The return on investment for shareholders of banks and financial institutions (BFIs) has been on a gradual decline for the last nine months. Shareholders of 27 private commercial banks received an average return of 13.81 percent as of the first six months of the current fiscal year.
The poor return on equity has been blamed on the failure to make adequate investments and earn profits.Apart from three commercial banks in which the government owns shares—Nepal Bank, Rastriya Banijya
Bank and Agricultural Development Bank—and privately- owned Machhapu-chchhre Bank, the returns at other commercial banks have remained below 14 percent. Machhapuchchhre hasn’t included the indicator in its latest financial report.
In the first quarter of the current fiscal year, the return on investment of the shareholders of these 27 banks stood at 18.13 percent. In the last quarter of the last fiscal year, the average return on investment was 14.34 percent.
A decline in such earnings means shareholders are receiving less return for their investment. Bankers said that inefficient management and increasing costs had caused returns to drop.
Share market analyst Rabindra Bhattarai said that the dismal return on equity means bank profits haven’t increased in comparison to their capital increment.
However, he said that since the rate of return is greater than inflation, the value shareholders have been getting is satisfactory. According to him, the situation has arisen following the failure of financial institutions to increase lending in sectors where profits could be maximized.
In the overall banking system, Nepal Bank has garnered the highest return on equity. As per the details published, the bank has succeeded in providing a profit of 133 percent to its shareholders. Nepal Bank achieved the feat after it became successful in making the net worth positive by increasing capital.
A positive net worth and big profits mean better profits for shareholders. Rastriya Banijya Bank and Agricultural Development Bank have provided returns of 3 percent and 5.75 percent respectively.
With the central bank becoming stringent against wide spread rates and service charges, BFIs will face greater challenges to increase and maintain their profit ratio. While such measures have been taken to help common depositors, they will affect the interest of the shareholders of BFIs.
BFIs have been told to reduce the spread rate to 5 percent by the end of the current fiscal year. As of the first six months of the current fiscal year, 13 commercial banks had spread rates of above 5 percent. The banks generating higher profits for investors have a spread rate of more than 5 percent.
“Provisions like reducing the spread rate and service charges have a direct impact on the profits of banks,” said the chief executive officer of a commercial bank. “This will also impact profits of investors,” he added.
Likewise, the investments made by financial institutions seem to be dissatisfactory in the current fiscal year. Compared to their increased liquidity, lending hasn’t increased. This has also pushed up the operating costs of banks and their profits.
source: the kathmandu post,3 march 2014
LINK
The poor return on equity has been blamed on the failure to make adequate investments and earn profits.Apart from three commercial banks in which the government owns shares—Nepal Bank, Rastriya Banijya
Bank and Agricultural Development Bank—and privately- owned Machhapu-chchhre Bank, the returns at other commercial banks have remained below 14 percent. Machhapuchchhre hasn’t included the indicator in its latest financial report.
In the first quarter of the current fiscal year, the return on investment of the shareholders of these 27 banks stood at 18.13 percent. In the last quarter of the last fiscal year, the average return on investment was 14.34 percent.
A decline in such earnings means shareholders are receiving less return for their investment. Bankers said that inefficient management and increasing costs had caused returns to drop.
Share market analyst Rabindra Bhattarai said that the dismal return on equity means bank profits haven’t increased in comparison to their capital increment.
However, he said that since the rate of return is greater than inflation, the value shareholders have been getting is satisfactory. According to him, the situation has arisen following the failure of financial institutions to increase lending in sectors where profits could be maximized.
In the overall banking system, Nepal Bank has garnered the highest return on equity. As per the details published, the bank has succeeded in providing a profit of 133 percent to its shareholders. Nepal Bank achieved the feat after it became successful in making the net worth positive by increasing capital.
A positive net worth and big profits mean better profits for shareholders. Rastriya Banijya Bank and Agricultural Development Bank have provided returns of 3 percent and 5.75 percent respectively.
With the central bank becoming stringent against wide spread rates and service charges, BFIs will face greater challenges to increase and maintain their profit ratio. While such measures have been taken to help common depositors, they will affect the interest of the shareholders of BFIs.
BFIs have been told to reduce the spread rate to 5 percent by the end of the current fiscal year. As of the first six months of the current fiscal year, 13 commercial banks had spread rates of above 5 percent. The banks generating higher profits for investors have a spread rate of more than 5 percent.
“Provisions like reducing the spread rate and service charges have a direct impact on the profits of banks,” said the chief executive officer of a commercial bank. “This will also impact profits of investors,” he added.
Likewise, the investments made by financial institutions seem to be dissatisfactory in the current fiscal year. Compared to their increased liquidity, lending hasn’t increased. This has also pushed up the operating costs of banks and their profits.
source: the kathmandu post,3 march 2014
LINK
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