April 24: The distributable profits of half of the commercial banks operating in Nepal have been negative as of the third quarter of the current fiscal year.

This has raised doubts whether the banks will be able to distribute dividends to the shareholders after the end of the current fiscal year.

According to the unaudited financial statements of the third quarter released by the banks, the distributable profit of 10 out of 20 commercial banks is negative. The distributable profit of Himalayan Bank, Nepal Investment Mega Bank, Kumari Bank, NIC Asia Bank, Laxmi Sunrise Bank, Nepal Bank, NMB Bank, Global IME Bank, Machhapuchhre Bank and Siddharth Bank is negative.

According to Bhuvan Dahal, an expert in the banking sector, commercial banks have not been able to make a profit of late because they have not been able to collect the accrued interest from the borrowers.

"As per the instructions of Nepal Rastra Bank, the amount equivalent to the interest that is yet to be collected cannot be taken into consideration as distributable profit as 'regulatory adjustment' has to be done," he said.

According to Nepal Rastra Bank, under the regulatory adjustment, banks need to set aside the amount yet to recover from the borrowers for provisioning.

 With the slowdown in the country's economy, banks have been facing problems in loan recovery. As a result, bad loans are increasing, the central bank said. According to the data of Nepal Rastra Bank, the bad loans of commercial banks stood at 3.63 percent of the total loans as of mid-March.

Since the dividend distribution capacity of banks is assessed on the basis of distributable profits till the end of the year, the main challenge for banks is to improve the current situation by the next quarter.

In the current fiscal year, only 12 out of 20 banks have distributed dividends based on the profit earned in the previous year. Himalayan Bank, NMB Bank, Prime Commercial Bank, Kumari Bank, Nepal Bank, Nepal Investment Mega Bank, Prabhu Bank and Krishi Bikas Bank have not given returns to the investors this year.

Prabhu Bank, Krishi Bikas Bank and Prime Commercial Bank have distributable profit but decided not to issue dividends to the investors this year.

If Himalayan Bank, NMB Bank, Nepal Bank, Kumari Bank and Nepal Investment Mega Bank do not improve their distributable profit in the next three months by collecting interest, it seems that the investors of these banks will be disappointed in the next year as well. 

Himalayan Bank's distributable profit for the third quarter is negative by more than Rs 5.24 billion. It is the highest among all banks. The distributable profit of Nepal Investment Mega Bank is negative by more than 5.8 billion and stands second among the banks in this segment. Siddharth Bank has the lowest negative distributable profit. Its distributable profit is negative by more than Rs 27.12 million.

Everest Bank is leading among 10 commercial banks with distributable profit. The distributable profit of Everest Bank, which has a paid-up capital of more than Rs 11.76 billion, is more than Rs 2.75 billion.

Standard Chartered Bank's distributable profit is the highest after Everest Bank. Its distributable profit is more than Rs 1.81 billion. Currently, the paid-up capital of this bank is above Rs 9.42 billion. Based on the distributable profit up to the third quarter, the dividend potential of Standard Chartered is 19.27 percent. In the history of dividend distribution, this bank has distributed a maximum of 105 percent, but in the last 2 years, it has only distributed cash dividends. This year Standard Chartered distributed 19 percent cash dividend.