Over the years, Nepal’s commercial banks have seen a steady decline in Return on Equity (ROE)—a critical indicator of profitability. As ROE drops, so does the bank’s ability to distribute dividends. The recent quarterly reports released by Nepal’s commercial banks suggest that this trend is worsening in the fiscal year 2081/82 (2024/25).
Year-on-Year ROE Comparison
A comparative analysis of the third quarter ROE for FY 2080/81 vs. 2081/82 shows that:
- Industry-wide ROE dropped by 5.48% compared to the previous year.
- Among the commercial banks, NIC Asia Bank recorded the steepest decline in ROE.
- Nepal Bank, however, showed significant improvement in its ROE figures.
The broader market data suggests that more banks saw declining ROE than improvement.
Why Falling ROE Matters for Investors
The decline in ROE directly impacts the dividend distribution capacity of banks. In fact:
- Most banks distributed lower dividends in the current year compared to the previous one.
- Several institutions could not match last year’s dividend rates at all.
- Looking ahead, the downward trend is expected to continue, as projected by published financial statements.
This scenario is leading to a consistent drop in dividend yield, year after year.
Commercial Banks ROE Comparison (3rd Quarter)
| SN | Commercial Banks | Symbol | ROE FY 2081/82 | ROE FY 2080/81 | Difference |
|---|---|---|---|---|---|
| 1 | Nepal Bank Limited | NBL | 10.04 | 0.48 | +1991.67% |
| 2 | Nepal Investment Mega Bank Limited | NIMB | 9.67 | 7.63 | +26.74% |
| 3 | Global IME Bank Limited | GBIME | 9.48 | 7.52 | +26.06% |
| 4 | Everest Bank Limited | EBL | 15.82 | 13.04 | +21.32% |
| 5 | Machhapuchhre Bank Limited | MBL | 8.34 | 6.90 | +20.87% |
| 6 | Sanima Bank Limited | SANIMA | 10.35 | 9.85 | +5.08% |
| 7 | Nabil Bank Limited | NABIL | 11.30 | 11.06 | +2.17% |
| 8 | NMB Bank Limited | NMB | 10.45 | 10.43 | +0.19% |
| 9 | Prabhu Bank Limited | PRVU | 7.43 | 7.44 | -0.13% |
| 10 | Nepal SBI Bank Limited | SBI | 8.14 | 8.41 | -3.21% |
| 11 | Laxmi Sunrise Bank Limited | LSL | 5.28 | 5.52 | -4.35% |
| 12 | Siddhartha Bank Limited | SBL | 7.81 | 8.80 | -11.25% |
| 13 | Standard Chartered Bank Limited | SCB | 14.03 | 16.23 | -13.56% |
| 14 | Citizens Bank International Limited | CZBIL | 5.81 | 7.59 | -23.45% |
| 15 | Agricultural Development Bank Limited | ADBL | 6.88 | 9.35 | -26.42% |
| 16 | Prime Commercial Bank Ltd. | PCBL | 7.12 | 10.07 | -29.29% |
| 17 | Kumari Bank Ltd | KBL | 1.08 | 3.92 | -72.45% |
| 18 | Himalayan Bank Limited | HBL | 1.81 | 7.51 | -75.90% |
| 19 | NIC Asia Bank Ltd. | NICA | 0.71 | 8.59 | -91.73% |
Investors Should Rethink Their Strategy
If you’re looking to earn a decent return from dividends, buying shares in the secondary market may no longer be a sound strategy. Even long-term promoters—those who purchased founder shares early on—are struggling to match the returns on bank deposits.
In fact, over the last five years, even the institutional founder investors have earned less than average deposit interest rates from their holdings. Surprisingly, despite such underperformance, there’s no noticeable exit trend among major founders.
Why Are Founders Still Holding On?
In recent parliamentary committee discussions, a key debate has been whether banking and business should remain integrated or be separated. Despite poor returns, many founder-shareholders prefer keeping control, often citing strategic or financial leverage as reasons.
Veteran banker Rajan Singh Bhandari, who served over 27 years at Nepal Rastra Bank and spent 12 years in the commercial banking sector, explains:
“Despite not receiving returns even equal to the bank interest rate, many major founders continue to demand lower lending rates from banks. Why? Because for them, a 2% reduction in interest on their large-volume loans is often more profitable than the dividend returns itself.”
In other words, the cost savings on loans outweigh the benefits from dividend returns, making bank shareholding more about leveraging loans than generating passive income.
Bottom Line
- ROE is falling: Across the board, banks are becoming less profitable from an equity perspective.
- Dividend payouts are declining: Shareholders—especially new ones—should temper expectations.
- Strategic holding > dividend returns: Founders aren’t exiting not because of loyalty, but due to deeper financial incentives tied to lower cost of borrowing.
- For general investors, capital appreciation or active trading may be more viable than waiting for passive income from dividends.
