Average bank dividend rate falls to 11pc, distributions Rs 10.89 billion below capacity

KATHMANDU: The dividend-paying capacity of Nepal’s commercial banking sector has weakened sharply, with the average dividend rate dropping to 11 percent, even as banks had the potential to distribute significantly more to shareholders.

Out of Nepal’s 20 commercial banks, only 13 banks have announced dividends from their profits of the last fiscal year 2081/82. These banks have declared total dividends worth Rs 24.64 billion, comprising Rs 8.65 billion in bonus shares and Rs 15.98 billion in cash dividends.

However, official financial data up to mid-July (end of Asar) shows that these 13 banks collectively had a dividend distribution capacity of Rs 35.39 billion. This means banks are distributing Rs 10.75 billion less than their capacity, reflecting mounting pressure on profitability despite adequate capital positions.

Based on capacity, the average potential dividend rate stood at around 16.37 percent, but actual declarations have pulled the average down to 11 percent.

Provisioning Pressure Hits Dividends

Banker Anil Gyawali said the sharp decline in dividend rates is primarily due to a rise in loan loss provisioning amid worsening asset quality.

“When loans turn bad, non-performing assets (NPA) increase, forcing banks to set aside higher provisions. This directly squeezes profits,” he said. Gyawali added that regulatory limits imposed by Nepal Rastra Bank (NRB) on various banking businesses have further increased provisioning requirements, reducing distributable profits.

He noted that if economic activity revives and loan recovery improves, banks may be able to reverse provisions, potentially improving dividend payouts in coming years. However, he cautioned that banks’ return ratios have been steadily declining, despite a significant increase in paid-up capital over the years.

“Earlier, banks operated with paid-up capital of Rs 2–4 billion. Now capital has increased manifold, while risk-weighted asset calculations and capital adequacy frameworks have become stricter,” Gyawali said.

Seven Banks to Pay No Dividend

Seven commercial banks have decided not to distribute any dividend from last year’s profits. These include Prabhu Bank, Rastriya Banijya Bank, Nepal Investment Mega Bank (NIMB), Himalayan Bank, Nepal Bank, Kumari Bank, and NIC Asia Bank.

Among them, Prabhu Bank, Rastriya Banijya Bank, and NIMB had dividend capacity but still opted not to declare dividends. The remaining four banks—Himalayan, Nepal Bank, Kumari, and NIC Asia—reported negative dividend capacity.

Data shows Prabhu Bank had a dividend capacity of 4.44 percent, Rastriya Banijya Bank 1.94 percent, and NIMB 1.44 percent, yet none of them announced dividends.

Directed Lending and Weak Growth Add Strain

Chairman of the Confederation of Banks and Financial Institutions Nepal (CBFIN), Upendra Prasad Poudel, said rising provisioning and problems linked to directed lending policies are the key reasons behind shrinking dividends.

Following paid-up capital hikes, banks expanded credit aggressively, he said. “When those businesses later deteriorated, banks were forced to make heavy provisions,” Poudel explained.

He pointed to NRB’s expansion of directed lending—from agriculture and energy to include small and medium enterprises (SMEs)—as another source of stress. According to him, banks were compelled to lend aggressively within fixed timelines, often without adequate risk assessment, leading to current asset-quality problems.

“Even loans considered safe have now become problematic,” Poudel said, adding that rising bad loans, weak interest recovery, restructuring, rescheduling, and tighter regulatory oversight have collectively eroded banks’ real profits.

“When there is no real profit, how can dividends be distributed?” he questioned.

Dividend Highlights

• Everest Bank declared the highest dividend at 20 percent, despite having a capacity of 38.37 percent.
• Standard Chartered Bank announced 19 percent cash dividend against a capacity of 19.85 percent.
• Agricultural Development Bank approved a 13 percent dividend, below its 18.42 percent capacity.
• Nabil Bank proposed 12.5 percent cash dividend, compared to a capacity of 17.64 percent.
• Global IME Bank declared 8 percent cash dividend, well below its 14.11 percent capacity.
• Prime Bank proposed 8.42 percent dividend, despite a capacity of 14.33 percent.

Only Citizens Bank distributed a dividend slightly higher than its capacity, declaring 5.26 percent against a capacity of 5.25 percent, citing adjustments during NRB approval.

Sector Outlook

According to senior bankers, sluggish credit expansion, limited non-interest income, weak loan recovery, and rising provisioning requirements continue to weigh heavily on profitability.

“Banks are earning little beyond interest income, credit growth is subdued, and provisions on past loans are increasing. The impact is directly visible in dividends paid to shareholders,” a bank CEO said.

The data underscores growing stress within Nepal’s banking sector, despite strong capital buffers, as asset quality challenges and regulatory pressures continue to limit returns to shareholders.