NRB paves way for BFIs to distribute dividend

Sharesansar, Sept 9:

The Nepal Rastra Bank has paved the way for the banking and financial institutions, which were in crisis during the last fiscal year, from distributing dividends, by allowing them not to make the provision for loss regarding inter-bank lending, loans and other claims for that period.

However, all such financial institutions will have to make the provision for loss from the current fiscal year.  

Such institutions will, nevertheless, not have to make an additional provision for loss if the central bank has barred them from selling the collaterals against inter-banking lending, loans and other claims.  

However, if such banking and financial institutions fail to take the initiative to redeem the collaterals by the end of the first quarter of the current fiscal year, they will have to make the provision for loss.

As per the amended guidelines of the central bank, these institutions will then have to make 25 percent provision for loss by the end of the first quarter of the fiscal year; 50 percent by the end of the second quarter and as much as cent percent by the end of the current fiscal year.

Nonetheless, if any institution had made the provision for loss in the last fiscal year then they cannot revoke the provision until the claims are recovered.

The central bank has, meanwhile, set additional conditions for the distribution of dividends for the banking and financial institutions.

Last year, the NRB had made a provision for a capital adequacy ratio of 11 percent for the distribution of dividend, which had made it difficult for the bank and financial institutions to distribute cash dividend despite the net profit they had posted in the previous fiscal year. They had then issued bonus shares and bonds to increase their CAR.

Now the central bank has directed all such institutions, which had not been able to meet the target for minimum paid-up capital in the last fiscal year, to furnish a plan to meet the target for the current fiscal year before they seek the permission to publish their financial details for the last fiscal year.

However, once the central bank allows these institutions to distribute the proposed bonus shares for the last fiscal year, it can be counted as the paid-up capital.