Banks shareholders return decreases
KATHMANDU:
The large number of right and bonus share issues brought down return on equity (RoE) of the commercial banks by 12 per cent in the previous fiscal year.
The average return on equity ratio of the commercial banks listed in Nepal Stock Exchange (Nepse) stood at 14.4 per cent by the end of last fiscal year — according to the unaudited fourth quarterly report of the banks for fiscal year 2010-11 — compared to 16.68 per cent a fiscal year ago.
In the last quarter of the fiscal year, the commercial banks’ return on equity recorded decline from that of third quarter when the average return on equity of the commercial banks stood at 15.56 per cent.
Generally, the return on equity between 15 per cent and 20 per cent are considered desirable.
The return on equity is calculated by dividing net income by shareholders’ equity. As the number of shares increases, the return on equity goes down.
In the recent months most of the listed banks had issued right shares to the existing shareholders to increase their paid up capital pulling the return down. The increment in equity size has offset the profits of the commercial banks.
“Lately, banks have issued large number of bonus and right shares that counterbalanced the higher profits earned by the banks pulling return on equity down,” said share analyst and managing director of Securities Research Center and Services Rabindra Bhattarai.
He also attributed the banks’ inability to generate much return on the additional equity as one of the contributing factor for not so satisfactory performance of the banking subgroup of late. Return on equity is rate of return a company earns on its stockholders’ funds. Its measure reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet.
Return on equity not only indicates the profitability of a company but is also an effective tool to measure a company’s efficiency at generating profits.
Citizens Bank International, Machhapuchchhre Bank and Agriculture Development Bank did not include Return on Equity in their fourth quarter financials.
Among the 21 banks that have published Return on Equity in their financials, 12 commercial banks’ return on equity is above the average while nine commercial banks’ return on equity is less than the industrial average of 14.4 per cent.
In the last three months alone the stock market saw more than nine million units of additional shares being listed of the commercial banks -all of these being right and bonus issues. Along with bombardment of new shares the subgroup also lost its sheen among the investors. In the last fiscal year alone banking subgroup lost 113 points.
Among the 31 commercial banks operating in the financial market, 24 are listed in the secondary market. The newly opened banks like Janata Bank, Mega Bank, Commerz and Trust Bank, Civil Bank and Century Commercial Bank have yet to float their shares to the public, while Nepal Bank was de-listed by the stock exchange due to bad governance.
Rastriya Banijya Bank’s total equity is held by the government itself thus it has no public shareholder.
What is return on equity?
Return on equity (RoE) measures the rate of return on the ownership interest (shareholders’ equity) of the common stock owners. It measures a firm’s efficiency at generating profits from every unit of shareholders’ equity also known as net assets or assets minus liabilities. The return on equity shows how well a company uses investment funds to generate earnings growth. The return on equity between 15 per cent and 20 per cent are considered desirable.
Source: THT
The large number of right and bonus share issues brought down return on equity (RoE) of the commercial banks by 12 per cent in the previous fiscal year.
The average return on equity ratio of the commercial banks listed in Nepal Stock Exchange (Nepse) stood at 14.4 per cent by the end of last fiscal year — according to the unaudited fourth quarterly report of the banks for fiscal year 2010-11 — compared to 16.68 per cent a fiscal year ago.
In the last quarter of the fiscal year, the commercial banks’ return on equity recorded decline from that of third quarter when the average return on equity of the commercial banks stood at 15.56 per cent.
Generally, the return on equity between 15 per cent and 20 per cent are considered desirable.
The return on equity is calculated by dividing net income by shareholders’ equity. As the number of shares increases, the return on equity goes down.
In the recent months most of the listed banks had issued right shares to the existing shareholders to increase their paid up capital pulling the return down. The increment in equity size has offset the profits of the commercial banks.
“Lately, banks have issued large number of bonus and right shares that counterbalanced the higher profits earned by the banks pulling return on equity down,” said share analyst and managing director of Securities Research Center and Services Rabindra Bhattarai.
He also attributed the banks’ inability to generate much return on the additional equity as one of the contributing factor for not so satisfactory performance of the banking subgroup of late. Return on equity is rate of return a company earns on its stockholders’ funds. Its measure reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet.
Return on equity not only indicates the profitability of a company but is also an effective tool to measure a company’s efficiency at generating profits.
Citizens Bank International, Machhapuchchhre Bank and Agriculture Development Bank did not include Return on Equity in their fourth quarter financials.
Among the 21 banks that have published Return on Equity in their financials, 12 commercial banks’ return on equity is above the average while nine commercial banks’ return on equity is less than the industrial average of 14.4 per cent.
In the last three months alone the stock market saw more than nine million units of additional shares being listed of the commercial banks -all of these being right and bonus issues. Along with bombardment of new shares the subgroup also lost its sheen among the investors. In the last fiscal year alone banking subgroup lost 113 points.
Among the 31 commercial banks operating in the financial market, 24 are listed in the secondary market. The newly opened banks like Janata Bank, Mega Bank, Commerz and Trust Bank, Civil Bank and Century Commercial Bank have yet to float their shares to the public, while Nepal Bank was de-listed by the stock exchange due to bad governance.
Rastriya Banijya Bank’s total equity is held by the government itself thus it has no public shareholder.
What is return on equity?
Return on equity (RoE) measures the rate of return on the ownership interest (shareholders’ equity) of the common stock owners. It measures a firm’s efficiency at generating profits from every unit of shareholders’ equity also known as net assets or assets minus liabilities. The return on equity shows how well a company uses investment funds to generate earnings growth. The return on equity between 15 per cent and 20 per cent are considered desirable.
Source: THT
