Adding to Restrictions Made in the Last Fiscal Year, Central Bank Further Tightens Dividend Distribution Constraints

Class D microfinance institutions licensed by Nepal Rastra Bank have to keep 50 percent of their dividend in the reserve fund. The central bank has issued a circular today stating that the microfinance institutions that distribute more than 20% dividend should keep the amount equaling 50% of the dividend amount in reserves.

Similarly, in order to promote overall financial stability in view of the impact due to the Covid 19 epidemic, NRB has brought a change in the procedure for the preparation of the annual financial statement of 2077/78. Now, the general loan loss provision has to be increased by 0.3 percent in addition to the existing 1 percent and the total loan loss provision has to be maintained at 1.3%.

In the circular issued, NRB has also extended the deadline for banks and financial institutions to publish interim financial reports by 15 days. If interest payment due by the end of Ashar is received before Bhadra 15, the income can still be chalked down under the financial report as of Ashar.

Meanwhile, in dividend distribution, the policy arrangement brought in the last fiscal year has been continued. According to this arrangement, banks and financial institutions will be allowed to declare and distribute cash dividends only up to 30 percent of the net distributable profit of the Fiscal Year 2077/78.

However, such cash dividend should not exceed the weighted average interest rate on deposits maintained till Ashar's end, 2078. Similarly, banks and financial institutions whose net distributable profit is less than 5 percent of the total paid-up capital will not be allowed to distribute cash dividends except for tax purposes.

Circular to A, B, and C Class Financial Institutions:

Circular to D Class Financial Institutions: