CHAPTER-I

INTRODUCTION

1.1 Background of the Study

Dividend represents a distribution of earnings to the shareholders of a company
that are usually declared at Annual General Meetings and paid to shareholders
of record. Dividend or profit allocation decision is one of the four decision
areas in finance. The other three are financing, investment, and working capital
management decisions. As noted by Ross, Westerfield and Jaffe (2002)
companies view the dividend decision as quite important because it determines
what funds flow to investors and what funds are retained by the firm for
investment. Dividend policy can also provide information to stakeholders
concerning the company’s performance.

In order to sustain in capital market earnings is essential for any corporate

company. Those earnings are either in the form of dividend and capital gain.
Division of profit is done and provided to the shareholders of the firm as
dividend. However, they do not become the property of the shareholders and
have no right to them until directors of the company have assessed a resolution
declaring a dividend. The policy of company regarding division of profit
between and retention is known as dividend policy. Decisions concerning
dividend policies are next to investment and capital structure decisions. It is
one of the most important issues company has to consider. Dividends as
elements of divisions of net profit are part of the financial strategy of an
enterprise. With that in mind, managers have to decide what structured payout
policy should they follow considering the aspects of its existence on the market
and long term growth. For investors, problem lies in the immediate earnings or
possible future growth (Bhattarai; 2008).

Dividend policy has significant impact on the company's capital market, in

particular the dynamics of the price of its shares. Dividend represents cash income

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of the shareholders and to some extent, signals them to about success of the firm
they have invested. From that point of view dividend policy has its significance in
investment decisions (Bhattarai, 2007).

Earnings are treated as the financing sources of the firm. The firm retains the
earnings; its impact can be seen in many factors such as decreased leverage
ratio, expansion of activities and increase in profit in succeeding years.
Whereas if firm pays dividend, it may need to raise capital through capital
market that may affect the risk characteristics of the firm. Therefore there are
many dimensions to be considered on dividend policies, theories and practices.

A number of studies have been carried out to find out the effect of dividend
policy in share price in different parts of the world particularly in developed
countries. Most of the earlier studies indicate the importance of dividend policy
in determining the share price. Corporate should follow appropriate dividend
policy to maximize shareholders value. In the context of Nepal, limited studies
have been carried out on this subject matter even though it holds enormous
significance in our Nepali Market. So this study aims to mobilize the fund
prevailing practice and policies, relevant factors of some Nepal’s listed
commercial bank regarding to the difference in policy adopted by them
considering size of dividend and its impact in comparison with each other.

1.1.1 Profiles of Sample Banks

Everest Bank Limited (EBL)
Catering to more than 10 lacs customers, Everest Bank Limited (EBL) is a
name you can depend on for professionalized & efficient banking services.
Founded in 1994, the Bank has been one of the leading banks of the country
and has been catering its services to various segments of the society. With
clients from all walks of life, the Bank has helped develop the nation
corporately, agriculturally & industrially.

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Punjab National Bank (PNB), our joint venture partner (holding 20% equity) is
one of the largest nationalized bank in India having presence virtually in all
important centers. Owing to its performance during the year 2012-13, the Bank
earned many laurels & accolades in recognition to its service & overall
performance. Recently, PNB was awarded with “IDRBT Banking Technology
Excellence Award” under Customer Management & Intelligence Initiatives.
The Bank also bagged “Golden Peacock Business Excellence Award 2013” by
Institute of Directors. Similarly, the Bank was recognized as ‘Best Public
Sector Bank’ by CNBC TV 18. The bank has now more than 7,000 branches
and 8,500 ATMs spread all across India. As a joint-venture partner, PNB has
been providing top management support to EBL under Technical Service
Agreement. Everest Bank Limited (EBL) provides customer-friendly services
through its wide Network connected through ABBS system, which enables
customers for operational transactions from any branches. The bank has 86
Branches, 115 ATM Counters, 3 extension counter & 28 Revenue Collection
Counters across the country making it a very efficient and accessible bank for
its customers, anytime, anywhere.

Vision
To be a Leading Commercial Bank with Pan Nepal presence and become a
household name, providing wide range of financial products and services under
one roof Mission
Growth through Banking for ALL

NABIL Bank Limited (NABIL)

Nabil Bank Limited is the nation’s first private sector bank, commencing its
business since July 1984. Nabil was incorporated with the objective of
extending international standard modern banking services to various sectors of
the society. Pursuing its objective, Nabil provides a full range of commercial
banking services through its 67 points of representation. In addition to this,

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Nabil has presence through over 1500 Nabil Remit agents throughout the
nation.

Nabil, as a pioneer in introducing many innovative products and marketing

concepts in the domestic banking sector, represents a milestone in the banking
history of Nepal as it started an era of modern banking with customer
satisfaction measured as a focal objective while doing business. Operations of
the bank including day-to-day operations and risk management are managed by
highly qualified and experienced management team. Bank is fully equipped
with modern technology which includes international standard banking
software that supports the E-channels and E-transactions.

Nabil is moving forward with a Mission to be “1st Choice Provider of

Complete Financial Solutions” for all its stakeholders; Customers,
Shareholders, Regulators, Communities and Staff. Nabil is determined in
delivering excellence to its stakeholders in an array of avenues, not just one
parameter like profitability or market share. It is reflected in its Brand
Promise “Together Ahead”. The entire Nabil Team embraces a set of Values
“C.R.I.S.P”, representing the fact that Nabil consistently strives to be Customer
Focused, Result Oriented, Innovative, Synergistic and Professional (Source:
www.nabilbank.com). Nepal Investment Bank
Nepal Investment Bank Ltd. (NIBL), previously Nepal Indosuez Bank Ltd.,
was established in 1986 as a joint venture between Nepalese and French
partners. The French partner (holding 50% of the capital of NIBL) was Credit
Agricole Indosuez, a subsidiary of one the largest banking group in the world.

With the decision of Credit Agricole Indosuez to divest, a group of companies

comprising of bankers, professionals, industrialists and businessmen, had
acquired on April 2002 the 50% shareholding of Credit Agricole Indosuez in
Nepal Indosuez Bank Ltd.

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The Corporate Vision and Mission of the NIBL are as follows:

Vision
To be the most preferred provider of Financial Services in Nepal

Mission
To be the leading Nepali bank, delivering world class service through the
blending of state-of-the-art technology and visionary management in
partnership with competent and committed staff, to achieve sound financial
health with sustainable value addition to all our stakeholders. We are
committed to do this mission while ensuring the highest levels of ethical
standards, professional integrity, corporate governance and regulatory
compliance.

Standard Chartered Bank Nepal Limited (SCBNL)

Standard Chartered Bank Nepal Limited has been in operation in Nepal since
1987 when it was initially registered as a joint-venture operation. Today the
Bank is an integral part of Standard Chartered Group having an ownership of
70.21% in the company with 29.79% shares owned by the Nepalese public. The
Bank enjoys the status of the largest international bank currently operating in
Nepal.

Standard Chartered has a history of over 150 years in banking and operates in
many of the world's fastest-growing markets with an extensive global network
of over 1700 branches (including subsidiaries, associates and joint ventures) in
over 70 countries in the Asia Pacific Region, South Asia, the Middle East,
Africa, the United Kingdom and the Americas. As one of the world's most
international banks, Standard Chartered employs almost 87,000 people,
representing over 115 nationalities, worldwide. This diversity lies at the heart
of the Bank's values and supports the Bank's growth as the world increasingly
becomes one market.

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With 15 points of representation, 23 ATMs across the country and with more
than 450 local staff, Standard Chartered Bank Nepal Ltd. is in a position to
serve its clients and customers through an extensive domestic network. In
addition, the global network of Standard Chartered Group gives the Bank a
unique opportunity to provide truly international banking services in Nepal.

Standard Chartered Bank Nepal Limited offers a full range of banking products
and services to a wide range of clients and customers encompassing
individuals, mid-market local corporate, multinationals, large public sector
companies, government corporations, airlines, hotels as well as the DO
segment comprising of embassies, aid agencies, NGOs and INGOs.

The Bank has been the pioneer in introducing 'customer focused' products and
services in the country and aspires to continue to be a leader in introducing new
products in delivering superior services. It is the first Bank in Nepal that has
implemented the Anti-Money Laundering policy and applied the 'Know Your
Customer' procedure on all the customer accounts.

Corporate Social Responsibility is an integral part of Standard Chartered's

ambition to become the world's best international bank and is the mainstay of
the Bank's values. The Bank believes in delivering shareholder value in a
socially, ethically an environmentally responsible manner. Standard Chartered
throughout its long history has played an active role in supporting those
communities in which its customers and staff live. It concentrates on projects
that assist children, particularly in the areas of health and education.
Environmental projects are also occasionally considered. It supports
nongovernmental organisations involving charitable community activities The
Group launched two major initiatives in 2003 under its 'Believing in Life'
campaign- 'Living with HIV/AIDS' and 'Seeing is Believing'.

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1.2 Statement of the Problems
Dividend policy being one of the major decisions to be taken by firm has not
become a well known phenomenon or a matter or practice to a larger number of
financial communities even today. Since, long time back there has been heated
controversy regarding relevancy and irrelevancy of dividend policy. Scholars
have not been able to define simple and conclusive relationship between
dividend policy and market price of the stock. Some experts stand with a belief
that there is positive relationship between dividend distribution by a firm and
its price of share where as at the same there are others who put upon their view
against this.

Dividend decision is crucial as well as controversial area of financial

management. Besides it is not clearly understood by a larger segment of the
financial community. No matter how many studies have been conducted in this
regard the effect of dividend policy on a corporation’s market value has
remained a subject of long standing controversy. The main focus of the study is
to deal with the following problems;
1. What are the returns of EBL, NABIL, NIBL and SCBNL to its investors?
2. What is the relationship between DPS and MPS, DPS and EPS and MPS
and EPS of EBL, NABIL, NIBL and SCBNL?
3. What is the trend of EPS DPS and MPS of sample banks?
4. Is there any consistency in EPS, DPS, MPS and DPR of the sample
banks?

1.3 Objectives of the Study

The major objective of the study is to obtain the depth knowledge about the
impact of dividend policy adopted by the banks to its market price of share as
well as the overall valuation of the bank. The following are the specific
objectives of this study.
1. To examine the returns of EBL, NABIL, NIBL and SCBNL to its
investors.

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2. To analyze and interpret the relationship between DPS and MPS, DPS
and EPS and MPS and EPS of EBL, NABIL, NIBL and SCBNL.
3. To examine the trend of EPS, DPS and MPS of EBL, NABIL, NIBL and
SCBNL.
4. To examine the consistency among EPS and DPS, EPS and MPS and
DPS and MPS of EBL, NABIL, NIBL and SCBNL.

1.4 Significance of the Study

The people are attracted to invest in shares for the purpose of getting more
return as well as to maximize their wealth, so the dividend policy has become
as effective way to attract new investors, to keep present investors happy and to
maintain goodwill of the company. The important aspect of the dividend policy
is to determine the amount of earnings to distribute to the shareholders and the
amount to be retained in the bank. The financial manager must very carefully
decide the allocation of earnings between dividends and retain earnings as this
decision affects the value of firm. The objective in choosing dividend policy
should be to maximize the value of the firm to its shareholders.

The dividend is most sensitive element in the area of investment in the common
stock. If the market doesn’t receive its expected dosage, stock price will suffer.
Dividend payout of course reduce the amount of earning retain in the firm and
affect the total amount of internal financing. The study may deliver crucial
information for those respective commercial banks are made. The main
significance of study is as follows;
1. The study aims to provide important and useful information to the
investor.
2. It will be useful for the management.
3. It will useful for stock broker, financial agencies, policy makers and
various stakeholders.
4. This study helps to formulate dividend policy to the policy maker
while making their dividend policy.

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 5. This study will beneficial also to those parties who are directly or
indirectly related to the financial institution.
6. This study covers the partial fulfillment of the requirement of MBS,
T.U.

1.5 Limitations of the Study

Dividend policy is the vital aspect of the financial management. For a corporate
manager it is the most challenging and crucial part of the decision making
process because it has the signaling effect towards market price of stock. This
study has been carried out within certain limitations which are as follows.
1. Data taken for analysis covers only seven years from year 2011/12 to
2017/18.
2. The study covers only four selected commercial banks.
3. The study only concentrates on impact of dividend policy on market
price of selected banks.
4. The data of samples banks analyze with the use of limited tools and
technique.

1.6 Organization of Study

The study has been organized into five chapters each chapter deals some
important factors of dividend behavior. The titles of each of these chapters are
organized in the following ways:

Chapter- I: Introduction
This chapter deals with the general idea about the study consisting background
of the study, Statement of problem, Objective of the study, significance of the
study, Limitation of the study and organization of the study.

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Chapter- II: Review of Literature
This chapter deals with review of the different literate of the study field,
therefore it includes conceptual framework along with the review of major
books, journals, research works and thesis etc.

Chapter- III: Research Methodology

This chapter describes the research methodology with the matter and source of
data population and sample of the model analysis, meaning and definition of
statistical tools.

Chapter- IV: Data Presentation and Analysis

Analytical framework starts from this chapter. It contains presentation and
analysis of the data using financial and statistical tools. Similarly this chapter
also includes the major finding of the study so it is main part study.

Chapter- V: Summary, Conclusion, Recommendation and Implication

This chapter deals with suggestive framework, which is evocated to summary
conclusion, recommendations and Implications.

At the end of the research, bibliography and annex are also included.

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 CHAPTER-II
REVIEW OF LITERATURE

The present research aims to analyze the dividend policy of Commercial Banks
in Nepal. In this chapter conceptual framework given by different authors and
intellectuals of this area, magazine, books, journals, research works, previous
thesis etc related to dividend and dividend policy are reviewed. Moreover, rules
and regulation regarding to dividend policy are reviewed and an attempt has
been made to present them properly.

2.1 Conceptual Framework

2.1.1 Meaning of Dividend
Dividend policy involves the decision to payout verses retaining them for
reinvestment in the firm. Any change in dividend policy has both favorable and
unfavorable effects on the firm’s stock price. Higher the dividends means
higher the immediate cash flows to investors, which is good, but lower future
growth which is bad. The dividend policy should be optimal which balances the
opposing forces and maximizes stock price. Management should try to
maintain regular dividend. For regular dividend, the firm will have sufficient
earnings. Management will set a lower regular dividend rate than firms with the
same average earnings but less volatility. Management may also declared extra
dividends in years when earnings are high and funds are available (Gautam and
Thapa, 2008).

The existing literature states that the dividend policy has both relevancy and
irrelevancy toward the market price fluctuation. The optimum dividend policy

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depends on the relation between the firm’s internal rate of return ‘r’ and the
cost of capital ‘k’ (Walter; 1966). M-M has argued that the dividend decision
will have no impact on market price; rather market price is determined by the
earning power of the firm’s assets (Miller and Modiglini, 1961).

If the company pays the earning as a dividend, they are beneficial directly and
if company retains in the business to finance the business opportunities they are
benefited indirectly through the investment of market price of share i.e. capital
gain. In both of the case, shareholders get benefit. But, how much should be
retained in business in not a simple question. Since dividends would be more
attractive to shareholder, one might not hesitate to say that dividends weight
more than retention in the perception of the shareholders. But one might
equally pressure that gross dividend would be reduced somewhat with an
increase in net after tax dividend. Because tax dividend still a major decision of
financial manager available to shareholders so it would be wise, policy to
maintain balance between shareholders interest with that of corporate growth
from initially generated fund. Therefore, in conclusion it can be said that
dividend decision is a major decision of financial management.

2.1.2 Forms of Dividend

Dividends can be distributed different forms regarding the corporate dividend
policy and attitude to the directors. The types of dividend that corporations
follow is partly a matter of attitude of directors and partly a matter of
shareholder's preferences, and also depending on the various circumstance and
financial constraints that bound corporate plan and policy. Dividend may be
distributed in different forms as enumerated below:

i) Cash Dividend
Distribution of dividend in cash out of the earnings generated is called cash
dividend. Cash dividend reduces the retained earning. Such dividend enhances

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liquidity problem in corporation. The market price of the share drops in most
cases by the amount of cash dividend distributed (Hasting: 1996).

Generally, stockholders have strong preference for cash dividend. Both the total
assets and net worth of the company are reduced by same amount, when the
cash dividend is announced or distributed. Moreover, the share price will fall
(or may not) after the cash dividend. Therefore, the need is that, the firm should
have sufficient fund for the distribution of the cash dividend among
shareholders or if the firm does not have sufficient fund for the distribution: it
should borrow from any source. Cash dividend has the psychological value for
stockholders. Each and everyone like to collect their return in cash rather than
non-cash means. So cash dividend is not only a way of perception improvement
in the capital market.

ii) Stock Dividend

Stock dividend is the payment of additional shares to the existing shareholders
often used in place of or in addition to cash dividend (Van Horne: 2000).

Stock dividend is known as bonus shares too. An issue of bonus share

represents a distribution of shares in addition to the cash dividend (known as
Stock dividend in U.S.A) the existing shareholders (Pandey, 1995).

Stock dividend becomes supplement to cash dividend. A stock dividend simply

is the payment of additional stock to shareholders nothing more than a
recapitalization of the company; a stockholder's proportional ownership
remains unchanged. (Van Horne, 2000). "A stock dividend is paid in additional
shares of the stock instead of in cash and simply involves a book keeping
transfer from retained earning to stock accounts" (Weston and Copeland;
1991). In any case, the concern of the management is the positive effect on the
stock price. The stock dividend must not be issued if it causes the stock price

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decline. The effect of the stock dividend cans be outlined into the following
points:
1. The issue of the stock dividend increases the number of the outstanding
shares.
2. The issues of stock dividend transfer retained earnings to the capital
amount.
3. The net worth and the par value of the company do not change with the
issue of stock dividend.
4. The issue of the stock dividend does not affect the stockholders
proportional ownership.
5. The earning per share (EPS) will decrease if the total profit does not
increase.

iii) Bond Dividend

It is the bond distributed to the stockholders in the form of bond. The main
policy and objective of such dividend is to postpone the payment of cash. It has
fixed maturity period. Therefore the intention and purpose of bond dividend is
also the postponement of dividend payment for sometime. The only difference
between bond and scrip dividend and scrip dividend is that bond carries
relatively longer maturity period than scrip dividend.

iv) Scrip Dividend

Scrip dividend is the payment of dividend in scrip or promissory notes. Because
of temporary cash shortage, sometimes the firm needs cash generated by
business earnings to meet the different requirements. For those requisites, scrip
dividend is issued promising the payment will be made in future. The scrip has
the definite maturity period and may be of either interest bearing or not. But in
financial practice it is relatively scare.

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v) Property Dividend
If the company pays the dividend in the form of assets to its stockholders other
than the cash is known as property dividend. In this practice, assets, which are
superfluous for the company, are distributed as dividend to the stockholders,
and in some cases the company pays (as dividend) the subsidiary company's
shares. But the shares have to be owned by the company. Property dividends
are also least used practice and used when extra ordinary circumstances exist.

Even though this type of dividend is paid in the extra ordinary situation, it is
less attractive in the point of view of the investors in any cases. Similarly the
payment of the subsidiary company's shares in place of cash dividend could
result the negative impact of 'this is not better than that'. The shareholder may
feel the shares that are paid to them as of less value therefore they are paid.
(Weston and Copeland; 1991)

2.1.3 Theories of Dividend

Residual Theory of Dividend
Residual dividend policy is based on the premise that investors prefer to have a
firm retain and reinvest earnings rather than pay them out in dividends if the
rate of return the firm can earn on reinvested earnings exceeds the rate of return
investors can obtain for themselves on the other investments of comparable
risk. This theory states that profit should be used first in all profitable
investment plans which reflect equal or higher rate of return. Further it is less
expensive for the firm to use retained earnings than is to issue new common
stock (Gautam and Thapa, 2011).

A firm using residual dividend policy would follow these four steps:
1. Determine the optimal capital budget.
2. Determine the amount of equity required to finance the optimal capital
budget given its target capital structure, recognizing that funds used will
consist of both equity and debt to preserve the optimal capital structure.

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 3. To the extent possible, use retained earnings to the supply the equity
required.
4. Pay dividends only if more earnings are available than are needed to
support the optimal capital budget.

Stability of Dividend
Stability or regularity of dividend is considered as a desirable policy by the
management of most companies in practice. Stability of dividend refers to the
amount paid out regularly. Though amount of dividend may fluctuate from year
to year and may not be related with earning. Shareholders also generally favor
this policy and value stable dividends higher than fluctuating ones. All other
things being the same, stable dividends have a positive impact on the market
price of the share (Pandey, 1995).

There are some reasons to believe that a stable dividend policy does lead to
higher stock prices. First investors can be expected to value more highly
dividends that they are surer of receiving since fluctuating dividends are riskier
than stable ones. Accordingly, the same average amount of dividend received
under a fluctuating dividend policy is likely to have a higher discount factor
applied to it than is applied to dividends under a stable dividend policy. This
means that a company with a stable dividend will behave a lower required rate
of return or cost of equity capital than one whose dividend fluctuated.

Second many stockholders live on income received in the form of dividends.

These stockholders are greatly inconvenienced by fluctuating dividends and
they will likely to pay a premium for a stock with a relatively assured minimum
dollar dividend. These stock holders are greatly inconvenienced by fluctuating
dividends and they will likely to pay a premium for a stock with a relatively
assured minimum dollar dividend. Third from the stand point of both the
corporation and its stockholder is the requirement of legal listing.

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Even though most firms seem to have a policy of paying stable cash dividends,
this is not the only policy. The three distinct forms of such stability of dividend
payments are as follows:

1) Constant Payout Ratio

The ratio of dividend to earnings is known as payout ratio. Paying a fixed
percentage of net earning every year is called constant payout ratio. With this
policy the amount of dividend will fluctuate in direct proportion to earning. It
ensures that dividends are paid when profits are earned and avoided when it
incurs losses. Management generally adopts this type of policy since it is
directly related to the company’s ability to pay dividend.

2) Stable Cash Amount per Share

This payout scheme is called constant dividend per share or dividend rate.
According to this policy, a company pays a fixed a rupee dividend in each
period. This policy is generally preferred by those persons and institutions that
depend upon the dividend income to meet their living and operating expenses.
This policy doesn’t imply that the dividend per share will never increase. When
the company reaches new level of earnings and expects to maintain it, the
annual dividends per share may be increased. It is easy to follow when earning
is stable. If the earning pattern of a company shows wide fluctuations it is
difficult to maintain such policy.

3) Low Regular Dividend plus Extras Dividend

Low regular dividend per share plus extra dividend is a compromise between
the first two. According to this policy the low regular dividend can usually be
maintained even when earnings decline and extra dividend can be paid when
excess funds are available. It gives the firm flexibility but it leaves investors
somewhat uncertain about what their dividend income will be. This policy may
be the best policy, if the firm’s earning is quite volatile.

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2.1.4 Factors Affecting Dividend Policy
Many considerations may effect a firm’s decision about its dividends, some of
them are unique to that company and some of the more general considerations
are given subsequently. They are as follows:

i) Size of the Earnings

A firm that has high level of earning will generally pay a larger portion of its
earnings in dividends. If the size of earnings is small, a smaller amount of the
profits may be distributed to shareholders. Thus, size of earnings affects the
dividend policy of the firm.

ii) Liquidity Position

Cash or liquidity position of the firm influences its ability to pay dividend.
Greater the cash position and over all liquidity of a company shows its ability
to pay dividend.

iii) Legal Rules

The dividend policy of the firm has to evolve with the legal framework and
restrictions. Certain legal rules may limit amount of dividends that a firm may
pay. First statutory restrictions may prevent a company from paying dividends
while specific limitations vary by state, generally a company may not pay
dividend.
1. If the firm’s liabilities exceeds its assets.
2. If the amount of dividend exceeds the accumulated profits (retained
earnings) and
3. If dividend is being paid from capital invested in the firm. Legal rules are
significant in what they provide the framework within which dividend
policies can be formulated.

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(iv) Desire of Shareholders
Shareholder may be interested either in dividend incomes or in capital gains.
Wealthy shareholder in a high income tax bracket may be interested in capital
gains as against current dividends. A retired and old person, whose source of
income is dividend, would like to get regular dividend. In closely held
company, management usually knows the desires of shareholders. Therefore,
they can easily adopt a dividend policy that satisfies all shareholders. But in a
widely held company, number of shareholders is very large and they have
diverse desires regarding dividends and capital gains. Some shareholders want
cash dividends, while other prefer bonus share.

v) Need to Repay Debt

The need to repay debt also influences ability of cash flow to pay dividend.
When a firm issues debt capital, it must be refunded in maturity in order to
retire debt, retention of earning is essential. So the dividend policy is affected
by retained earnings.

vi) Restriction on Loan Agreement

Restriction on loan agreement directly affects on dividend policy of a firm.
Such restrictions are designed to protect the position of lender and preference
shareholders. Restrictions on debt contracts may specify that dividend may be
paid out of earning generated after signing the loan amount agreement and only
when net working capital is above a specified amount certain amount of
earning to reinvest as well.

vii) Rate of Assets Expansion

The more rapidly a firm is growing greater its need for financing assets. The
greater the future need for fund, there is more likely to retain earnings rather
than pay them out consequently shareholders will get minimum dividend.

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viii) Profit Rate
The rate of return on assets determines the relative attractiveness of paying out
earning in the form of dividend to stockholder. If other things remain same high
profit rates is the indicator of high dividend payout.

ix) Stability in Earning

A firm that has a stable earnings trend will generally pay larger portion of its
earnings as dividend. The unstable firm is not certain that in subsequent years
the hoped for earning will be resized. So it is likely to retain a high proportion
of current earnings.

x) Tax Position of Stock Holder

Because of difference among investor’s tax rate, certain investor preference for
dividend versus capital gain have been observed in the market. Corporations
owned by large tax payers in high income tax brackets tend toward lower
dividend payout where as corporations owned by small investors tend toward
higher dividend payout.

xi) Control
For many small firms and certain large ones, maintain the controlling vote is
very important. These owners would prefer the use of debt and retained profit
to finance new investments rather than issue new stock. As a result dividend
payout will be reduced.

xii) Access to the Capital Market

All firms do not have equal access to the capital market. A large well
established firm with record of profitability and stability of earning has easy
access to capital markets and other forms of external financing. Easy
accessibility to the capital market provides flexibility to the management in
paying dividend as well as in meeting the corporate obligation. Thus a fast

20
growing firm having tight liquidity position will not face any difficulty in
paying dividends if it has access to the capital market. (Bhattarai, 2009)

2.1.4 Dividend Payment Procedures

The process of distributing the dividend is called dividend payment procedure.
Dividend payment includes a systematic steps and every company should
follow it. The major steps of dividend payment procedure are as follows:

Declaration Date
The date on which directors meet and declare the dividend is called declaration
date. On this date, board of directors declares dividend what the company is
going to distribute for example, Board of directors of NABIL Bank Limited
met on March 1 and declare to pay 20% cash dividend from April 10, those
who record their name until April 15.

Holder of Record Date

A date until which a person who has bought shares before ex-dividend date
mush registers his/her name in the company is called holder of record date. It is
a final date to transfer the title meaning that the seller's name should be
replaced by the buyer's name in the company's register till this date. In the
above example, April 10 is a record date. Any investor who buys shares before
April 11 must record his name in the company until April 15 to receive
dividend.

Ex-dividend Date
The date when one right to the dividend leaves the stock is called ex-dividend
date. The ex-dividend date may vary country to country and may also
determine by the companies themselves. This date normally is the four days
before the holder of record date. In the above example, April 11 is the
exdividend date.

21
Payment Date
The date on which actually a company starts to pay dividend is called payment
date (Pradhan, 1998).

2.2 Review of Related Studies

2.2.1 Review of Journals and Articles
Bhandari and Pokhrel (2012) had conducted study on "Corporate Dividend
Policy: A Study of Commercial Banks of Nepal" and this study attempts to
elucidate the dividend practices of commercial banks of Nepal. Abound by
controversies and unpredictability, this study concludes that commercial banks
of Nepal do not show uniform trend of dividend policy. Dividend policy
practiced by commercial banks of Nepal is neither fully explained by residual
theory nor stable theory. With the development of financial institutions in
Nepal, they need to follow a robust method of dividend policy so that investors
can predict stock market and make a rationale investment decision.

Corporate dividend policy is an important factor to determine the stock market.

However, there is no universal dividend policy that all commercial banks
follow unconditionally. The worldwide studies conclude a varying dividend
policy even in financially and economically high growth and stable countries.
In countries like Nepal where financial sector is still in infancy and growing
slowly, predicting dividend policy of banks is difficult and uncertain. However,
the growing financial sector in recent years with the increasing number of
financial institutions has increased the scope of examining dividend policy and
contributing to recommend policy agenda that can help to improve the financial
sectors.

Adhikari (2015) had conducted a research on "Determinants of Corporate

Dividend Payout in Nepal". This paper examines whether enterprises’
characteristics affect dividend payouts of the enterprises listed on Nepal Stock
Exchange Ltd. A priori hypothesis between relationship of the dividends paid

22
by the enterprises and enterprises’ characteristics- net profits, size, lagged
dividends, liquidity, risk, investment opportunity set, and number of
shareholders are set based on theoretical framework and other empirical
studies, and tested on 22 listed enterprises covering a 5-year period, 2009 to
2013 by employing regression model. The results of empirical tests for total
sample reveal that net profits, total assets, and liquidity are the major
determinants of corporate dividend payout in Nepal. The result is partly
consistent with the proposition set in this study that the dividend policy of an
enterprise tends to depend on net profits, total assets, lagged dividends,
liquidity, risk, investment opportunity set, and number of shareholders, and also
with the determinants of corporate dividend payout of developed stock markets
and emerging stock markets including Indian stock market.

Pradhan and Gautam (2017) had conducted a research on “Dividend policy and
share price volatility: a case of Nepalese Commercial Banks”. This study
examines the impact of dividend policy on share price volatility of Nepalese
commercial banks. The share price volatility, change in market price per share
and stock return change are dependent variables. Dividend yield, dividend
payout, debt ratio, size, growth and earning volatility are independent variables.
The study is based on 18 commercial banks of Nepal from 2009-2014, leading
to a total of 108 observations. The data are collected from various issues of
Banking and Financial Statistics and Bank Supervision Report published by
Nepal Rastra Bank, annual Report of Nepal Stock Exchange and the annual
reports of the selected banks. The regression models are estimated to test the
significance and impact of dividend policy on share price volatility of Nepalese
commercial banks.

The study reveals that dividend payout is negatively related to share price
volatility (price volatility, change in MPS and stock return volatility). It
indicates that increase in dividend payout leads to decrease in share price
volatility. However, earning volatility is positively related to share price

23
volatility indicating that higher the earning volatility, higher would be share
price volatility. The regression result shows that dividend yield and size have
significant positive impact on share price volatility. The beta coefficients for
growth and dividend yield are significant at 5 percent level of significance.

Baral and Pradhan (2018) conducted a research on “Impact of Dividend Policy

on Share Price of Commercial Bank in Nepal”. The purpose of this study is to
examine the impact of dividend policy on the share price of commercial bank
in Nepal. The study is based on pooled cross sectional data of 10 commercial
banks. Banks were selected on the basis of their performance on stock market
of Nepal, i.e. top gainers and top losers and data are collected from Nepalese
commercial banks listed in NEPSE from the F/Y 2012/13 to F/Y 2016/17. The
paper investigates the relationship between dividend announcement, EPS, P/E
ratio, DPR, on stock price by using Descriptive Statistics, Correlation and
Regression. The articles conclude that except DPR, the other factors like EPS,
P/E ratio have positive relationship with stock price among them P/E is the
strongest factor that affects the share price in case of top gainer commercial
banks whereas EPS, P/E ratio and DPR have positive influence on stock price
among them DPR is the strongest factor that affects the share price in case of
top loser bank.
Idewele and Murad (2019) had conducted a study on “Dividend policy and
financial performance: a study of selected deposit money banks in Nigeria”.
This study investigates the relationship between financial performance and
dividend policy for a sample of fifteen Deposit Money Banks quoted on the
Nigeria Stock Exchange 2009 to 2014. Panel data regression analysis was used
as the method of analysis, and the model was estimated using the Pooled Least
Squares estimation technique. The study revealed that there is a positive and
significant relationship between dividend payout ratio and financial
performance. On the contrary, there is a negative and insignificant relationship
between dividend yield and financial performance. The study recommends that
since there is a positive and significant relationship between dividend payout

24
ratio and financial performance, firms should strive to maintain healthy and a
stable dividend policies. This could be attained by investing in projects that
give positive Net Present Values, thereby generating huge earnings, which can
be partly used to pay dividends to their equity shareholders. It is also
recommended that since dividend yield is not affected by financial
performance, investigations should be made to ascertain other factors that
affect dividend yield.

2.2.2 Review of Thesis

Bista (2013), conducted master's research on "Dividend Policy and Its Impact
on Market Price of Stock" analysed the data of five years (2007/08 to 2012/13)
using various statistical and financial tools and has following objectives.
1. To examine the prevailing dividend policy adopted by sample banks.
2. To analyze the impact of dividend on Market price of Stock.
3. To analyze the relationship of financial indicators such as EPS, DPS,
DPR, PE ratio, Liquidity ratio, Profitability ratio and market price value
per market price.
4. To examine the uniformity among DPS, EPS and DPR of two sample
banks.

The Major Findings of the Study

1. Dividend per Market price of all concerned banks are satisfactory,
SCBNL paid the highest average DPS to its market price
2. Average EPS for the period concern by the study is satisfactory.
3. SCBNL followed agressive dividend payout ratio, NABIL applied
moderate payout ratio followed by conservative payout ratio.
4. Correlation between DPS and MVPS of NABIL bank is positive but
DPS and MVPS of SCBNL is negative.
5. From coefficient of variance, the market price is fluctuating in all
sample banks.

25
Rajbhandari (2014), conducted research on "Dividend Policy Comparative Study
between Banks and Insurance Companies".
The Main Objective of the Study:
1. To examine the relationship between dividend policy and Market price
of stock.
2. To identify the appropriate dividend policy followed by banks and
insurance companies.
3. To analyze the relationship between dividend policy decision of banks
and insurance companies.

Major Findings of this Study

1. Average EPS seems satisfactory of all sample companies.
2. There is positive correlation between DPS and EPS.
3. The coefficient of correlation between MPS and EPS is negative.
4. The relationship between MPS and Dividend is positive.
5. Dividend payment is not consistency of all six companies.

Chalise (2015), conducted research on " A comparative study of Dividend

policy of Everest Bank Ltd. and NABIL Bank Ltd." for five years period
(2010/11 to 2014/15).
The Main Objectives of the Study
1. To analyze and evaluate the application of dividend decision in the
selected commercial bank.
2. To explore the relationship of dividend policy with various financial
indicators like EPS, DPS, MPS, DPR, DY, PE ratio and Net profit of the
selected financial institutions.
3. To compare finding of the dividend and financial indicators of NABIL
and EBL Bank.

26
The Major Findings of the Study
1. The simple regression analysis of DPS on MPS, it has been found
that there is positive correlation between DPS and MPS, of both
sample bank NABIL and Everest Bank Ltd.
2. Net Profit of sample bank in average shows that it is increasing
where the average Net profit of NABIL and EBL NRs. 148.6 million
and NRs. 99.21 million respectively. Regarding consistency in Net
Profit, the EBL has more consistency as compared to NABIL.
3. DPS of sample banks in average shows that there are no regularity in
dividend payment. NABIL has average DPS i.e. Rs.62 and EBL has
DPS i.e, Rs.52.32 as compared to sample banks.
4. The average P/E ratio is 24.93% of Nabil and 16.59% of EBL. The
analysis among the sample banks, CV of P/E ratio indicates that EBL
has least fluctuation 6.03% and NABIL has most fluctuation i.e
45.21%.

Poudel (2016), had conducted research work on “Dividend Policy and its Impact
on Market price of Share”.
The Main Objectives of the Study are:
1. To find out impact of dividend policy on market price of share.
2. To evaluate the relationship of dividend decision with market price
per share of selected commercial banks.
3. To analyze the relationship of dividend with EPS, MPS and DPR.

The Major Findings of the Study are:

1. The market price per share is affected by dividend related financial
variables i.e. DPS, DP, DY and DPR either positively or negatively. The
nature of effect is different that might be positive or negative. Therefore,
the Market price per share is highly dependent upon the dividend, which
has been shown by coefficient of multiple determinations.

27
 2. After the study importance of cash dividend on the market price per share
revealed that generally dividend per share has positive impact on market
price per share in all banks.
3. Dividend policy practices of sample banks are neither stable nor
consistently growing. Dividends are distributed as an adhoc or situational
basis.

Acharya (2018) had conducted a research on “An Analysis of Dividend Policy

of Nepalese Commercial Banks (with Reference to NABIL, NIBL, HBL &
EBL)”.
The Main Objectives of the Study were:
1. To examine the DPS and EPS of the sample banks.
2. To compare EPS, DPS, DPR of the sample banks.
3. To analyze the relationship between earning, dividends retained earning
and market price of share.
4. To analyze the trend of dividend pattern of the sample banks.

The Major Findings of the Study were:

1. Here the highest average price among the sample commercial banks is of
Everest bank ltd i.e. Rs. 54.4 and the lowest is of Himalayan bank ltd i.e.
Rs. 28.68. It shows the performance of the Everest bank ltd is good due
to highest dividend distribution.
2. Stock of Himalayan bank has lowest maximum dividend during the fiscal
year i.e. 42.11% and Nabil bank has highest maximum dividend of 65%
during the fiscal year. From the maximum dividend tag Himalayan bank
has poor performance whereas Nabil bank has good performance as it has
the maximum dividend of 65% which is quite more than others
maximum dividend at that time.
3. The sum shows that the total of yearly dividend of the sample
commercial banks during the fiscal year. Here From the sum criteria
Himalayan bank has poor performance whereas Everest bank has good

28
 performance as it has the maximum sum of dividend of 272 which is
quite more than others maximum dividend at that time.
4. The overall transactions and the stock price increased before payment of
dividend and right share. Then overall transactions and the stock price
slowly falls after the payment of dividend and the right share. Then
finally it begins to increase after the publishment of the third quarter
financial report.
5. EPS, performance of the company, net profit % and many other factors
influence the DPS. Thus we can conclude that higher the factors (EPS,
performance of the company, net profit % and other factors), higher the
DPS.
6. The correlation between EPS and dividend of EBL is 0.10 which shows
that DPS is significantly highly positively correlated with EPS. It
indicates that when EPS increases DPS also increases and vice–versa.
The coefficient of determination is 0.01, which indicates that nearly 1%
of the total change in DPS is due to the effect of EPS and rest 99%
change in DPS is due to other factors
7. EPS is not only factor to determine the dividend of the company. There
are many other factor which determine the dividend distribution ratio of
the company.
8. The correlation between DPS and EPS of NIBL is 0.44 which shows that
DPS is significantly positively correlated with EPS. It indicates that when
EPS increases DPS also increases and vice–versa. The coefficient of
determination is 0. 19, which indicates that nearly 19% of the total
change in DPS is due to the effect of EPS and rest 81% change in DPS is
due to other factors.

Saud (2018) had conducted a thesis on “Impact of Dividend Policy on Market Price
of
Commercial Banks (With Reference to Nabil Bank Limited and Everest Bank
Limited)”.

29
The Main Objectives of the Study were:
1. To analyze the impact of dividend on market price of stock.
2. To examine the impact of EPS on DPS, the effect of DPS on the MPS,
and the effect of DPR on MPS.
3. To evaluate the relationship of dividend yield on DPS, EPS and MPS of
the corresponding bank.
4. To analyze the value of DPS, MPS and DPR for the forth coming two
fiscal year.

The Major Findings of the Study were:

1. The EPS of NABIL has ranged from Rs. 57.24 to Rs. 91.05, and the EPS
of EBL has ranged from Rs. 65.97 to Rs. 91.88 in the observed periods.
Whereas the EPS of NABIL has fluctuated during the observed periods,
and the EPS of EBL has also oscillated during the entire periods. In
2016/17, the EPS of all the observed banks have decreased
comparatively to that of the corresponding fiscal year. The EPS is
measured to be Rs. 59.27 in NABIL and Rs. 65.97 in EBL.
2. The DPS of NABIL is highest, Rs. 65, in each fiscal year 2014/15and
2014/15, and of EBL is highest, Rs. 70, in the fiscal year 2016/17.
Likewise, the average dividend payment of NABIL is Rs. 54.37 and of
EBL is Rs. 51.40. Also, the uniformity of the dividend payment of
NABIL is higher than that of other banks, as the variation in DPS of
NABIL, 21.02%, and of EBL, 30.88%.
3. The cash dividend payment of NABIL is least, Rs. 6.85 in each fiscal
year 2015/16and highest, Rs. 45 in the fiscal year 2014/15. Likewise,
EBL has paid no cash dividend in the fiscal year 2012/13, and Rs. 50 in
each fiscal year 2013/14 and 2014/15, and paid Rs 5 in the fiscal year
2015/16. The average cash dividend per share of NABIL is Rs. 29.37
and of EBL is Rs. 21. Moreover, as the coefficient of variance of
comparison to that of NABIL, 52.39%, and of EBL, 113.09%.

30
 4. Similarly, the bonus dividend per share of EBL has ranged from Rs. 10
in the fiscal year 2013/14 to Rs. 70 in the fiscal year 2016/17. The
ascertained average bonus dividend per share of NABIL is Rs. 25 and of
EBL is Rs. 30.4. Among two banks, NABIL is more interested in paying
bonus dividend per share with high monetary value, although the
variation in such bonus dividend per share is comparatively higher in
EBL, 70.92%, than that in NABIL, 17.88%.
5. The study has observed that whatever the trend of MPS in these three
banks, the MPS has increased in the last fiscal years, signaling positive
prospect of stock market in the coming periods, if all other things remain
uniform. Also, regardless the trend of MPS, it can be said that the charm
to acquire share of NABIL is Rs. 1991.80, and of EBL is Rs. 2152.
Also, the variation in the MPS of NABIL is 20.85% and of EBL is
37.85%.
6. The study, moreover, finds that the dividend payout ratio of all two
banks has fluctuated during the periods, showing irrelevancy with the
DPS and EPS. The DPR of NABIL has ranged from 64.36% in the fiscal
year 2015/16 to 85.39% in the fiscal year 2014/15, and of EBL has
ranged from 33.88% in the fiscal year 2012/13 to 106.11% in the fiscal
year 2016/17. In average, the average DPR of NABIL is 73.83%, with
variation of 7.31%, and of EBL is 64.44%, with variation of 38.72%.

Research Gap
There have been several researches done in the past regarding dividend policy
and its impact of various banks and financial institutions taking considerations
of various financial and statistical tools. In this thesis, only four sample banks
i.e. EBL, NABIL, NIBL and SCBNL were considered out of the total
population of 28 commercial banks operating presently in the market.
Similarly, only secondary data were considered in mainstream. The study has
covered the data of fiscal year 2011/12 to 2017/18. Similarly, the trend of DPS,
MPS and EPS over the study period and forecast of these financial indicators

31
for next five years were predicted which might be one of the differences from
the other studies thesis. Other studies referred were found to apply various
financial and statistical tools such as: regression analysis, simple trend analysis,
correlation analysis were used in this thesis. Despite of its limitations
mentioned above, the study would be able to provide a general overview of the
dividend practices and the relationship of dividend with earnings and market
price of the sample banks. This study shall be a new study in this field as no
study has been made so far in the dividend policy and this study has done on
the basis of recent data published of EBL, NABIL, NIBL and SCBNL. It
finally helps to various stakeholders to be acquainted with the major financial
indicators of the sample banks in the country.

CHAPTER -III
RESEARCH METHODOLOGY

Research Methodology can be defined as a systematic process that is adopted

by the researcher for the study to fulfill certain objectives. In other words,
research methodology describes the methods, techniques and process applied in
the entire aspect of the study thus an appropriate research in order to clearing
the objectives of the study.

3.1 Research Design

In this study, descriptive research design has been applied to achieve the
research objectives. For analytical purpose, the annual reports published by the
related banks. After tabulation, they will analyze by applying both financial and

32
statically tools. Descriptive research is the systematic collection and
presentation of data to give a clear picture of particular situation. It is a type of
study, which is generally conducted to assess the opinions, behavior or
characteristics of given population.

3.2 Nature and Sources of Data

This study based on secondary data. To collect the secondary data, published
materials are viewed in various books by different authors, unpublished thesis
report, internet websites, campus library, and central library, annual report of
selected banks, newspaper and magazine.

3.3 Population and Sample Method

There are 28 commercial banks are operating in Nepal. They are taken as
population in this study. It is difficult to study all of them regarding the study
topic because of limited time and resources factors too. In this study, only four
commercial banks selected by using random sampling method. They are as
follows:
• Everest Bank Limited
• NABIL Bank Limited
• Nepal Investment Bank Limited

• Standard Chartered Bank Limited

3.4 Method of Data Analysis

To achieve our objective various financial as well as statistical tool have been
used. For the data of seven years were taken as sample from 2011/12 to
2017/18. Firstly, the collected data are presented in proper forms, grouped in
various table and charts according to their nature. Then financial and statistical
tools have been applied. And interpretations and explanations are made
wherever necessary with the help of various statistical analysis mainly, the
analysis been done using following method:

33
3.4.1Financial Tools
Financial tools help to study the financial position of the firm. The following
financial tools are used in this study:

 Return on Total Assets Ratio (ROA)

Return on total assets explains the contribution of assets to generating net
profit. This ratio indicates efficiency towards of assets mobilization. In other
words return on total assets ratio is an overall profitability rate, which measures
earning power and overall operation efficiency of a firm. This ratio helps the
management in identifying the factors that have a bearing on overall
performance of the firm This ratio can be calculated as:

It is shows that the relationship of company is net profit and assets. This ratio
indicated that of the bank ROA is higher bank could well manage their
operations.

 Return on Net worth Ratio (ROE)

Return on net worth reflects how well the firm has used the recourse of the
owner's. The earning of satisfactory return is the most desirable objective of
business as common or ordinary shareholders are entitled to the residual profits.
It is calculated by dividing profit after tax by net worth. The ratio can be
calculated in this way:

 Interest Income to Loan and Advances

The bank grants loan and advances for the sole reason to gain interest income.
Thus, to examine how far the bank has been able to manage the loan and
advances in earning interest income, the ratio of interest income to loan and
advances has been determined.
34
  Return on Total Investment Ratio
This ratio actually measures the total interest income from total investment. A
high ratio of interest income from investment indicates high mobilization of
collected deposits in investment and vice versa. The ratio is calculated as;

 Return On Loan and Advance

The ratio expresses one of the key measurements in management discretion in
the primary function of commercial banks. The main source of income of
commercial banks is lending. Interest earned from loan and advance is more
important income base than interests earned from other investment and inter
bank borrowing. The ratio is calculated as;

 Earning Per Share (EPS)

EPS refers the rupee amount earned per share of Common Stock outstanding.
The EPS shows the profitability of the banks on a per share basis. The EPS
indicates the strength and weakness of the banks. Higher EPS shows a better
achievement and strength and lower EPS shows a weakness of the banks. EPS
can be calculated by using following equations.

Where,
EPS = Earning per share
EAT = Earning after tax
N = No. of share outstanding

35
  Dividend Per Share (DPS)
DPS indicates the rupee earnings actually distributed to common stock holders
per share held by them. Only financially strong companies can distribute
dividend. The DPS simply shows the portion of earning distribution to the
shareholders on per share basis. Generally, the higher DPS creates positive
attitude of the shares. DPS can be calculated by using following equations.

Where,
DPS = Dividend per share
Div= Total amount of dividend paid to common stock holders
N = No. of shares outstanding

 Dividend Payout Ratio

DPR is the percentage of profits distributed as dividend to shareholders form
earnings and remaining percentage is retained as reserve and surplus for the
growth of the banks. There is a reciprocal relationship between dividend and
retain earning, the higher the DPR, the lower will be the retained earning. This
ratio can be calculated by using following equations.

Where,
DPR = Dividend payout ratio
DPS = Dividend per share
EPS = Earnings per share

 P/E Ratio
P/E ratio is also known as earnings multiplier. P/E ratio is simply the ratio
between market price per share and earning per share. In other words, this

36
represents the amount which inventors are willing to pay for each rupee of the
firm's earnings. The higher P/E ratio implies the high market share price of a
stock given the earning per share and the greater confidence of investor in the
firm's future/ this ratio can be calculated by using following equation.

Where,
MPS = Market price per share
EPS = Earning per share

 Market Price per Share (MPS)

It is the value of the stock which is traded in the secondary market of the EPS
and DPS are high, the market value of the share (MPS) will also be high.
Market value of share is one of the variables which are affected by the dividend
per share and earnings per share of the firm it can be calculated by using
following formula.

Where,
Po = Current market price per share
Do= Current dividend per share
D o= Expected dividend per share at the end of year
g1= Dividend growth rate
Ks= Investor's required rate of return.

 Earning Yield (EY)

Earning yield is the percentage of earning per share to market price per share in
the stock market. It measures the earning in relation to market value of share. It

37
gives some idea of how much an investor might get for his money. It can be
calculated by using following equations.

Where,
EY= Earning Yield
EPS= Earning per share
MPS= Market price per share

 Dividend Yields (DY)

Dividend yield is a percentage of dividends per share on market price per share.
It shows that how much is the dividend per share on market price per share. It
measures the dividend in relation to market value of share. Hence, dividend
yield is the dividend received by the investors as a percentage of market prices
per share in the stock market. This ratio can be calculated by using following
equations.

Where,
DY= Dividend yield
DPS= Dividend per share
MPS = Market price per share

3.4.2 Statistical Tools

3.4.2.1 Arithmetic Mean (𝑿̅)
It is simply average return during on investment period when there is no
probability of return/ Arithmetic mean of a given set of observation is their sum
dividend by the number of observations. It can be calculated by using following
equation.

38
Or,

Where,
𝑋̅= Arithmetic mean
∑ 𝑥= sum of all the values of the variable x
n= no. of observation

3.4.2.2 Standard Deviation (𝝈)

Standard deviation is an average or weight average difference between
expected return and actual return. It is an absolute measure, which can be
applied when the projects involve the same out lay. It is tells us about the
variability associated with the expected cash flows interim of the degree of risk.
It measures total risk. It can be calculated by using following formula.

Where,
𝜎 = Standard deviation
X = Return at give period
𝑋̅ = expected return

3.4.2.3 Coefficient of Variation (C.V)

Coefficient of variance is ratio or proportion between total risk and expected
return of individual investment alternatives, normally use when there are
different standard deviation and different expected mean returns. It measures
per unit risk.

Where,

39
C.V. = Coefficient of Variation
𝜎 = Standard Deviation
𝑋̅=Arithmetic Mean

3.4.2.4 Correlation Coefficient (r)

Correlation is the degree of relationship between the return of two securities
involve in port ratio. It is a statistical measures of the extent to which the
returns on any two securities are related, however, it denotes only association
not causation if there is high degree of correlation between two variables we
can not say which is the cause and which is the effect. It gives the magnitude
and direction of two set of figures. In this study simple coefficient of
correlation is used to determine the relationship of different variables and
dividend. Correlation coefficient can be calculated by using following formula.

r=

Where,
r = Correlation Coefficient
Interpretation of Correlation Coefficient

3.4.2.5 Probable Error (P.E.)

P.E. is an old measure of certaining the reliability of the value Persian
coefficient of correlation. It is can be calculated by using following formula.

P.E. (r) = 0.6745

Where,
r= Correlation Coefficient
n = No. of Observation

40
P.E. may be used to test if calculated value of sample correlation coefficient is
significant. A few rules for the interpretation of the significance of correlation
coefficient are as follows:
• If r < P.E. (r), then the value of P.E. is not at all significant.
• If r > 6 P.E. (r), then r is definitely significant.
• In other situations, nothing can be fallacious conclusions particularly
when n, then number of pair observations, is small.

Also the probable error of correlation coefficient may be used to determine the
limits within which the population correlation coefficient may be expected to
lie (Panta, 2003).

3.4 Trend Analysis

This type of statistical analysis interprets the trend of earning per share,
dividend per share, market price per share of sample banks. The projections are
based on the following assumptions.
1. The main assumption is that other thing will remain unchanged.
2. The bank will run in this present position.
3. The economy will remain in this present stage.
4. The forecast will be true only when the limitation of least square method
is carried out.
5. Central government will not change its guidelines to the commercial
banks.

The trend of related variable can be calculated as Y = a + bx.

Where,
Y = Dependent Variable
X = Independent Variable
a = Intercept b = slope of
the trend line

The following trend value analysis has been used in this study.
• Trend analysis of EPS
41
 • Trend analysis of DPS
• Trend analysis of MPS

CHAPTER- IV
DATA PRESENTATION AND ANALYSIS

Various analytical and statistical tools and techniques have been already
mentioned in the research methodology chapter before. These tools assist in
obtaining the objectives of the research carried out through. All the research
methodological tools also give an insight view of thesis and ease all the process
went on during the operation. Basic objective of the study is to find out about
the dividend policy that have its effect in the market price and dividend
decision taking place in the banking sector of Nepal.

4.1 Analysis of Financial Indicators and Variables

4.1.1 Return on Equity Ratio
One of the most important profitability metrics is return on equity. Return on
equity reveals how much profit a company earned in comparison to the total
amount of shareholder equity found on the balance sheet. If you think back
to lesson three, you will remember that shareholder equity is equal to total
assets minus total liabilities.
Table 4.1 Return on Equity
(Ratio in %)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 27.15 30.94 17.18 28.36

42
 2012/13 31.52 34.63 27.28 26.38
2013/14 29.04 30.33 24.47 26.27
2014/15 23.25 22.10 20.00 21.69
2015/16 18.60 24.29 15.66 17.18
2016/17 16.13 22.17 21.34 13.06
2017/18 16.08 19.34 14.56 17.69
Mean 23.11 26.26 20.07 21.52
SD 5.86 5.27 4.33 5.32
CV 25.36 20.06 21.57 24.71
Sources: Appendix-I
Figure 4.1 Return on Equity Ratio
40
35
30
Ratio in %

25
EBL
20
NABIL
15
10 NIBL
5 SCBNL
0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.1 and figure 4.1 shows the return on equity of EBL, NABIL, NIBL
and SCBNL over the study period 2011/12 to 2017/18. The return on equity
ratios of EBL are in decreasing trends except in the fiscal year 2011/12 and
ranged from 16.08% in the fiscal year 2017/18 to 31.52% in the fiscal year
2012/13. The average return on equity of EBL is 23.11% with the coefficient of
variation 25.36%.

The return on shareholders’ equity ratios of NABIL are in fluctuating trends

during the study periods. The return on shareholders’ equity ratio is lowest in
the fiscal year 2017/18 i.e. 19.34% and highest in the fiscal year 2012/13 i.e.
34.63%. NABIL generated 26.26% of shareholders’ equity as net profit in
average. Similarly, the return on shareholders’ equity ratio in NIBL fluctuated
during the period and ranged from 15.66% in the fiscal year 2015/16 to 27.28%
43
in the fiscal year 2012/13. In average, the shareholders’ of NIBL got 20.07%
return from their investment.

Similarly, the return on equity ratio of the SCBNL is in decreasing trends

except in the fiscal year 2017/15. The return on equity of SCBNL is ranged
from 13.06% in the fiscal year 2016/17 to 28.36% in the fiscal year 2011/12.
The average return on equity ratio of SCBNL is 21.52% with the coefficient of
variation 24.71%.

The average return on equity of EBL, NABIL, NIBL and SCBNL is 23.11%,
26.26%, 20.07% and 21.52% respectively. NABIL has the higher mean return
on equity ratio than that of EBL, NIBL and SCBNL which indicates that they
got a better achievement on increasing net profit by mobilizing resources of
shareholder’s equity. NABIL has a lower coefficient than that of EBL, NIBL
and SCBNL which indicates that NABIL has been successful in maintaining
consistency in mobilizing shareholders equity to earn net profit.

4.1.2 Return on Total Assets Ratio

Return on total assets explains the contribution of assets to generating net
profit. This ratio indicates efficiency towards of assets mobilization. In other
words return on total assets ratio is an overall profitability rate, which measures
earning power and overall operation efficiency of a firm. This ratio helps the
management in identifying the factors that have a bearing on overall
performance of the firm.
Table 4.2 Return on Total Assets Ratio
(Ratio in %)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 1.95 2.67 1.58 2.80
2012/13 2.24 3.03 2.62 2.67
2013/14 2.20 2.66 2.25 2.51
2014/15 1.59 1.81 1.88 1.99
2015/16 1.59 2.21 1.90 1.98

44
 2016/17 1.81 2.57 2.57 1.98
2017/18 1.78 2.47 2.13 2.61
Mean 1.88 2.49 2.13 2.36
SD 0.25 0.36 0.35 0.34
CV 13.05 14.44 16.49 14.34
Sources: Appendix-I
Figure 4.2 Return on Total Assets Ratio
3.5

2.5
Ratio in %

2 EBL

1.5 NABIL
NIBL
1
SCBNL
0.5

0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.2 and figure 4.2 shows the return on assets ratio of EBL, NABIL,
NIBL and SCBNL during the fiscal year 2011/12 to 2017/18. The return on
assets ratio of EBL is ranged from 1.59% in the fiscal year 2015/16 to 2.24% in
the fiscal year 2012/13. The average return on assets of EBL is 1.88% and the
coefficient of variation is 13.05%. The return on assets ratio of NABIL has
ranged from 1.81% in the fiscal year 2014/15 to 3.03% in the fiscal year
2012/13. The average return on assets ratio of NABIL is 2.49% with the
14.44% of coefficient of variation.

Similarly, NIBL return on assets ratios are also in fluctuating trends and ranged
from 1.58% in the fiscal year 2011/12 to 2.62% in fiscal year 2011/12 and
2012/13 respectively. The average returns on assets ratio of NIBL is 2.13%. On
the other side the ratio of SCBNL is ranged from 1.98% in the fiscal year

45
2015/16 to 2.80% in the fiscal year 2011/12. The average return on assets ratio
and coefficient of variation of the SCBNL are 2.36% and 15.34% respectively.

The average return on assets ratios of EBL, NABIL, NIBL and SCBNL are
1.88%, 2.49%, 2.13% and 2.36% respectively. NABIL has a higher mean
return on assets ratio than EBL, NIBL and SCBNL which indicates that NABIL
is successful in earning the net profit with efficient utilization of total assets
and it was also successful to maintain the consistency in profit comparison to
EBL, NIBL and SCBNL.

4.1.3 Interest Income to Loan and Advances Ratio

The bank grants loan and advances for the sole reason to gain interest income.
Thus, to examine how far the bank has been able to manage the loan and
advances in earning interest income, the ratio of interest income to loan and
advances has been determined.
Table 4.3 Interest Income to Loan and Advances Ratio
(Ratio in %)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 13.81 14.73 14.37 14.67
2012/13 11.38 12.30 12.67 11.11
2013/14 10.88 10.31 11.18 9.95
2014/15 9.17 8.80 8.74 9.30
2015/16 7.34 8.09 7.87 7.72
2016/17 8.63 8.83 8.94 7.97
2017/18 10.73 9.99 10.41 10.58
Mean 10.28 10.43 10.60 10.18
SD 1.96 2.17 2.16 2.17
CV 19.05 20.76 20.34 21.29
Sources: Appendix-I

46
 Figure 4.3 Interest Income to Loan and Advances Ratio
16
14
12
Ratio in %

10
EBL
8
NABIL
6
NIBL
4
2 SCBNL

0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.3 and figure 4.3 shows the efficiency of the sampled banks in loan
mobilization in terms of interest income earned during fiscal year 2011/12 to
2017/18. The interest income to total loan and advances ratio of sample banks
are in decreasing trends up to 2015/16 and then in increasing trend in last two
fiscal year. The interest income to total loan and advances ratio of EBL is
ranged from 7.34% in the fiscal year 2015/16 to 13.81% in the fiscal year
2011/12. In average, EBL gained 10.28% of the total loan and advances
disbursed as the interest income and the coefficient of variation in the ratio is
19.05%. The interest income to total loan and advances ratio of NABIL is
ranged from 8.09% in the fiscal year 2015/16 to 14.73% in the fiscal year
2011/12 and the average interest income to total loan and advances ratio of
NABIL is 10.43%.

Similarly, the interest income to total loan and advances ratio of NIBL ranged
from 7.87% in the fiscal year 2015/16 to 14.37% in the fiscal year 2011/12.
The average interest income to total loan and advances ratio of NIBL is 10.60%
with the coefficient of variation 22.29%. Likewise, the interest income to total
loan and advances ratios of SCBNL are ranged from 7.72% in the fiscal year
2015/16 to 14.67% in the fiscal year 2011/12. In average, SCBNL earned

47
10.18% of the total credit granted as interest income. The coefficient of
variation of the ratio SCBNL is 21.29%.
The average interest income to total loan and advances ratio of EBL, NABIL,
NIBL and SCBNL is 10.28%, 10.43%. Comparing the sampled banks, it can be
concluded that NIBL is slightly more efficient in mobilizing the funds in loan
and advances, since the interest yielded to total loan and advance ratio is higher
in comparison with that of EBL, NABIL and SCBNL.

4.1.4 Return on Total Investment Ratio

This ratio actually measures the total interest income from total investment. A
high ratio of interest income from investment indicates high mobilization of
collected deposits in investment and vice versa. Table 4.4
Return on Total Investment Ratio
(Ratio in %)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 13.87 12.03 9.96 9.02
2012/13 15.88 13.59 16.75 9.55
2013/14 23.83 12.69 12.61 14.23
2014/15 10.42 6.76 9.14 9.83
2015/16 19.65 7.72 8.73 5.60
2016/17 26.95 10.30 15.59 31.54
2017/18 16.60 13.89 20.98 45.84
Mean 18.17 11.00 13.39 17.94
SD 5.31 2.62 4.24 13.86
CV 29.23 23.86 31.67 77.26
Sources: Appendix-I

48
 Figure 4.4 Return on Total Investment Ratio
50

40
Ratio in %

30 EBL

20 NABIL
NIBL
10
SCBNL
0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.4 and figure 4.4 shows the total profit to total investment ratios of
EBL, NABIL, NIBL and SCBNL from the fiscal year 2011/12 to 2017/18. The
return on investment ratios of EBL are in fluctuating trends and ranged from
10.42% in the fiscal year 2014/15 to 26.95% in the fiscal year 2016/17. The
average return on investment of EBL is 18.17% with the coefficient of
variation 29.23%. The returns on investment ratios in NABIL are in fluctuating
trends and the return on investment ratio is ranged from 6.76% in the fiscal
year 2014/15 to 13.89% in the fiscal year 2017/18. In an average NABIL earns
11.00% return from its investment with the coefficient of variation 23.86%.

Similarly, the return on investment of NIBL is also in fluctuating trends and

ranged from 8.73% in the fiscal year 2015/16 to 16.75% in the fiscal year
2012/13. The average return on investment ratio of NIBL is 13.39% with the
coefficient of variation 31.67%. Likewise, the net profit to total investment
ratios of SCBNL are in fluctuating and ranged from 5.60% in the fiscal year
2015/16 to 45.84% in the fiscal year 2017/18. The average net profit to total
investment of SCBNL is 17.94% with 77.26% of variation.

The average return on investment ratios of EBL, NABIL, NIBL and SCBNL
are 18.17%, 11.00%, 13.39% and 17.94% respectively. The average net profit
to total investment ratio of EBL is higher than that of NABIL, NIBL and

49
SCBNL so it can be conclude that EBL invest in more profitable area than
NABIL, NIBL and SCBNL.

4.1.5 Return on Loan and Advance Ratio

The ratio expresses one of the key measurements in management discretion in
the primary function of commercial banks. The main source of income of
commercial banks is lending. Interest earned from loan and advance is more
important income base than interests earned from other investment and inter
bank borrowing.
Table 4.5 Return on Total Loan and Advance Ratio
(Ratio in %)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 3.04 4.06 2.50 5.97
2012/13 3.39 4.78 4.13 5.34
2013/14 3.26 4.24 3.73 5.15
2014/15 2.89 3.20 2.96 4.66
2015/16 2.60 3.70 2.96 4.13
2016/17 2.68 4.00 3.78 3.87
2017/18 2.74 3.50 3.03 4.69
Mean 2.94 3.93 3.30 4.83
SD 0.28 0.48 0.54 0.67
CV 9.40 12.25 16.40 13.82
Sources: Appendix-I
Figure 4.5 Return on Total Loan and Advance Ratio
7
6
5
Ratio in %

4 EBL
3 NABIL
2 NIBL
1 SCBNL
0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

50
The table 4.5 and figure 4.5 shows the return on loan and advance ratios of
EBL, NABIL, NIBL and SCBNL during the study period 2011/12 to 2017/18.
The returns on loan and advance ratios of EBL are in fluctuating trends and
ranged from 2.60% in the fiscal year 2015/16 to 3.39% in the fiscal year
2012/13. The average return on loan and advance ratio of EBL is 2.94% with
the coefficient of variation 9.40%. The returns on loan and advance ratios of
NABIL are in fluctuating trends over the study period. The ratio is ranged from
3.20% in the fiscal year 2014/15 to 4.78% in the fiscal year 2012/13. The
average ratio of NABIL is 3.93% with 12.25% of variation.

Likewise, the returns on loan and advance ratios NIBL are in fluctuating trends
and ranged from 2.50% in the fiscal year 2011/12 to 4.13% in the fiscal year
2012/13. The average return on loan and advance ratio of NIBL is 3.30%.
Similarly, the returns on loan and advance ratios of SCBNL are in decreasing
trends except in the fiscal year 2017/18 and ranged from 3.87% in the fiscal
year 2016/17 to 5.97% in the fiscal year 2011/12. The mean return on loan and
advance ratio of SCBNL is 4.83% with 13.82% of variation.

The average return on loan and advance ratios of EBL, NABIL, NIBL and SCBNL
are 2.94%, 3.93%, 3.30% and 4.83 % respectively. As compare to average loan
and advance of EBL, NABIL, NIBL and SCBNL, SCBNL has higher return than
EBL, NABIL and NIBL.

4.1.6 Dividend Per Share Analysis

Dividend implies that portion of net profit, which is allocated to shareholders as
their return in terms of cash. DPS is the portion of earning after tax that cash
amount is allocated to shareholders dividend by total numbers of ordinary
shares outstanding. The ratio of all of the banks is presented in the following
table;
Table 4.6 Dividend Per Share
(Ration in %)

51
 Fiscal Year EBL NABIL NIBL SCBNL
2011/12 31.58 60.00 30.00 60.00
2012/13 60.00 65.00 35.00 50.00
2013/14 62.63 65.00 40.00 51.50
2014/15 36.58 36.84 34.70 44.21
2015/16 73.68 45.00 41.00 35.09
2016/17 34.74 48.00 40.00 105.26
2017/18 20.00 34.00 40.00 17.50
Mean 45.60 50.55 37.24 51.94
SD 18.27 11.99 3.80 25.19
CV 40.07 23.72 10.19 48.50
Sources: Appendix-I
Figure 4.6 Dividend Per Share
120

100

80
Ratio in %

EBL
60
NABIL
40 NIBL
SCBNL
20

0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.6 and figure 4.6 shows the dividends per share paid by EBL,
NABIL, NIBL and SCBNL for the period fiscal year starting 2011/12 to
2017/18. The dividend per share of EBL is in fluctuating trends and ranged
from 31.58% in the fiscal year 2011/12 and 73.68% in the fiscal year 2015/16.
The dividend per share of NABIL has followed the fluctuating trend from the
year 2011/12 to 2017/18 and the dividends per share of NABIL during the
period of study are ranged from 36.84% in the fiscal year 2014/15 to 65% in
the fiscal year 2012/13. The average dividend per share of NABIL is 50.55%,
and coefficient of variation is 23.72%.

52
Similarly, the dividend per share of NIBL has also followed the fluctuating
trend from the base year 2011/12 to 2017/18. The highest dividend per share of
NIBL is 41% in the fiscal year i.e. 2015/16 and lowest dividend per share is
30% in the fiscal year 2011/12. The average dividend per share of NIBL is
37.24 and coefficient of variation is 10.19%. Likewise, the dividend per share
of SCBNL is in fluctuating trends and ranged from 17.50% in the fiscal year
2017/18 to 105.26% in the fiscal year 2016/17. The average dividend per share
of SCBNL is 51.94% with the coefficient of variation 48.50%.

The average dividend per share of EBL, NABIL, NIBL and SCBNL is 45.60%,
50.55%, 37.24% and 51.94% respectively. In conclusion, the average dividend
per share paid by SCBNL is higher than the average dividend per share of EBL,
NABIL and NIBL. So SCBNL is comparatively more successful to create the
positive attitudes of shareholders towards the bank.

4.1.7 Earning per Share Analysis

Earning per Share is one of the principal indicators of organizations economic
performance. It is the tools to measure the organizational performance
economically. Generally, success and failure hinges of the earning capacity of
the firm. Earning helps in stability and growth of the firm. Thus, higher the
earning higher is the strength of the firm. And following table presents a clear
view about earning made by the four banks in different period. Table 4.7
Earning per Share
(Ratio in Rs.)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 88.55 83.23 27.60 72.60
2012/13 91.88 91.05 46.20 65.70
2013/14 86.04 76.12 40.70 65.47
2014/15 78.04 57.24 30.90 57.38
2015/16 40.33 59.27 29.30 45.96
2016/17 32.48 59.86 29.30 35.49
2017/18 32.78 49.51 35.70 27.33
53
 Mean 64.30 68.04 34.24 52.85
SD 25.61 14.29 6.45 15.74
CV 39.83 21.00 18.83 29.79
Sources: Appendix-I
Figure 4.7 Earning per Share
100

80
Ratio in Rs

60 EBL

40 NABIL
NIBL
20
SCBNL
0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.7 and table 4.7 present the earning per share of the four sample
banks for the period fiscal year starting 2011/12 to 2017/18. The earnings per
share of EBL are almost in fluctuating trends and ranged from Rs.32.48 in the
fiscal year 2016/17 to Rs.91.88 in the fiscal year 2012/13. The average earning
per share of EBL is Rs.64.30 with the coefficient of variation 39.83%. The
earning per share of NABIL has also followed the decreasing trend from the
fiscal year 2011/12 to 2017/18. The earning per share is ranged from Rs.49.51
in the fiscal year 2017/18 to Rs.91.05 in the fiscal year 2012/13. The average
earning per share of NABIL is Rs.68.04 and coefficient of variation is 21.00%.

Similarly, the earning per share of NIBL has also followed the decreasing trend
the fiscal year 2011/12 to 2017/18. The highest and lowest earning per share of
NIBL during the period of study is Rs.46.20 and Rs.27.60 in the fiscal year
2012/13 and 2011/12 respectively. The average earning per share of NIBL is
Rs.34.24, and coefficient of variation is 18.83%.

Likewise, the earning per share of SCBNL is in decreasing and ranged from
Rs.27.33 to Rs.72.60 in the fiscal year 2011/12. The average earning per share
54
of SCBNL is Rs.52.85 with the 29.79% of coefficient of variation. The average
earning per share of EBL, NABIL, NIBL and SCBNL is Rs.64.30, Rs.68.04,
Rs.34.24 and Rs.52.85% respectively. In conclusion the average earning per
share of NABIL is higher compared to earnings per share of EBL, NIBL and
SCBNL. So, concluded that NABIL is better than EBL, NIBL and SCBNL in
terms of earning per share, because average earning per share of NABIL is
higher than EBL, NIBL and SCBNL. It helps to indicate the better performance
of the bank’s management. The performance and the achievement of business
organization are measured in terms of its capital to general earnings, higher
earnings shows higher strength while lower earning shows weaker strength of
banks.

4.1.8 Dividend Payout Ratio Analysis

Dividend payout ratio is another important factor determining the financial
performance of the firm. It also affects the market price of the share of the firm
and gives an insight view of an organization. DPR shows what percentage of
profit is distributed as dividend and what percentage is retain as reserve and
surplus for the growth of the companies. DPR depends on the EPS of the
banks. There is no any rule in Nepal to restrict the bank that how much amount
should be paid or retained as reserve and surplus. It depends on the investment
opportunity of the banks.
Table 4.8 Dividend Payout Ratio
(Ratio in %)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 35.66 72.09 108.70 82.64
2012/13 65.30 71.39 75.76 76.10
2013/14 72.79 85.39 98.28 78.66
2014/15 46.87 64.36 112.30 77.05
2015/16 182.69 75.92 139.93 76.35
2016/17 106.96 80.19 136.52 296.59
2017/18 61.01 68.67 112.04 64.03
Mean 81.61 74.00 111.93 107.35
SD 46.21 6.58 20.33 77.44

55
 CV 56.62 8.90 18.17 72.14
Sources: Appendix-I
Figure 4.8 Dividend Payout Ratio
350
300
250
Ratio in %

200 EBL
150 NABIL
100 NIBL

50 SCBNL

0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.8 and figure 4.8 presents the dividend payout ratio EBL, NABIL,
NIBL and SCBNL for the period fiscal year starting 2011/12 to 2017/18. The
dividend payout ratios of EBL are in fluctuating trends and ranged from
35.66% in the fiscal year 2011/12 to 182.69% in the fiscal year 2015/16. The
dividend payout ratio of NABIL has followed the fluctuating trends during the
study period. The lowest and highest dividend payout ratio of NABIL during
the period of study is 64.36% and 85.39% in year 2014/15 and 2013/14
respectively. The average dividend payout ratio of NABIL is 74.00% and
coefficient of variation is 8.90%.

Similarly, the dividend payout ratio of NIBL has also followed the fluctuating
trend. The dividend payout ratio of NIBL has ranged during the period of study
from 75.76% to 139.93% in year 2012/13 and 2015/16 respectively. The
average dividend payout ratio of NIBL is 111.93% and coefficient of variation
is 18.17%. Likewise, the dividend payout ratios of SCBNL are in fluctuating
trends. The dividend payout ratios are ranged from 76.10% in the fiscal year
2012/13 to 296.59% in the fiscal year 2016/17. The average dividend payout
ratio of SCBNL is 107.35% with the coefficient of variation 72.14%.

56
The average dividend payout ratios of EBL, NABIL, NIBL and SCBNL are
81.61%, 74.00%, 111.93% and 107.35% respectively. In conclusion, the four
sampled banks did not seem to adopt fixed dividend payout ratio. SCBNL has
high average dividend payout ratio than EBL, NABIL and NIBL. Higher
dividend payout ratio is good for the investor. It indicates that good banking
performance.

4.1.9 Dividend Yield Ratio

Dividend highly influences the market value per share because a change in
dividend per share can bring effective change in market value of share.
Therefore before allocation of dividend to shareholders the impact on market
scenario and price fluctuation is to be studied and evaluated for the long run
survival of the bank. Dividend yield is the percentage of dividend per share on
market price per share. It measures the dividend in relation to market value of
share. It is the dividend received by the investors as a percentage of market
prices per share in the market. The ratio highly influences the market price per
share because a small change in dividend per share can bring effective change
in the market value of the share.
Table 4.9 Dividend Yield
(Ratio in %)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 3.06 4.43 5.87 3.34
2012/13 3.77 3.58 4.46 2.75
2013/14 2.38 2.56 4.17 1.84
2014/15 1.73 1.93 4.93 2.28
2015/16 2.18 1.92 3.94 0.97
2016/17 2.57 3.15 5.19 4.59
2017/18 3.02 3.69 6.44 2.28
Mean 2.67 3.04 5.00 2.58
SD 0.62 0.88 0.84 1.06
CV 23.31 28.84 16.86 41.29
Sources: Appendix-I

57
 Figure 4.9 Dividend Yield
7

5
Ratio in %

4 EBL

3 NABIL
NIBL
2
SCBNL
1

0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.9 and figure 4.9 presents the dividend yield ratios of EBL, NABIL,
NIBL and SCBNL for the fiscal year starting 2011/12 to 2017/18. The dividend
yield ratios of EBL are in fluctuating trends and ranged from 1.73% in the
fiscal year 2014/15 to 3.77% in the fiscal year 2012/13. The average dividend
yield of EBL is 2.67% with the coefficient of variation 23.31%. The dividend
yield ratio of NABIL has followed fluctuating trend. The highest and lowest
dividend yields of NABIL during the period of study are 4.43% and 1.92% in
year 2011/12 and 2015/16 respectively. The average dividend yield of NABIL
is 3.04% and coefficient of variation is 28.84%.

Likewise, the dividend yield ratio of NIBL has also followed fluctuating trend
during the study period. The highest and lowest dividend yields of NIBL during
the period of study are 6.44% and 3.94% in the fiscal year 2017/18 and 2015/16
respectively. The average dividend yield of NIBL is 5.00% and coefficient of
variation is 16.86%. Similarly, the dividend yield ratios of SCBNL are in
fluctuating trends and ranged from 0.97% in the fiscal year 2015/16 to 4.59%
in the fiscal year 2016/17. The average dividend yield ratio of SCBNL is 2.58%
with the coefficient of variation 41.29%.

58
The average dividend yield ratios of EBL, NABIL, NIBL and SCBNL are 2.58
respectively. In conclusion, average dividend yield of NIBL is higher than
EBL, NABIL and SCBNL. A high dividend yield can be considered to be
evidence that a stock is underpriced or that the company has fallen on hard
times and future dividends will not be as high as previous ones. Similarly a low
dividend yield can be considered evidence that the stock is overpriced or that
future dividends might be higher.

4.1.10 Earning Yield Analysis

Earning yield is the percentage of earning per share to market price per share in
stock market. In other words, it is a financial ratio relating EPS to the MPS at a
particular time.
Table 4.10 Earning Yield
(Ratio in %)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 8.57 6.14 5.40 4.04
2012/13 5.77 5.02 5.89 3.61
2013/14 3.27 3.00 4.24 2.34
2014/15 3.68 3.00 4.39 2.95
2015/16 1.19 2.53 2.82 1.28
2016/17 2.40 3.93 3.81 1.55
2017/18 4.94 5.38 5.75 3.57
Mean 4.26 4.14 4.61 2.76
SD 2.25 1.28 1.04 0.99
CV 52.87 31.01 22.61 35.93
Sources: Appendix-I

59
 Figure 4.10 Earning Yield

9
8
7
6
Ratio in %

5 EBL
4 NABIL
3 NIBL
2 SCBNL
1
0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.10 and figure 4.10 presents the earning yield ratios of the EBL,
NABIL, NIBL and SCBNL for the period fiscal year starting 2011/12 to
2017/18. The earning yield ratios of EBL are in fluctuating trends and ranged
from 1.19% in the fiscal year 2015/16 to 8.57% in the fiscal year 2011/12. The
average earning yield ratio of EBL is 4.26% with the coefficient of variation
52.87%. The earning yield ratios of NABIL also followed a fluctuating trend in
the five years period. The earning yield of NABIL is ranged from 2.53% the
fiscal year 2015/16 to 6.14% in the fiscal year 2011/12. NABIL maintained an
average 4.14% earning yield in the five years period. The standard deviation of
NABIL is 1.28 and coefficient of variation is 31.01%.

Similarly, the earning yield ratio of NIBL has followed fluctuating trend from
2011/12 to 2017/18. The highest and lowest earning yields of NIBL during the
period of study are 5.89% and 2.82% in year 2012/13 and 2015/16 respectively.
The average earning yield of NIBL is 4.61%, standard deviation is 1.04 and
coefficient of variation is 22.61%. Likewise, the earning yield ratios of SCBNL
are in fluctuating trends. The earning yield ratios of SCBNL are ranged from
1.28% in the fiscal year 2015/16 to 4.04% in the fiscal year 2011/12. The

60
average earning yield ratio of SCBNL is 2.76% with the coefficient of variation
35.93%.
The average earning yield ratios of EBL, NABIL, NIBL and SCBNL are
4.26%, 4.14%, 4.61% and 2.76% respectively. In conclusion, the average
earning yield of NIBL is higher than EBL, NABIL and SCBNL. So NIBL is
efficient in earning than EBL, NABIL and SCBNL.

4.1.11 Market Price per Share (MPS)

The market price per share or fair market value of a stock is the price that a
stock can be readily bought or sold in the current market place. In other words,
the market price per share is the going price of a share of stock. The stock
market and economy changes every day and with it comes fluctuations in
company stock prices.
Table 4.11 Market Price per Share
(Ratio in Rs.)
Fiscal Year EBL NABIL NIBL SCBNL
2011/12 1033 1355 511 1799
2012/13 1591 1815 784 1820
2013/14 2631 2535 960 2799
2014/15 2120 1910 704 1943
2015/16 3385 2344 1040 3600
2016/17 1353 1523 770 2295
2017/18 663 921 621 766
Mean 1825.14 1771.86 770.00 2146.00
SD 880.37 519.66 170.22 822.45
CV 48.24 29.33 22.11 38.33
Sources: Appendix-I

61
 Figure 4.11 Market Price per Share
4000
3500
3000
2500
Ratio in Rs

EBL
2000
NABIL
1500
NIBL
1000 SCBNL
500
0
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Fiscal Year

The table 4.11 and figure 4.11 presents the market price per share of EBL,
NABIL, NIBL and SCBNL for the period of fiscal year starting 2011/12 to
2017/18. The market price per share of EBL is in fluctuating trends and ranged
from Rs.1033 in the fiscal year 2011/12 to Rs.3385 in the fiscal year 2015/16.
The average market price per share of EBL is Rs.1825.14 with the coefficient
of variation 48.24%. The market price per share of NABIL is in fluctuating
trend from fiscal year 2011/12 to 2017/18. The maximum market price per
share of NABIL is Rs.2523 in fiscal year 2013/14 and minimum market price
per share is Rs.921 in year 2017/18. The average market price per share is
Rs.1771.86 and coefficient of variation is 29.33%.

Similarly, the market price per share of NIBL is in fluctuating trend. The
maximum market price per share of NIBL is Rs.1040 in fiscal year 2015/16 and
minimum market price per share is Rs.511 in year 2011/12.The average market
price per share is Rs.770.00 and coefficient of variation is 22.11%. Likewise,
the market per share of SCBNL is in fluctuating trends and ranged from Rs.766
in the fiscal year 2017/18 to Rs.3600 in the fiscal year 2015/16.
The average market price per share of SCBNL is 2146.00 with the coefficient
of variation 38.33%.

62
The average market price per share of EBL, NABIL, NIBL and SCBNL are
Rs.1825.14, Rs.1771.86, Rs.770 and Rs. 2146 respectively. In conclusion,
average market price per share of SCBNL is higher than EBL, NABIL and
NIBL.

4.2 Statistical Analysis

4.2.1 Correlation Coefficient and Regression Analysis
There are various ways of measuring the relationship existing between variable
of an economic and social phenomenon. The simple is correlation and
regression analysis. Correlation analysis is a technique used to measure the
closeness of the relationship between the variables. In this study following
relationship has been shown,
• Correlation coefficient and Regression between EPS and MPS
• Correlation coefficient Regression between DPS and MPS
• Correlation coefficient Regression between EPS and DPS

4.2.1.1 Correlation Coefficient between EPS and MPS

The Correlation between EPS and MPS and P.E. calculated in Appendix II.
This is summarized in the following table.
Table 4.12 Correlation Coefficient between EPS and MPS
Particulars EBL NABIL NIBL SCBNL
r 0.0644 0.2332 0.2322 0.2084
r 2
0.0041 0.0544 0.0539 0.0434
P.E. 0.3004 0.2852 0.2854 0.2885
6 × P. E. 1.8024 1.7114 1.7123 1.7313
Remarks Insignificant Insignificant Insignificant Insignificant
Source: Appendix II

The table 4.12 describes the relationship between EPS and MPS of EBL,
NABIL, NIBL and SCBNL. The coefficient of correlation between EPS and
MPS of EBL, NABIL, NIBL and SCBNL are 0.0644, 0.2332, 0.2322 and
0.2084 respectively. The coefficient of correlation between EPS and MPS of

63
EBL, NABIL, NIBL and SCBNL are correlated negatively. The relationship
between EPS and MPS is insignificant, since the r is lower than the 6P.E.

4.2.1.3 Correlation between DPS and MPS

The Correlation between DPS and MPS and P.E calculated in Appendix II.
This is summarized in the following table.
Table 4.13 Correlation between DPS and MPS
Particulars EBL NABIL NIBL SCBNL
R 0.8657 0.398 0.6941 0.2075
r2 0.7494 0.1584 0.4818 0.0431
P.E. 0.0756 0.2539 0.1563 0.2887
6 × P. E. 0.4535 1.5232 0.9379 1.7319
Remarks Significant Insignificant Insignificant Insignificant
Source: Appendix II

The table 4.13 describes the relationship between DPS and MPS of EBL,
NABIL, NIBL and SCBNL. The coefficient of correlation between DPS and
MPS of EBL, NABIL, NIBL and SCBNL are 0.8657, 0.398, 0.6941 and 0.2075
respectively.

The coefficient of correlation between DPS and MPS of EBL, NABIL, NIBL
and SCBNL are correlated positively. The 6*PE of EBL shows that the
relationship between DPS and MPS is statistically significant, since the r is
higher than the 6P.E. Similarly, the probable error of NABIL, NIBL and
SCBNL shows that the relationship between DPS and MPS is insignificant,
since the r is lower than the 6P.E.

4.2.1.5 Correlation between EPS and DPS

The Correlation between EPS and DPS and P.E. calculated in Appendix II.
This is summarized in the following table.
Table 4.14 Correlation between EPS and DPS
Particulars EBL NABIL NIBL SCBNL
R 0.239 0.9315 0.1133 0.0587

64
 r2 0.0571 0.8677 0.0128 0.0034
P.E. 0.2844 0.0399 0.2978 0.3006
6 × P. E. 1.7065 0.2395 1.7866 1.8036
Remarks Insignificant Significant Insignificant Insignificant
Source: Appendix II

The table 4.14 describes the relationship between EPS and DPS of EBL,
NABIL, NIBL and SCBNL. The coefficient of correlation between EPS and
DPS of EBL, NABIL, NIBL and SCBNL are 0.239, 0.9315, 0.1122 and 0.0587
respectively.

The coefficient of correlation between EPS and DPS of EBL, NABIL, NIBL
and SCBNL are correlated positively. The probable error of EBL, NIBL and
SCBNL also shows that the relationship between EPS and DPS is insignificant,
since the value of r is lower than the 6P.E. Similarly, the coefficient of
correlation between EPS and DPS of NABIL is correlated also positively but
the probable error of NABIL shows that the relationship between EPS and DPS
is insignificant, since the r is lower than the 6P.E.

4.3 Trend Analysis

The trend analysis adds to the future value on the basis of the past year. For this
purpose, trend line is computed and estimated the trend values of EPS, DPS
and MPS of four banks for five years from fiscal year 2018/19 to 2022/23.

4.3.1 Trend Analysis of EPS

The trend line of EPS of EBL, NABIL, NIBL and SCBNL are as follows;
EBL Yc = 64.30 - 11.85 x
NABIL Yc = 68.04 - 6.44 x
NIBL Yc = 34.24 - 0.75 x
SCBNL Yc = 52.85 - 7.71 x
Table 4.15 Trend Analysis of Earning Per Share
Fiscal Year EBL NABIL NIBL SCBNL
2018/19 28.7 48.7 32.0 29.7
2019/20 16.9 42.3 31.3 22.0

65
 2020/21 5.0 35.8 30.5 14.3
2021/22 -6.8 29.4 29.8 6.6
2022/23 -18.7 22.9 29.0 -1.1
Sources: Appendix-III
Figure 4.12 Trend Value of Earning Per Share
60
50
40
30
EBL
Ratio in Rs

20
NABIL
10
NIBL
0
SCBNL
2018/19 2019/20 2020/21 2021/22 2022/23
-10
-20
-30
Fiscal Year

The table 4.15 and figure 4.12 shows the earning per share movement till
2022/23. The table 4.15 shows that EBL, NABIL, NIBL and SCBNL have
negative value of b so it is decreasing in future value. If b is negative value, it
helps to future price movement on negative impact. The earning per share EBL,
NABIL, NIBL and SCBNL are in decreasing trend for next five year.

4.3.2 Analysis of Dividend Per Share

The trend line of DPS of EBL, NABIL, NIBL and SCBNL are as follows;
EBL Yc = 45.60 - 2.65 x
NABIL Yc = 50.55 - 4.71 x
NIBL Yc = 37.24 + 1.46 x
SCBNL Yc = 51.94 - 1.19 x
Table 4.16 Trend analysis of Dividend Per Share
Fiscal Year EBL NABIL NIBL SCBNL
2018/19 37.7 36.4 41.6 48.4
2019/20 35.0 31.7 43.1 47.2
2020/21 32.3 27.0 44.6 46.0
2021/22 29.7 22.3 46.0 44.8
2022/23 27.0 17.5 47.5 43.6

66
Sources: Appendix-III
Figure 4.13 Trend Value of Dividend Per Share
60

50

40
Ratio in Rs

EBL
30
NABIL
20 NIBL

10 SCBNL

0
2018/19 2019/20 2020/21 2021/22 2022/23
Fiscal Year

The table 4.15 and figure 4.13 shows the trend value dividend per share till the
fiscal year 2022/23. EBL, NABIL and SCBNL have negative value of b so it is
decreasing in future value but NIBL has positive value of b so dividend per
share will be in increasing trend in future. The table and figure describes that
the dividend per share of NABIL in the fiscal year 2022/23 will be 27%,
17.5%, 47.5% and 43.6% respectively if other things remain same.

4.3.3 Analysis of Market Price Per share

The trend line of market price per share of EBL, NABIL, NIBL and SCBNL
are as follows;
EBL Yc = 1825.14 - 29.71 x
NABIL Yc = 1771.86 - 74.18 x
NIBL Yc = 770.00 + 13.64 x
SCBNL Yc = 2149.00 - 48.14 x
Table 4.17 Trend Analysis of Market Price Per Share
Fiscal Year EBL NABIL NIBL SCBNL
2018/19 1736.0 1549.3 810.9 2001.6
2019/20 1706.3 1475.1 824.6 1953.4
2020/21 1676.6 1401.0 838.2 1905.3
2021/22 1646.9 1326.8 851.9 1857.1
2022/23 1617.1 1252.6 865.5 1809.0
Sources: Appendix-III
67
 Figure 4.14 Trend Value of Market Price Per Share
2500

2000
Ratio in Rs

1500 EBL
NABIL
1000
NIBL
500 SCBNL

0
2018/19 2019/20 2020/21 2021/22 2022/23
Fiscal Year

The table 4.17 and figure 4.14 shows the market price per share of EBL,
NABIL, NIBL and SCBNL during the fiscal year 2018/19 to 2022/23. The
trend value of EBL, NABIL and SCBNL are decreasing trend for next five year
but is in positive trends in NIBL. The table and figure describes that the market
price per share of EBL, NABIL NIBL and SCBNL in the fiscal year 2022/23
will be Rs.1617.1, Rs.1252.6, Rs.865.5 and Rs.1809.0 respectively.

4.4 Major Findings

On the basis of the analysis of data, the following major findings have been
found.
1. The average return on equity of EBL, NABIL, NIBL and SCBNL is
23.11%, 26.26%, 20.07% and 21.52% respectively. NABIL has the
higher mean return on equity ratio than that of EBL, NIBL and SCBNL
which indicates that they got a better achievement on increasing net
profit by mobilizing resources of shareholder’s equity. NABIL has a
lower coefficient than that of EBL, NIBL and SCBNL which indicates
that NABIL has been successful in maintaining consistency in
mobilizing shareholders equity to earn net profit.
2. The average return on assets ratios of EBL, NABIL, NIBL and SCBNL
are 1.88%, 2.49%, 2.13% and 2.36% respectively. NABIL has a higher
mean return on assets ratio than EBL, NIBL and SCBNL which
indicates that NABIL is successful in earning the net profit with efficient

68
 utilization of total assets and it was also successful to maintain the
consistency in profit comparison to EBL, NIBL and SCBNL.
3. The average interest income to total loan and advances ratio of EBL,
NABIL, NIBL and SCBNL is 10.28%, 10.43%. Comparing the sampled
banks, it can be concluded that NIBL is slightly more efficient in
mobilizing the funds in loan and advances, since the interest yielded to
total loan and advance ratio is higher in comparison with that of EBL,
NABIL and SCBNL.
4. The average return on investment ratios of EBL, NABIL, NIBL and
SCBNL are 18.17%, 11.00%, 13.39% and 17.94% respectively. The
average net profit to total investment ratio of EBL is higher than that of
NABIL, NIBL and SCBNL so it can be conclude that EBL invest in
more profitable area than NABIL, NIBL and SCBNL.
5. The average return on loan and advance ratios of EBL, NABIL, NIBL
and SCBNL are 2.94%, 3.93%, 3.30% and 4.83 % respectively. As
compare to average loan and advance of EBL, NABIL, NIBL and
SCBNL, SCBNL has higher return than EBL, NABIL and NIBL.
6. The average dividend per share of EBL, NABIL, NIBL and SCBNL is
45.60%, 50.55%, 37.24% and 51.94% respectively. In conclusion, the
average dividend per share paid by SCBNL is higher than the average
dividend per share of EBL, NABIL and NIBL. So SCBNL is
comparatively more successful to create the positive attitudes of
shareholders towards the bank.
7. The average earning per share of EBL, NABIL, NIBL and SCBNL is
Rs.64.30, Rs.68.04, Rs.34.24 and Rs.52.85% respectively. In conclusion
the average earning per share of NABIL is higher compared to earnings
per share of EBL, NIBL and SCBNL. So, concluded that NABIL is
better than EBL, NIBL and SCBNL in terms of earning per share,
because average earning per share of NABIL is higher than EBL, NIBL
and SCBNL. It helps to indicate the better performance of the bank’s
management. The performance and the achievement of business
organization are measured in terms of its capital to general earnings,
higher earnings shows higher strength while lower earning shows
weaker strength of banks.
8. The average dividend payout ratios of EBL, NABIL, NIBL and SCBNL
are 81.61%, 74.00%, 111.93% and 107.35% respectively. In conclusion,
the four sampled banks did not seem to adopt fixed dividend payout
ratio. NIBL has high average dividend payout ratio than EBL, NABIL
and NIBL. Higher dividend payout ratio is good for the investor. It
indicates that good banking performance.

69
9. The average dividend yield ratios of EBL, NABIL, NIBL and SCBNL
are 2.58 respectively. In conclusion, average dividend yield of NIBL is
higher than EBL, NABIL and SCBNL. A high dividend yield can be
considered to be evidence that a stock is underpriced or that the
company has fallen on hard times and future dividends will not be as
high as previous ones. Similarly a low dividend yield can be considered
evidence that the stock is overpriced or that future dividends might be
higher.
10. The average earning yield ratios of EBL, NABIL, NIBL and SCBNL are
4.26%, 4.14%, 4.61% and 2.76% respectively. In conclusion, the
average earning yield of NIBL is higher than EBL, NABIL and SCBNL.
So NIBL is efficient in earning than EBL, NABIL and SCBNL.
11. The average market price per share of EBL, NABIL, NIBL and SCBNL
are Rs.1825.14, Rs.1771.86, Rs.770 and Rs. 2146 respectively. In
conclusion, average market price per share of SCBNL is higher than
EBL, NABIL and NIBL.
12. The coefficient of correlation between EPS and MPS of EBL, NABIL,
NIBL and SCBNL are 0.0644, 0.2332, 0.2322 and 0.2084 respectively.
13. The coefficient of correlation between DPS and MPS of EBL, NABIL,
NIBL and SCBNL are 0.8657, 0.398, 0.6941 and 0.2075 respectively.
14. The coefficient of correlation between EPS and DPS of EBL, NABIL,
NIBL and SCBNL are 0.239, 0.9315, 0.1122 and 0.0587 respectively.

70
CHAPTER - V SUMMARY, CONCLUSION, RECOMMENDATIONS AND
IMPLICATIONS

This chapter focuses on summarizing the study held with the conclusions, some
recommendation on the basis of findings and implications of the study. For this
purpose, the chapter has been divided into three parts as summary, conclusion,
recommendations and implications.
Basic objective of the study is to find out about the dividend policy that have
its effect in the market price and dividend decision taking place in the banking
sector of Nepal.

5.1 Summary
Dividend services as simple, comprehensive signal of management's
interpretation of the firm's recent performance and its future prospects.
Dividend policy constitutes one of the most critical issues of the public limited
companies. Dividend policy decision is one of the major decisions of financial
management. The dividend policy decision affects on the operation and
prosperity of the organization because it has the power to influence other two
decision of the organization i.e. capital structure decision and investment
decisions. The stockholders have a high desire and expectation that market
price of share will be higher than net worth and getting high percent of
dividend from earning. So distributing dividend to the share holder is effective
way to achieve the trust of investors and encourage them to invest in shares.
Besides this dividend paying ability reflects the financial position of the
organization in the market. So the funds that could not be used due to the lack
of investment opportunities would be better as dividend. Since share holders
have investment opportunities elsewhere.

The study attempts to find out the prevailing dividend practices in commercial
banks in Nepal. In order to carry out the research, four banks: Everest Bank
Limited, NABIL Bank Limited and Standard Chartered Bank Nepal Limited

71
have been taken into consideration and secondary data are collected for seven
years period starting from 2011/12 to 2017/18. These data are then put into
different statistical tool and techniques as well as financial ratios to find out our
objectives. The market price of share is affected by the financial position and
the dividend paid by the firms. The lack of financial knowledge and the market
inefficiency has affected the market price of the share in all the sample banks.
Research shows that none of the bank have well defined and appropriate
dividend policy. There is uncertainty within shareholders. Though shareholders
are being more aware about the shares and its benefits than before, but still they
don't possess sufficient knowledge about the ongoing stock market.

5.2 Conclusions
Different analyses show that there was no exact dividend policy followed by
any of these banks during this period. Reasons behind this are put into
investigation to the possible extent. NABIL has the higher mean return on
equity ratio than that of EBL, NIBL and SCBNL which indicates that they got a
better achievement on increasing net profit by mobilizing resources of
shareholder’s equity. NABIL has a lower coefficient than that of EBL, NIBL
and SCBNL which indicates that NABIL has been successful in maintaining
consistency in mobilizing shareholders equity to earn net profit. The entire
bank’s profit has been decreasing in comparison to previous year. NABIL has a
higher return on assets than EBL, NIBL and SCBNL, which indicates that
NABIL is successful in earning the net profit with efficient utilization of total
assets and it was also successful to maintain the consistency in profit
comparison to EBL, NIBL and SCBNL. NIBL is slightly more efficient in
mobilizing the funds in credit and advances, since the interest yielded to total
credit ratio is higher in comparison with that of EBL, NABIL and SCBNL. The
net profit to total investment ratio of EBL is higher than that of NABIL, NIBL
and SCBNL so it can be conclude that EBL invest in more profitable area than
NABIL, NIBL and SCBNL.

72
The average dividend per share paid by NABIL is higher than the average
dividend per share of EBL, NIBL and SCBNL. So NABIL is comparatively
more successful to create the positive attitudes of shareholders towards the
bank. EBL is better than NABIL, NIBL and SCBNL in terms of earning per
share, because average earning per share of EBL is higher than NABIL, NIBL
and SCBNL. It helps to indicate the better performance of the bank’s
management. In conclusion, the four sampled banks did not seem to adopt fixed
dividend payout ratio. NIBL has high average dividend payout ratio. Higher
dividend payout ratio is good for the investor. It indicates that good banking
performance. The coefficient of correlation between EPS and MPS of EBL,
NABIL, NIBL and SCBNL is positive. The probable error of EBL, NABIL,
NIBL and SCBNL shows that the relationship between EPS and MPS is
insignificant, since the r is lower than the 6P.E. The coefficient of correlation
between DPS and MPS of EBL, NABIL, NIBL and SCBNL is positive.

5.3 Recommendations
Taking major finding and are issues into consideration, some recommendations
have been made below:
1. Return on shareholder’s equity of NIBL is lower return than that of
EBL, NABIL and SCBNL. So, it is suggested to invest productive sector
yielding high return on shareholder’s equity.
2. EBL, NABIL. NIBL and SCBNL should focus on optimally utilizing the
total assets to generate return and should concentrate on generating
return from utilizing net worth.
3. The earning per share of NIBL is lower than that of EBL, NABIL and
SCBNL. So, it is recommended that NIBL should increase the EPS by
tracing out the fruitful and secured sector of investment and thus,
increase DPS and dividend payout ratio to retain the existing
shareholders as well as to fascinate the potential shareholders.
4. There is no any exact dividend policy followed by the selected sample
banks. During such scenario it's difficult for investors to analyze all the
ratios before making any investment decisions. Thus banks and financial
institution needs to follow specific dividend policy to achieve its goals
and government needs to establish rules and procedures regarding
dividend policy in order to protect the public and economy of the
country.
73
 5. Dividend depends up on the earning capacity of the banks. So higher the
earning higher will be the return to the shareholders. All the banks
should increase their net profit in order to maintain stable dividend
policy.
6. The dividend payment is not consistent with earnings. It is fluctuating. It
can be said that dividend payment has not adopted any particular trend.
7. Banks need to evaluate various factors: internal as well as external
factors in order to fix dividend payout ratio. Inflation and price rise are
major external factors to be taken into consideration.

5.4 Implications of the Study

This analysis responds to the study’s research questions and helps to achieve its
goals. The study provides important and useful information to the investor. It
will be useful for the management, stock broker, financial agencies, policy
makers and various stakeholders. It will be beneficial also to those parties who
are directly or indirectly related to the financial institutions. This study helps to
formulate dividend policy to the policy maker while making their dividend
policy.

For the purpose of future research, researcher should study the relationship
between prior year dividend policy and its effects on share price. The
researcher also recommends that since dividend yield is affected by financial
performance, investigations should be made to ascertain other factors that
affect dividend yield. In addition, more banks should be included in subsequent
study, other than 5 banks, and if possible, analysis should be done on all the 28
banks in Nepal. This work was limited to the Nepalese environment, further
studies could adopt same number of banks, same number of years, same
variable, same method of analysis, but examination should be extended beyond
the geographical boundaries of Nepal.
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Journal and Articles

Adhikari N. (2015). Determinants of Corporate Dividend Payout in Nepal.
NRB Economic Review. 2015 Vol. 27-2
Bhattarai, R. (2012). "Impact of Dividend on Share Pricing in Commercial
Bank in Nepal", Banking Journal, 3(2):21-36, Kathmandu

75
Iqbal, A., Ahmed, F., & Shafi, A. (2014). "The Effect of Dividend bubble on
Share Price: Evidence from KSE-30 Index", Research Journal of
Finance and Accounting, 5(13):83-87, Karachi.
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