining interest rates, increasing NPL due to slow economy and merger baggage had weakened cost efficiency, but regulatory relief from central bank helped the banks significantly to increase their profits in the last quarter. The banks also worked hard and managed to improve loan recoveries toward the end of the fiscal year.

The policy relaxations helped banks to reduce NPL ratios and write back certain provisions set aside for potential future risks, boosting annual profits by as much as 43 per cent, according to the bankers. “It not only helped increase profits but also enhanced banks’ capacity to distribute dividends to investors.”

World Bank sees vulnerabilities in banking sector

The World Bank suspects vulnerabilities in the banking sector due to a rising trend in non-performing loans (NPLs) of commercial banks point.
The Nepal Development Update issued by the World Bank reads that the overall NPLs remained low – below the 5 per cent level – which seems stable but a rising trend in NPL point to some emerging vulnerabilities. According to the report, NPLs of 7 out of the 25 private commercial banks rose by 25 per cent, which means the banking sector that seems to be stable is not as stable as it looks to be.
Earlier too, the International Finance Corporation (IFC) had suspected banking sectors balance sheet. The balance sheets that looked clean are not as clean and they could have been doctored, the IFC had reported.
The increasing trend of NPLs follows a rise in the interest rates that are skyrocketing, which could deteriorate the quality of loans of banks. “The elevated lending rates have pushed some borrowers into default,” the report reads, adding that it is, however, not possible to identify the key drivers of deterioration in these seven banks since the central bank does not report NPL ratios by sectors.
NPLs are the loans of banks that are overdue by more than 90 days. The banks have to provision for the NPL amount, which will eat the profit of the bank.
However, bankers opine that there is no reason to worry with the current level of NPLs as it is the lowest in the South Asian region.
The World Bank report also concludes that all banks and financial institutions (BFIs) are well capitalised and meet the capital adequacy ratio (CAR) requirement – of 11 per cent – indicating that they have capacity or capital cushion to withstand any shock.
The central bank has also been time and again reminding banks not to be aggressive in lending.

Minister Koirala urges RBB to increase lending

Rastriya Banijya Bank (RBB) should explore market for itself and not wait for government decision, said finance minister Shankar Prasad Koirala, addressing the 49^th anniversary of the RBB, here today.

The wholly state-owned bank should explore market and expand as the time has changed and it has no monopolhy market like earlier, he said, urging the bank to lend in the productive sectors prioritised by the government.

"Though, the bank has succeeded in deposit mobilisation, it has failed in lending, which is a serious case," he said, adding that the bank should focus on expanding its lending profile in the productive sectors. "The government encourages competition in the financial sector."

Likewise, chief executive of the bank Krishna Prasad Sharma said that the bank will focus on strengthening its capital structure and recovering non-performing loans (NPL).

"The bank will continue to reduce staff cost, expand its banking services and network, and prepare competitive human resource," he said, informing that the bank's targets to increase deposit mobilisation to Rs 121 billion and float Rs 78 billion loan within the next three years.

The only wholly government owned bank has mobilised deposit worth Rs 96 billion until mid-January, whereas its lending stands at Rs 52 billion. With 148 branch network across the country, the bank also provides services from its nine branchless banking offices and 80 ATM outlets across the country.

The net worth of the bank has been gradually increasing, said central bank governor Dr Yuba Raj Khatiwada, on the occasion. "The bank should focus on increasing non-interest income, Khatiwada said, adding that the balance sheet should also be stronger.

Similarly, finance secretary Shanta Raj Subedi said that the bank should now find its own market. "The RBB has operational autonomy," he said, adding that it should however move ahead according to policy and directives of the government and central bank.

Kist, Vibor call off merger

Due to differences over how to move ahead in the post merger scenario Kist Bank and Vibor Bikas Bank today decided to call it a quit after eight months of signing Memorandum of Understanding (MoU).

The confusion started after the exit in June of the then managing director of Kist Bank Kamal Gnawali – over the embezzlement  – who was supposed to be the chief executive of the merged entity.

"The merger process was sailing smoothly aiming at concluding it within the last fiscal year till June," a source at the merger committee that has three representatives from Kist and two from Vibor.

A meeting of the merger committee today decided to table the decision not to move ahead with merger process at their respective financial institutions to officially close the merger chapter between them.

Kist and Jyoti Group's Vibor had signed the MoU on March 21. But they have not yet completed due diligence audit (DDA) that would help fix the share swap ratio. They have also failed to reduce their non-performing loans (NPLs) below five per cent within three months as they have agreed during the agreement.

The delay has made the shareholders of both the financial institutions impatient as they have not been able to sell their shares. Nepal Stock Exchange (Nepse) has suspended the trading of the shares of both the financial institutions after they started merger process.

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Central bank declares General Finance crisis-ridden

The central bank has declared General Finance a crisis-ridden financial institution as its financial health worsened due to its failure to follow Nepal Rastra Bank’s directives issued some eight months ago.

According to the central bank, lack of internal control management, good corporate governance, prudential banking norms and weakness in risk management have made the finance company a troubled financial institution.

The class C financial company’s capital fund has turned negative by 16.83 per cent as of mid-April 2013, from a negative of 8.73 per cent a year ago, according to the central bank that claimed that it was a clear indication of the company’s failure in following the central bank’s directives.

The company has Rs 184.57 million NPL, an additional Rs 5.22 million was lent by breaching the single obligor limit, apart from Rs 41.45 million insider lending against Bank and Financial Institution Act (BAFIA).
Nepal Rastra Bank had during its supervision reduced these amounts from the core capital of the company last year.

The central bank has also issued a 13-point directive to General Finance. It has asked the company to maintain capital fund according to the Nepal Rastra Bank’s directives, barred deposit collection and lending, reduce non-performing loans to five per cent, not to increase salary and facilities to board members and employees, not to distribute dividend, carry out a due diligence audit and get financial transactions audited, apart from banning it to open new branches.

The finance company also has asked it to take prior approval before making payment of more than Rs 200,000 and selling its fixed assets.

However, the central bank is still hopeful of the recovery of the finance company, if its directors repay their loans. As a precaution, the central bank had blocked the accounts of 13 officials – including its chairman Upendra Narayan Shrestha, directors Kishor Kumar Maharjan, Krishna Prasad Shrestha, Kapoor Prasad Vaijoo, Bipin Timla, Mahendra Prasad Shrestha and Sidhi Das Sayami, chief executive Prakash Kumar Dhungana and GM Raju Kumar Pradhan – and clients of the company, including all of the board members and top management.

Agricultural Development Bank to give dividend for the first time

Agricultural Development Bank Ltd (ADBL) is distributing dividends to shareholders for the first time in the last three years since its public offering.

The bank has announced distribution of 5.6 per cent cash dividend to ordinary shareholders. Likewise, it has also decided to distribute six per cent cash dividend to its preference stocks, subject to the approval from the central bank. Though the bank’s financial health has improved in the last half decade, its non-performing loan (NPL) is higher than six per cent though its Capital Adequacy Ratio (CAR) is at 18 per cent — highest among commercial banks. Moreover, ADBL’s second quarter financial report shows its cost of fund to be at 5.5 per cent, and its base rate is fixed at 12.35 per cent, the highest among the commercial banks.
Likewise, by the end of the second quarter this fiscal year, the bank had earned Rs 546 million. In the review period, it floated loans worth Rs 43.1 billion and collected deposits worth Rs 44.97 billion, and its net interest payment stood Rs 1.97 billion.
ADBL had earned Rs 1.86 billion as net profit in fiscal year 2011-12, making it the biggest profit earning bank in the last fiscal year. It is also the largest domestic bank in terms of paid up capital with a capital of Rs 9.47 billion. It is also the second largest company at the stock exchange with a market capitalisation exceeding Rs 6.4 billion.

The bank, that had issued shares to the public in April 2010, had not been able to distribute any dividend to shareholders despite earning profits due to its retained losses.

However, ADBL’s shares today were traded at Rs 211 per unit. There are 30.4 million units of ADBL shares listed at Nepse.

The majority stake of the bank — higher than 51 per cent — is owned by the government which is worth Rs 1.6 billion, while more than 228,000 public shareholders have a stake worth Rs 1.41 billion. The bank, that was established 46 years ago to promote agro lending, was upgraded to a commercial bank in 2006.

Banks can withstand high shocks

The central bank has claimed that banks have sound financial health.
"The stress test results of commercial banks as of mid-July 2012 on credit, liquidity and market shocks revealed their ability to withstand high shocks," according to Nepal Rastra Bank's (NRB) Financial Stability Report.
Among the 32 existing commercial banks, a standard credit shock would push capital below the regulatory minimum in 22 banks, and two commercial banks would be under-capitalised, it said, adding that sustained deposit withdrawals over five consecutive days would render five banks illiquid, and liquidity ratios of 17 banks would fall below 20 per cent in the event of sudden large withdrawals by institutional depositors. "Given the amount and nature of exposure, commercial banks are relatively less vulnerable to market shock."
While the resilience of the commercial banks to credit and market shocks have improved over time, the liquidity scenario analysis shows some potential risk, it added, though the soundness of financial institutions was maintained with adequate capital, liquidity and profitability buffers and improvement in asset quality.
The banking sector is adequately capitalised with the overall industry average capital ratio of 18.2 per cent. The Capital Adequacy Ratio (CAR) of class 'A', 'B' and 'C' institutions stood at 11.5 per cent, 20.5 per cent and 23.1 per cent, respectively, in mid-July 2012, which is well above the minimum regulatory requirement.
Likewise, the asset quality of commercial banks has shown some signs of improvement with the reduction of non-performing loan (NPL) ratio from 3.2 per cent in mid-July 2011 to 2.6 per cent in mid-July 2012. The average NPL ratio of banks and financial institutions stood at 6.1 per cent with finance companies having the highest ratio of 10.7 per cent followed by development banks with 4.9 per cent, according to the report.