Bankers complain the central bank’s policy bars them from distributing dividends
KATHMANDU, Dec 20: Nepal Rastra Bank (NRB) Governor Maha Prasad Adhikari has said the central bank has tightened provisioning amount against bad loans to safeguard banks from possible financial risks, without affecting their tendency to provide dividends to shareholders.
At present, a number of bankers in a bid to save face have been blaming unfavorable policies of the central bank behind their inability to provide their shareholders with handsome returns. In this regard, NRB Governor Adhikari expressed his view to clarify the central bank’s take on the matter.
Economic slowdown and soaring bad debts hit banks’ profits
“I have heard that the NRB’s existing rule of provisioning has restricted banks from distributing dividends to their shareholders. However, the policy is not to reduce banks’ profits, but to save them from the current adverse situation,” said Adhikari, speaking at the annual general meeting of the Nepal Bankers’ Association (NBA) on Thursday.
Out of the dividends announced by a dozen commercial banks for this year, two are not providing any returns to their shareholders. Among nine of them, only Standard Chartered Bank has doubled the dividends ratio to 25.5 percent, while the rest of the banks have declared dividend ratios lower than the ratios they had distributed in the last fiscal year. In the past five years, dividends of Nabil Bank dropped to just 10 percent from as high as 35.26 percent.
According to the NRB, the non- performing loans (NPLs) ratio of banks reached as high as 3.8 percent in mid-July 2024, leading to a 29.5 percent increase in their loan-loss provisions. This reduced net profits by 8.8 percent in the last fiscal year. As of mid-October this year, banks’ NPL has further increased to 4.42 percent.
Loan loss provision refers to the amount set aside by banks and financial institutions to cover potential losses arising from the NPLs. At present, banks are required to keep 1.1 percent in loan-loss provision and 25 percent for substandard loans. Likewise, it is 50 percent in case of doubtful loans and 100 percent for bad loans that remain overdue for more than one year.
NRB Governor Adhikari said banks are now struggling to recover dues worth billions of rupees even in performing assets at present. “In this situation, provisioning has yielded a good result,” he added.
Santosh Koirala, the newly appointed president of the NBA, echoed Adhikari. “Banks are now struggling to recover their credits, which has increased their risk of facing increasing bad debts in the future,” said Koirala, adding that non-banking assets have piled up at banks which they are unable to sell at the market.
Former banker Rajan Singh Bhandari criticized the NRB’s policy on curbing banks from distributing shares and restricting banks’ promoters from selling their shares. “The central bank must also adopt a policy to separate bankers and businesspersons and facilitate letting go those who do not want to stay in the banking industry,” Bhandari said.
