Banks prioritize bonus shares to boost capital
KATHMANDU, Sept 16:
Commercial banks are offering higher percentage of bonus shares than cash dividends to their shareholders to strengthen their capital base.
Seven out of 30 commercial banks of the country are yet to maintain the minimum paid-up capital prescribed by Nepal Rastra Bank (NRB) - the central monetary authority. Banks that have already raised paid-up capital as specified by the central bank are also likely to prioritize distribution of bonus shares over cash dividend.
Eleven commercial banks, which have already announced benefits to shareholders for 2013/14, have increased dividend compared to fiscal year 2012/13. Nabil Bank Ltd topped the list of banks offering highest return to the shareholders. The bank has offered 65 percent dividend -- 20 percent bonus shares and 45 percent cash dividend -- to its shareholders.
The dividend announcement of the banks, however, is subject to approval of their upcoming annual general meetings and the central bank.
Except Nepal Credit and Commerce (NCC) Bank Ltd, which is yet to announce its dividend, six other banks, which are yet to meet the paid-up capital requirement, will be able to meet the paid-up capital requirement of Rs 2 billion if their proposed bonus shares distribution is approved by the NRB and their upcoming annual general meetings.
Among the banks whose paid-up capital is below the required level, Kumari Bank Ltd has announced highest number of bonus shares. The bank has announced 33 percent bonus shares to its shareholders.
Likewise, Laxmi Bank Ltd, Siddhartha Bank Ltd and Everest Bank Ltd have announced 20 percent, 12 percent and 12 percent bonus shares, respectively. Bank of Kathmandu and Lumbini Bank have also announced 10.42 and 6 percent bonus shares respectively.
Global IME Bank has announced to provide 21 percent bonus shares to its shareholders from the profit it generated in 2013/14. Last year, the bank had distributed 15 percent bonus shares.
Commercial banks are under pressure to increase their capital base also due to their falling capital adequacy ratio (CAR). CAR is a measure of a bank´s financial strength expressed by the ratio of its capital (net worth and subordinated debt) to its risk-weighted credit exposure (loans). A bank with a higher capital adequacy is considered safer because if its loans go bad, it can make up for it from its net worth.
The average CAR of commercial banks came down to 11.32 percent at the end of 2013/14, from 12.22 percent recorded at the end of 2012/13. Commercial banks are required to maintain CAR of at least 10 percent. Similarly, they should have additional one percent of buffer capital.
“Commercial banks are prioritizing distribution of bonus shares to raise their CAR as that would help them to finance big projects if the is demand,” Bhuvan Dahal, CEO of Sanima Bank Ltd, told Republica.
NRB is also encouraging banks to prioritize distribution of bonus shares rather than giving cash dividend. “Bonus shares boost paid-up capital of the bank.
As we have taken the policy to gradually implement Basel III, which speaks about raising the capital, we are asking banks to offer bonus shares. The increase in the capital means that the risk of the banks resulting from the low capital also decreases,” NRB spokesperson Manmohan Kumar Shrestha told Republica.
Shareholders also prefer bonus shares over cash dividend. “While cash dividend comes out of the stock´s face value of Rs 100, bonus shares have more value in the secondary market,” Raj Kumar Timilsina, president of Nepal Investors Forum, told Republica. “Except one or two banks, which dashed expectation of investors despite their capacity to offer more returns, dividend announced by other banks is moderate,” he added.
Narendra Sijapati, president of Stock Brokers Association of Nepal (SBAN), agreed with Timilsina. “The dividend announced by banks is higher than the return they had distributed last year,” Sijapati, who also runs Kalika Securities, said.
Source: Republica
