Evaluation of Banks and Financial institutions in term of distributed dividend

Kathmandu October 27- There are two main reasons why investors invest in the capital market.  First, bonus share and cash dividend to be distributed from the company earning and second earning profits from fluctuation of the price. The country's central bank,  Nepal Rastra Bank adopted apolicy of increase in paid up capital by 4 fold through  the monetary policy in FY 2072/73 in order to strengthen the capital base of banks and financial institutions.

As per the directive, commercial banks need to raise paid up capital by 8 billion rupees, national level development banks by Rs. 2 billion 500 million, Development banks operating in 4 to 10 District by Rs. 1 billion 200 million, Development bank operating in 1 to 3 district by Rs. 500 million, Finance companies of national level and operating in  4 to 10 District  by Rs. 800 million, Finance companies operating in 1 to 3 District by 400 million till mid-July 2074.   Banks and financial companies have published their capital raising plan after the dicision.

Due to the intervene  of NRB to calculate preference share as paid up capital and distribution of cash dividend, a large scale of bonus share and right share may float in capital market which will eventually decrease NEPSE as a result of excessive share flow.

Nepalese capital market is dominated by large number of small investors who principally attracted to bonus share than cash dividend. Recent time shows that due to the expectation of Nepalese investors' of getting more bonus shares, NEPSE index has created history.

As Nepalese banks and financial institute have already submitted capital increment plan to NRB, preference is given to issuance of bonus shares to increase paid up capital along with cash dividend for tax provision. Lets see who is distributing how much of bonus share and cash dividend.

In FY 2071/72, Nabil Bank having highest paid up capital i.e. Rs 3 billion 657 million 400 thousands among commercial banks have announced 36.842% of dividend including 30% of bonus share and 6.842% of cash dividend. Last year Nabil bank offered 65% dividend with 20% bonus share and 45% cash dividend. After issuing 30% of bonus share its paid up capital will reach Rs. 4 billion 754 million 950 thousands. It has earned 2 billion 98 million 600 thousands profit in first quarter o 2071/72.

Among Development bank and Microfinance group, Nirdhan Uthan Developmetn bank has announced 61.91% of dividend including 48.81% of bonus share and 13.1% of cash dividned with 336 million paid up capital.  Bank had distributed52.63% of dividend with 40% bonus share and 12.63% of cash dividend last year. After the issuance of bonus share, paid up capital will increased by 48.81% i.e. Rs. 500 million. During the first quarter of 2071/72, bank has earned Rs. 278 million 300 thousands.

Similarly in Finance group Pokhara Finance Limited has highest paid up capital of 330 million 720 thousands and has announced of 54.05% dividend with 48.5% bonus share and 2.55% of cash dividend. Last year, it distributed 6% of bonus share and 10.63% of cash dividend which total up by 48.5%. Finance will reach 491 million 100 thousands paid up capital after issuance of bonus share. It has earned 156 million 400 thousands profit in first quarter of FY 2071/72.

Likewise, only two of Hydropower Company has announced dividend. One is of Arun Valley Hydropower company with 770 million 584 thousands has announced 11% dividend. Last year company has distributed 10% bonus share and 0.523% of cash dividend. Arun Valley has earned 60 million profit in first quarter of 2071/72.

In insurance group only three companies has announced dividend. Among them with 250 million paid up capital Neko Insurance has announced 12.71% of dividned. Last year it distributed 13.38% of dividend with 12.71% bonus share and 0.67% cash dividend.