Kathmandu, October 28
Nepal’s banking sector has emerged as the best-performing group on the Nepal Stock Exchange (NEPSE), with the banking index reaching a two-year high amid a sustained rally in commercial bank stocks.
The banking index, which represents 19 commercial banks, stood at 1,582 points on Wednesday, its highest level since October 21, 2023, when it was recorded at 1,590 points.
The index has risen sharply over the past two months. From 1,426 points on August 26, it gained 10.93 percent by October 28. Over the same period, the broader NEPSE index rose by just 4.14 percent.
Some commercial bank stocks have recorded gains of more than 25 percent during the period. Investors have benefited from rising share prices, in addition to dividends distributed by banks that have already announced their payouts.
Among the banks that have declared dividends, Siddhartha Bank announced a 20 percent dividend, comprising 10 percent cash and 10 percent bonus shares. Everest Bank declared a 15 percent dividend, split between 10 percent cash and 5 percent bonus shares, while Nabil Bank announced a 15.8 percent dividend, comprising 10.8 percent cash and 5 percent bonus shares.
Sanima Bank declared a 10 percent cash dividend, while Global IME Bank announced a 10 percent dividend, comprising 6 percent cash and 4 percent bonus shares. Machhapuchchhre Bank declared a 6 percent dividend, split equally between cash and bonus shares. Citizens Bank announced 3.8 percent bonus shares, while Kumari Bank declared a 2.1 percent cash dividend.
These dividends have been adjusted in the respective share prices. Investors have therefore gained from price appreciation in addition to the dividends already accounted for in the adjusted prices. Share prices of banks that have yet to announce dividends have also risen.
Laxmi Sunrise Bank records the biggest price gain
Among the 19 commercial banks, Laxmi Sunrise Bank recorded the largest share-price increase between August 26 and October 28, rising 25.86 percent from Rs 216.90 to Rs 273.
NMB Bank’s share price increased 15.36 percent, while Prime Commercial Bank gained 15.13 percent. Agricultural Development Bank rose 14.49 percent, and Investment Mega Bank gained 13.14 percent.
Kumari Bank’s share price increased 12.94 percent, followed by Nepal Bank at 12.62 percent, Citizens Bank at 12.37 percent and Machhapuchchhre Bank at 11.69 percent. Global IME Bank rose from Rs 243.10 to Rs 255.90, while Himalayan Bank gained 8.02 percent.
The figures for banks that distributed dividends need to be interpreted alongside dividend adjustments, as the reported price changes alone do not fully capture shareholders’ returns.
Lower valuations attract investors
Tulsi Ram Dhakal, president of the Nepal Investors Forum, said commercial banks were attracting investors partly because their shares remained relatively inexpensive.
“The price-to-earnings ratio is one of the key indicators investors consider, and commercial banks have the lowest P/E ratios. This makes their shares appear attractive for investment,” Dhakal said.
The price-to-earnings ratio compares a company’s market price per share with its earnings per share.
Dhakal added that institutional investors were also showing interest in commercial bank stocks because they generally preferred established companies with relatively stable businesses and a history of dividend distribution.
Investors are also anticipating that banks’ financial conditions may stabilise, despite limited improvement in recent financial statements. High levels of non-performing loans and non-banking assets, along with difficulties recovering principal and interest payments, have continued to weigh on distributable profits.
However, banks expect recoveries of previously unpaid loans and interest to improve, potentially supporting future earnings and dividend capacity.
Loan recovery could support future dividends
Prasiddha Raj Aryal, deputy chief executive officer of Machhapuchchhre Bank, identified two major reasons for the decline in dividend payouts in recent years.
The first is the narrowing spread between lending and deposit interest rates, which has reduced income. The second is the increase in non-performing loans, which has required banks to set aside more money for potential credit losses.
Aryal said provisions made against possible loan losses were not necessarily lost permanently, as the funds remained reflected in banks’ balance sheets and could produce benefits if recoveries improved.
“The amount set aside for provisioning has not disappeared; it remains on the balance sheet. When the recovery phase begins, investors can benefit from it later,” he said.
Recoveries of overdue principal and interest can improve reported profits and potentially increase the amount available for dividend distribution. However, the extent to which this translates into higher payouts will depend on banks’ actual recoveries, earnings and financial positions.
