August 24: The Return on Equity (ROE) or the return on investment of most of the development banks declined in the last fiscal year (FY) compared to the previous FY.

The ROE of 10 out of 16 development banks listed in the Nepal Stock Exchange (NEPSE) decreased in the review year. Analysts consider that the decline in ROE as to the decrease in the return of shareholders who invested in banks and financial institutions.

Return on equity (ROE) is a measure of financial performance of a company

which gives information about the rate at which investors can get returns from investments made in shares.

Investors analyze ROE to see if a company is consistently outperforming other companies in the same sector.

Equity is obtained by subtracting external liabilities (claims other than shareholders) from total assets. And mathematically, ROE is obtained by dividing net profit by total equity. The longer the company is giving good returns on equity, the better it is for investment. ROE is a measure of a company's ability to make a profit and how effectively it generates profit. Companies with high ROE are considered good for investment. When comparing ROE, it should be compared between companies in the same sector. Generally, investors who invest in any bank and financial institution expect to get a return of 15 to 20 percent.

Based on the profits earned by banks, ROE differentiates how much dividends are paid to the shareholders. According to the general principles of investment, the attraction of investors should decrease in areas where ROE decline, but it seems that the attraction of investors is more in the shares of development banks.

The main reason for this is that the volume (paid-up capital) is low. Looking at the recent trend of the stock market, when the market increases, the share price of companies with low paid-up capital increases unnaturally. This means that traders are doing more business in the shares of such companies. Therefore, the share price is increasing. Recently, the number of short-term investments is more than long-term investments. Investors do not pay much attention to the financial condition and dividends after getting returns in a short period of time.

Highest ROE of Garima Development Bank

Garima Development Bank has the highest ROE of 15.70 percent among the 16 development banks listed in NEPSE. Similarly, Muktinath Development Bank's ROE is 14.45 percent. Two of the 16 development banks, Saptakoshi Development Bank and Narayani Development Bank are in losses. Similarly, the lowest ROE is of Sindhu Bikas Bank at 2.13 percent.

Similarly, Corporate Development Bank's ROE is 2.43 percent.

Ten years ago, the ROE of Muktinath Bikas Bank was 25.59 percent, but in the year 2022/23, it dropped to 14.45 percent. Similarly, Garima Bikas Bank's ROE was 19.24 in the year 2012/13, while last year it dropped to 15.70 percent.