DIVIDEND POLICY OF HIMALAYAN BANK LIMITED

A Project Work Report

Submitted by:
Diwakar Ale Magar
TU Regd. No.
Exam Symbol No:
Pinnacle College
Lagankhel, Lalitpur

Submitted to:
Faculty of Management
Tribhuvan University
Kathmandu, Nepal

In partial fulfillment of the requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Lalitpur, Nepal
April, 2024

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 DECLARATION

I hereby declare that this project work entitled “DIVIDEND POLICY OF HIMALAYAN BANK
LIMITED'' submitted to the Faculty of Management, Tribhuvan University, Kathmandu is an
original piece of work under the supervision of Mr. Nirmal Tiwari, faculty member of Pinnacle
College, Lalitpur, and is submitted in partial fulfillment of the requirements for the award of the
degree of Bachelors in Business Studies (BBS). This project work has not been submitted to any
other university or institution for the award of any degree or diploma.

………………………….

Diwakar Ale Magar

April 2024

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 ACKNOWLEDGEMENT

This report has been prepared for the partial fulfillment of the requirement of the degree of
Bachelor of Business Studies. It would have been almost impossible to complete this without
cooperation and help from different persons.
At first, I would like to express my sincere gratitude and deep respect to my Mr. Nirmal Tiwari,
faculty members of Pinnacle College, for his valuable suggestions, guidance, and encouragement
in the completion of this study.
I would like to express thanks to all the library and administrative staff of Pinnacle College for
the necessary help in the preparation of this report. I must not forget to thank my friends and
colleagues for the regular inspiration and support.

Diwakar Ale Magar

April, 2024

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 TABLE OF CONTENTS

Title page i

Declaration ii

Supervisor’s Recommendation iii

Endorsement iv

Acknowledgement v

Table of contents vi

List of Tables viii

List of figures ix

Abbreviations x.

CHAPTER I: INTRODUCTION …………………….………………….………………1

1.1 Background Study 1-3

1.2 Profile of Organization 3
1.3 Statement of Problem 4
1.4 Objective of Study 4
1.5 Rationale of the Study 4-5
1.6 Literature review 5
1.6.1 Conceptual Framework 5
1.6.2 Forms of Dividend 6-7
1.6.3 Review of Previous Study 7-8
1.7 Research methods 8
1.7.1 Research design 8
1.7.2 Population Sample 8
1.7.3 Type of Data 9
1.7.4 Data Collection Procedure 9
1.7.5 Technique of Analysis 9-12

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1.8 Research Gap 12
1.9 Limitation of Study 13

CHAPTER II: RESULT AND ANALYSIS…………………….……………………….14

2.1 Analysis of data 14-21

2.2 Major Findings 22

CHAPTER III: SUMMARY AND CONCLUSION……….……………………………23

3.1 Summary 23-24

3.2 Conclusion 24-25

BIBLIOGRAPHY
APPENDICES

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 LIST OF TABLES

Table 2.1 EPS of Himalayan Bank Limited

Table 2.2 DPS of Himalayan Bank Limited

Table 2.3 DRP of Himalayan Bank Limited

Table 2.4 MPS of Himalayan Bank Limited

Table 2.5 DY of Himalayan Bank Limited

Table 2.6 P/E Ratio of Himalayan Bank Limited

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 LIST OF FIGURES

Figure 2.1 EPS of Himalayan Bank Limited

Figure 2.2 DPS of Himalayan Bank Limited

Figure 2.3 DRP of Himalayan Bank Limited

Figure 2.4 MPS of Himalayan Bank Limited

Figure 2.5 DY of Himalayan Bank Limited

Figure 2.6 P/E Ratio of Himalayan Bank Limited

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 ABBREVIATIONS

HBL Himalayan Bank Limited

EPS Earning Per Share
DPS Dividend Per Share
DPR Dividend Payout Ratio
MPS Market Price of Share
DR Dividend Ratio
DY Dividend Yield
MVPS Market Value Price per Share
NWPS Net Worth Per Share
NEPSE Nepal Stock of Exchange
ATM Automated Teller Machine
BBS Bachelor of Business Studies
P/E Price Earning
SEBON Security Board Nepal
TU Tribhuvan University
S. D Standard Deviation
C.V Coefficient of Variance

CHAPTER I

INTRODUCTION

1.1Background of the Study

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Dividends represent a portion of a company's profits distributed to its shareholders as a reward
for their investment. A well-structured dividend policy not only attracts investors but also signals
financial stability and confidence in the company's future prospects. It is essential to strike a
balance between distributing profits to shareholders and retaining earnings for future growth
opportunities. A well-designed dividend policy is essential for creating value for shareholders
and maintaining the company's financial stability and growth prospects. By adopting a strategic
approach to dividend policy, the company can enhance shareholder confidence, attract
investment, and drive sustainable long-term value creation. Financial institutions can be
considered as the catalyst to the economic growth of a country. The development process of a
country involves the mobilization and development of resources. Development of trade,
commerce and industry are the prime requisite for the attainment of the economic, political and
social goals. To fulfill the purpose of planning, financial functions more often dominate the other
functions. “There is always a lack of finance in an underdeveloped economy because nature is
either underutilized or unutilized in productive sectors or even other purposes i.e., social welfare
and so on. Likewise, underdeveloped countries are not deficient in land, water, mineral, forest or
power resources, though they may be untapped; constituting only ‘potential resources." So, in
these countries for the rapid development of the economy, there should be proper mobilization of
resources. Due to various difficulties or even ignorance of the people, such resources have not
been properly utilized. Hoarding could be one of the reasons for this. So, banks and other
financial institutions play a vital role to encourage thrift and discourage hoardings by mobilizing
the resources and removing the habit of hoarding. They pursue rapid economic growth,
developing the banking habit among the people, collecting the small-scattered resources in one
bulk and utilizing them for future productive purposes and rendering other valuable services to
the country. Thus, this gives the individuals an opportunity to borrow funds against future
income, which may improve the economic well-being of the borrower. Financial institution in
the economy plays a crucial role in the process of economic growth of the country. Financial
institution refers to a business concern which is mainly confined to finance for the development
of trade, commerce and industry. Trade, commerce and industry are the prime factors of
economic development.
The background study of dividend policy in Nepal delves into the intricate interplay of historical,
regulatory, market, and cultural factors shaping dividend decisions among Nepalese companies.

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Tracing the evolution of dividend practices in Nepal provides insights into the economic
development trajectory, political landscape, and regulatory reforms that have influenced
corporate payout policies over time. Analysis of the regulatory framework governing dividend
distributions, overseen by entities like the Securities Board of Nepal (SEBON) and the Nepal
Rastra Bank (NRB), sheds light on the legal landscape shaping dividend decisions. Moreover,
exploring market dynamics and corporate governance practices reveals how factors such as
industry trends, macroeconomic conditions, and shareholder rights impact dividend policy
formulation. Cultural norms and attitudes towards wealth distribution and investment further
shape dividend practices, especially within the context of family-owned businesses and
conglomerates prevalent in Nepal. Despite facing challenges such as limited access to capital and
regulatory uncertainties, Nepalese companies have opportunities to enhance dividend policy
effectiveness through improved governance practices, investor relations, and long-term
sustainability strategies. This comprehensive background study lays the foundation for informed
decision-making and policy initiatives aimed at strengthening dividend policy frameworks in
Nepal, ultimately contributing to the country's economic development and investor confidence.
Dividend policy is concerned with financial policies regarding paying cash dividend in the
present or paying an increased dividend at a later stage. Whether to issue dividends, and what
amount. is determined mainly on the basis of the company's unappropriated profit (excess cash)
and influenced by the company's long-term earning power. When cash surplus exists and is not
needed by the firm, then management is expected to pay out some or all of those surplus earnings
in the form of cash dividends or to repurchase the company's stock through a share buyback
program. This is a study on effects of dividend policy on the value of the firms. There are three
important decisions a firm must make investment, financing and dividend decisions. All these
decisions are normally made with the aim of achieving the overriding objectives of firms, which
is the maximization of shareholder’s wealth. This study investigated the effect of dividend policy
on the value of the firm. It examined the relationship between dividend payment and payout
ratio. It found out the percentage of earnings to be retained or ploughed back into the company
and identified the various factors that determine the pricing of shares. Secondary data obtained
from Nigeria Stock Exchange Fact book were used for the study. The study finds out among
other things that the changes in the payout ratio of a company significantly determine the
changes in the value of the company. It was therefore recommended in the study that the policy

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of regular dividend payout should not be changed arbitrarily since it has a serious effect on the
investor's attitude and the financial standing of the organization. The result has a clear
implication for investing in the public. government policy makers and the firm's management.
Keywords: Dividend policy; Dividend decision: Payout ratio: company’s valuation; investment.
According to law, dividends should be declared out of the net profit. Usually, dividends are paid
annually. Semiannually, quarterly. or monthly. In Nepal dividend is paid annually, some
companies may pay the whole earning as dividend to create a good image in the market at the
beginning but later they may change their policy and announce a certain percentage of dividend
payout term but usually dividend policy ratio seems to 40° in Nepal. Dividend policy is the
policy which concerns the quantum of profits to be distributed by way of dividend. This policy
implies that the companies introduce a pattern of dividend payment through their Board of
Directors which, no doubt, has an implication on the future activities although in practice, this
procedure is not followed by most of the companies. They simply consider each dividend
decision in an independent manner. This is primarily due to the fact that the financial manager
cannot do anything about it since he works at an advisory capacity. The power to recommend
dividend policy and declaration of dividends vest completely in the Board of Directors.

1.2 Profile of Organization

Himalayan Bank. was established in 1993 in joint venture with Habib Bank Limited of Pakistan.
Despite the tough competition in the Nepalese Banking sector, Himalayan Bank has been able to
maintain a lead in the primary banking activities Loans and Deposits. Legacy of Himalayan lives
on in an institution that's known throughout Nepal for its innovative approaches to
merchandising and customer service. Products such as Premium Savings Account, HBL
Proprietary Card and Millionaire Deposit Scheme besides services such as ATMs and Tele-
banking were first introduced by HBL. Other financial institutions in the country have been
following the lead by introducing similar products and services. Therefore, the bank stands for
the innovations in this country to help their Customers besides modernizing the banking sector.
With the highest deposit base and loan portfolio amongst private sector banks and extending
guarantees to correspondent banks covering exposure of other local banks under their credit
standing with foreign correspondent banks, HBL believes that they obviously lead the banking

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sector of Nepal. The most recent rating of HBL by Bankers ‘Almanac as the country's number 1
Bank easily confirms our claim.

1.3 Statement of Problem

The analysis of financial statements is useful for further research work and also to the institution
itself. The research will deal with many problems like, what is the profitability, liquidity, capital
structure, economic situation of our country, difference between current asset and current
liabilities. Dividend policy being one of the major decisions to be taken by firms which has not
become a known phenomenon or a matter or practice to a larger number of financial
communities even today. In Nepal different companies seem to hold different policies regarding
dividend every year. Dividend distribution does not match with the earnings of the companies.
The main focus of the study is to deal with the following problems-

● Is DPS appropriate to the firm's EPS?

● What is the impact of dividend policy on market price of stock?

● Is there any consistency in EPS, DPS and DPR of the HBL?

1.4 Objective of the Study

The major objective of the study is to obtain the depth knowledge about the impact of dividend
policy adopted by the firms to its market price of share as well as the overall valuation of the
firm. The following are the specific objectives of this study.

● To examine the dividend policy of Himalayan Bank Limited.

● To determine the prevailing policies and practices regarding dividend in the Nepalese

firms with reference to the Himalayan Bank Limited.

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 ● To identify if there is any uniformity in DPS, EPS, MPS and DPR of the Himalayan Bank

Limited.

1.5 Rationale of Study

The dividend is most sensitive in the area of investment in the common stock. If the market
doesn't receive its expected dosages, stock price will suffer. Dividend payout of course reduces
the amount of earning retained in the firm and affects the total amount of internal financing. The
study may deliver crucial information for those respective commercial banks. The main
significance of study is as follows;
The study aims to provide important and useful information to the investor. It will be useful for
management. It will be useful for stock brokers, financial agencies, policy makers and various
stakeholders. This study helps to formulate dividend policy to policy makers while making their
dividend policy. This study will be beneficial to those parties who are directly or indirectly
related to the financial institution. This study covers the partial fulfillment of the requirement of
BBS, T.U.

1.6 Literature Review

Review of literature is a summary and analysis of knowledge about a particular topic or area of
inquiry. It is the process of reviewing research studies or other relevant propositions in the area
of the study so that the past studies, their conclusion and deficiencies may be known and further
research can be conducted. It analyses the previous studies for knowing about the data provided
in detail which further helps to develop a theoretical framework.

1.6.1 Conceptual Framework

The term dividend can be defined as the profit made by the firm which is distributed to its
shareholders’. Although the firm makes the profit, it should decide whether to retain the money
for further investment or to distribute it among the shareholders. It may be in cash or share or the
combination of both the cash and share. In simple words dividend can be defined as the return on
investment.

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Dividend policy decision is one of the three decisions of financial management because it affects
the financial structure, the flow of funds, corporate liquidating and investors attitudes. For a good
dividend policy management must decide, whether to distribute the dividend or to retain the
fund. The dividend might result in immediate cash flow to the investor but by retaining the fund
it provides an investment opportunity to the firm which may result in an increase in market price.
So, a dividend is directly beneficial to the investor whereas retaining the cash might be indirectly
beneficial to the investors. A dividend policy must be set which is beneficiary to both the
investor and the firm.

1.6.2 Forms of Dividend

Dividends are paid in cash but when the company is unable to pay cash dividend, they use
different forms of dividend payment for satisfying stockholders. Such forms of dividends are
stock dividend, scrip dividend, property dividend, bond dividend etc. Some of them are listed
below:

a) Stock dividend or bonus share:

When the board of directors decides to distribute a common stock to its existing shareholders, it
is the stock dividend. It increases the number of shares of the stockholders. Stock dividends are
paid in place of cash dividends as stock dividend requires an accounting entry transfer from the
retained earnings account to the common stocks and paid in capital accounts.
Scrip Dividend: A scrip dividend is a distribution of surplus t to the stockholders IN the form of
notes or promises to pay the amount of dividend at a certain time. The notes are called dividend
certificates or scrip. Sometimes companies need cash generated by business earnings to meet
business requirements or with-hold the payment of cash dividends because of a temporary
shortage of cash. In such circumstances the company may issue scrip dividend payable at future
dates.

b) Cash dividend:
Cash dividend is the most common. way of providing the dividend. The cash account and the
reserve account of a company will be reduced when the cash’ dividend is paid. when cash

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dividends are paid it is directly beneficiary to the investor as it immediately increases the cash
flow of the investors.

1.6.3 Review of Previous Study

Baker and Powell (2012). surveyed on "Managers of Dividend Paying Firms Listed on
Indonesian Stock Exchange (IDX)," to learn their views about the factors influencing dividend
policy, dividend issues, and explanation for paying dividends.
Devkota (2013). conducted research on “Dividend Policy of Commercial Bank in Nepal,”. The
main objectives are to analyze the existing dividend practices of sample banks in terms of DPS.
DPR and DR. to find out the effect on MVPS due to DPS and EPS. to analyze the relationship of
dividend with EPS, NWPS, MVPS of commercial banks and to find out significance difference
between mean of DPS, DPR and DY of Everest Bank Limited.
Giri (2014). conducted research on "A Comparative Study of Dividend policy NABIL Bank Ltd,
Standard Chartered Bank Ltd and Investment Bank Ltd,”. The main objective studies are to
identify dividend policy bank of selected banks, to analyzes the relationship between financial
indicators such DPS, EPS, DPR, PE ratio, Liquidity ratio and profitability ratio on market value
per share
(MVPS), to explain if there is any uniformity among DPS, EPS and DPR on the 3 sample joint
venture banks and find out the impact of dividend on share price.
Bista (2016) conducted research on "Dividend Policy and Its Impact on Market Price of Stock,"
which had covered the period of FY 2007/08 to 2014/15. The main objectives of research are to
examine the prevailing dividend policy adopted by Himalayan Bank Limited, to analyze the
impact of dividend on market price per share, to analyze the relationship of financial indicators
such as EPS, DPS, PE ratio, Liquidity ratio, Profitability ratio and market price value per market
price, and to examine the uniformity. From the coefficient of variance, the market price value of
market price in the market is fluctuating in all Everest Bank Limited.
G.C. (2012). conducted "A study on Dividend Policy and Its impact on Share Price": (Analysis
of Selected "A" Class Listed Companies). The major objective of the study is to determine the
trend and practices of dividend payment by the Nepalese "A" class listed companies of Nepal

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from fiscal year 2006/07 to 2010/011 including to examine the impact of dividend policy on
market price of stock of "A" class listed companies of Nepal, to explore the prevailing practices
and effort made in dividend policy among the companies and to identify the regularity and
uniformity of dividend paying financial institutions.

1.7 Research Methods

Research Methodology indicates the methods and processes employed in the entire aspect of the
study. In other words, research methodology refers to the various sequential steps to be adopted
by a researcher in studying a problem with certain objectives. Research methodology 1 st way for
systematically solving the research problem. So, it is a way of presenting the collected data with
meaningful analysis. In other words, it is a systematic way to find research problems.

1.7.1 Research Design

The research design of this study basically follows the impact of dividend on stock price. In
other words, this research is designed so as to find out the impact on the market price of common
stock of a company when dividend is paid to the shareholders and also how the market price of
stock responds when dividend is not paid to the shareholder. In other words, the study is closely
related to the impact of dividend on market price of common stock and wealth position of
shareholders. Therefore, the descriptive as well as the analytical approach design are adopted
here to make the analysis more effective. financial tools, statistical tools and testing models are
also used.

1.7.2 Population Sample

There are 20 commercial banks in the country owned, due to time and resource factor it is not
possible to study all of them regarding the study topic. Therefore, sampling will be done
selecting from population. Out of 20 commercial banks that are operating their activities in
Nepal, researchers have selected only one commercial bank for this study. So, we are going to
analyze only HBL about their operating activities as a sample.

1.7.3 Types of Data:

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This study is based on the secondary data. The data relating to the dividend decision, which are
directly obtained from commercial banks. Annual reports, balance sheets, profit and loss
accounts of commercial banks are the main sources of data. Beside the data are also collected
from various journals, articles, newspapers and magazines published by commercial firms. Main
sources of secondary data are:

● Annual report published by Himalayan Bank Limited.

● Data are collected for the year 2015/16 to 2020/2021 as five-year data are analyzed.

● Nepal Stock Exchange, website (www.nesalstock.com) and perspective firm's

● official websites.

1.7.4 Data Collection Procedure.

The data analysis tools are applied as simply as possible. Data obtained from the various sources
cannot directly be used in their original form. They need further verified sources that cannot
directly be used in their original form. They need to be further verified and simplified for the
purpose of analysis. Data, information, figures and facts so obtained need to be checked,
rechecked, edited and tabulated for computation. According to the nature of data, they have been
inserted in meaningful Tables, which have been shown in appendices. Data have been analyzed
and interpreted using financial and statistical tools.

1.7.5 Technique of Analysis:

Various Financial and Statistical tools have been used to analyze the data of this study.
1.Financial Tools
Financial tools are those which help to study the financial position of the firms. The financial
tools used in this are as follows:

a) Earnings Per Share (EPS)

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 The profit made by the common shareholders for every share they owned is known as
earning per share. The income of per share is calculated by dividing the earning available to
common shareholders by the total number of common stock outstanding, Thus,
¿
EPS = Earning available¿ common shareholders no . of common stock outstanding

b) Dividend Per Share (DPS)

Dividends are the portion of the net profit investor received as a benefit t by the shareholders
as a return on investment or cash. Amounts of net profit after tax are available to the
shareholder which is received by the shareholders as a dividend. The portion of net profit
which is allocated to the shareholders divided by the number of shares outstanding is known
as dividend per share. They are calculated by:
Total dividend
DPS = no . of common stock outstanding

c) Dividend Payout Ratio (DPR)

The percentage amount of dividend paid to shareholders out of earning per share is known as
dividend payout ratio. This earning is needed for business to grow and to expand. The
purpose of calculating this ratio is to: know the portion of dividend distributed out of total
earnings. This ratio shows the relation between the returns belonging to equity shareholders
and the dividend paid to them. It can be calculated as under:
DPR = Dividend per share
Earnings per share

d) Dividend Yield (DY) Ratio

The dividend yield is an estimate of the dividend-only return of a stock investment.
Assuming the dividend is not raised or lowered. the yield will rise when the price of the stock
falls, and it will fall when the price of the stock rises. Because the dividend yield changes

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 with the stock's price, it often looks unusually high for stocks that are falling quickly. It
defined the relationship
between dividend per share and market value per share. It is very useful for the investors. So,
dividend yield is the dividend received by the investors as a percentage of market price per
share in the stock market. Thus,
Dividend Yield Ratio= Dividend per share
Market price per share

e) Price Earnings Ratio (P/E)

Price earnings ratio is the ratio for valuing a company that measures its current share price
relative. This ratio is closely related to the earning yield. The reciprocal of the earning yield
is called the price earnings ratio. It is very useful to prospective investors. The higher P/E
ratio is the high market price of a stock given the earning per share and greater confidence of
investors in the future. Thus,
P/E Ratio = Market Price per share
Earning per share

2. Statistical Tools
a) Mean
An average is a single value selected from a group of values to represent them in the same
way. which is supposed to stand for the whole group of which it is a pair, as typical of all the
values in the group. It is the most commonly used and readily understood measure of central
tendency. Arithmetic mean of a given set of observations is their sum dividend by the
number of observations.
Mathematically: Arithmetic Mean (AM) is given by,
x̄ = X
n
Where,
x̄ = Arithmetic mean
X = Sum of all the values of variable X
n = Number of observations

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b) Standard Deviation
Standard deviation (SD) represented by the Greek letter sigma(σ) is a measure that is used to
quantify the amount of variation or dispersion of a set data value. It is the most commonly
used measure of the spread or dispersion of data around them. A low standard deviation
indicates that the data points tend to be close to the mean (also called the expected value) of
the set, while high standard deviation indicates that the data points are spread out over a
wider range of values.
The standard deviation (σ) measures the absolute dispersion.
Mathematically,
σ=

c) Coefficient of variance
Although the standard deviation of analytical data may not vary much over limited ranges of
such data it usually depends on the magnitude of such data. The standard deviation is
absolute measures of dispersion; whereas the coefficient of variation (CV) is a relative
measure. To compare the variability between two or more series, CV is a more appropriate
statistical tool.
Mathematically,

CV

1.8 Research Gap

Research gap refers to the gap between previous research and this research. Many research
studies have been conducted by the different students, experts and researchers about the
dividend policy of commercial banks. By the depth and detail study of above cases there are
many lacks of and unclear information in many cases. I request they should be given more
samples while conducting the research program.

1.9 Limitation of Study

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The study only concentrates on dividend policy, it does not cover several other aspects of the
commercial bank:

● The study is done on the basis of secondary data. Therefore, the study has inherent

limitations of the secondary data.

● The study is concerned only at the dividend policy of selected Himalayan Bank

Limited.

● It is based on the data provided by the financial institution so they might lack

appropriate data.

● The data of Himalayan Bank limited firms analyze with the use of limited tools and

techniques.

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