DIVIDEND POLICY OF NABIL BANK LIMITED

A Project Work Report

By

Astha Khadka
T.U. Regd. No: 7-2-455-2-2019
Pinnacle College
Lagankhel, Lalitpur

Submitted to
Faculty of Management
Tribhuvan University
Kathmandu

In the partial fulfillment of the requirement for the degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Lalitpur, Nepal

July, 2024
 DECLARATION
I hereby, declare that the project work entitled " DIVIDEND POLICY OF NABIL
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, Lagankhel, Lalitpur and is submitted in partial
fulfillment of the requirement for the award of the degree of Bachelor of Business
Studies (BBS).

This project work report has not been submitted to any other university or institution
for the award of any degree or diploma.

………………
Astha Khadka
July, 2024

ii
 SUPERVISOR’S RECOMMENDATION

This project work entitled “DIVIDEND POLICY OF NABIL BANK LIMITED"

submitted by Astha Khadka of Pinnacle College, Lagankhel, Lalitpur is prepared
under my supervision as per the procedure and format requirements laid by Faculty of
Management, Tribhuvan University, Kathmandu, Nepal as partial fulfillment of the
requirements for the award of the Degree of Bachelor of Business Studies (BBS). I,
therefore recommend the project work report proposal for evaluation.

…………………….
Mr. Nirmal Tiwari
Supervisor

iii
 ENDORSEMENT

We hereby endorse the project work report entitled "DIVIDEND POLICY OF

NABIL BANK LIMITED" submitted by Astha Khadka of Pinnacle College,
Lagankhel, Lalitpur in partial fulfillment of the requirements for award of the
Bachelor of Business Studies (BBS) for external evaluation.

………………… ………………….
Mr. Atma Ram Koirala Dr. Rishi Pd. Tiwari
Chairman, Research Committee Campus Chief
July,2024 July,2024

iv
 ACKNOWLEDGEMENT

The present fieldwork report “DIVIDEND POLICY OF NABIL BANK LIMITED"

has been prepared for the partial fulfillment of Bachelor of Business Studies. This
project work provides the students with an opportunity for learning as well as
developing managerial skills, participating in real life organizational settings and
obtaining insights into career opportunities. Performing a research work is a great
chance for the performer to show their talent, capacity as well as practical experience.

Initially, I would like to express my sincere thanks to our respected Supervisor Mr.
Nirmal Tiwari for providing his valuable guidance and advices in inscribing this
report. I would like to thank Nabil Bank Limited for its full co-operation in providing
needed information and data during the preparation. I am very much grateful to
Tribhuvan University, Pinnacle Academy for providing us an enthusiastic support and
opportunity to conduct this fieldwork.

I pay my sincere obligation and gratitude to the respected supervisor who have
provided a great deal of knowledge and idea for the existence of this output. Lastly, I
would like to extend my sincere gratitude to known and unknown writers of the books
and references that has been taken during the preparation of this fieldwork report.

Astha Khadka
July,2024

v
 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 Background 1
1.2 Profile of Nabil Bank Ltd 2
1.3 Problem Statement 4
1.4 Objectives of the Study 4
1.5 Rationale of the study 5
1.6 Research Methodology 5
1.6.1 Research design 5
1.6.2 Population and sample 6
1.6.3 Types of Data 6
1.6.4 Data collection procedure 6
1.6.5 Technique of Analysis 6
1.7 Research Gap 10
1.8 Review of Literature 10
1.8.1 Conceptual Framework 10
1.8.2 Concept of Dividend 11
1.8.3 Review of Previous Studies 14
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1.9 Limitations of the Study 15

CHAPTER-II: RESULTS AND ANALYSIS

2.1 Data Presentation 16
2.2 Analysis of Results 16
2.3 Findings 22

CHAPTER-III: SUMMARY AND CONCLUSION

3.1 Summary 24
3.2 Conclusion 25

Bibliography
Appendix

vii
 List of Tables
Table no. 2.1 Earnings Per Share 17
Table no. 2.2 Dividend Per Share 18
Table no. 2.3 Dividend Payout Ratio 19
Table no. 2.4 Price Earnings ratio 20

viii
 List of Figure
Figure no. 2.1 Earnings Per Share 17
Figure no. 2.2 Dividend Per Share 18
Figure no. 2.3 Dividend Payout Ratio 19
Figure no. 2.4 Price Earnings ratio 20

ix
 ABBREVIATION

& : And

BAFIA : Bank and Financial Institution Act

C. B. : Commercial Bank

C. V : Coefficient of Variation

FY : Fiscal Year

GSE : Ghana Stock Exchange

GDP : Gross Domestic Product

Ltd. : Limited

MIS : Management Information System

NBL : Nabil Bank Limited

No. : Number

Rs : Rupees

S.D. : Standard Deviation

SFDP : Small Farmer Development Program

T.U. : Tribhuvan University

x
 CHAPTER-I
INTRODUCTION

1.1 Background of the Study

Dividend policy is an integral part of financial management decision. It is in the sense
that the firm has to choose between distributing the profits to the shareholders or
reinvesting it to finance the business. The important aspect of dividend policy is to
determine the amount of earnings to be distributed to shareholders in return to their
investment and the amount to be retained in the firm. It affects the financial structure,
the flow of funds, corporate liquidity and investor's attitudes. It is relevant for all
surrounding that mobilizes funds in terms of return and investment. Thus, it is one of
the central decision area related to policies seeking to maximize the value of firm's
common stock.

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.

If there are no NPV positive opportunities, i.e. projects where returns exceed
the hurdle rate, and excess cash surplus is not needed, then – finance theory suggests
– management should return some or all of the excess cash to shareholders as
dividends. This is the general case, however there are exceptions. For example,
shareholders of a "growth stock", expect that the company will, almost by definition,
retain most of the excess earnings so as to fund future growth internally. By
withholding current dividend payments to shareholders, managers of growth
companies are hoping that dividend payments will be increased proportionality higher
in the future, to offset the retainment of current earnings and the internal financing of
present investment projects.

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Dividend policy is the set of guidelines a company uses to decide how much of its
earnings it will pay out to shareholders. Some evidence suggests that investors are not
concerned with a company's dividend policy since they can sell a portion of their
portfolio of equities if they want cash. Dividend Policy is a financial decision that
refers to the proportion of the firm’s earnings to be paid out to the shareholders. Here,
a firm decides on the portion of revenue that is to be distributed to the shareholders as
dividends or to be ploughed back into the firm.
The amount of earnings to be retained back within the firm depends upon the
availability of investment opportunities. To evaluate the efficiency of an opportunity,
the firm assesses a relationship between the rate of return on investments “r” and the
cost of capital “K.”
As per the dividend models, some practitioners believe that the shareholders are not
concerned with the firm’s dividend policy and can realize cash by selling their shares
if required. While the others believed that, dividends are relevant and have a bearing
on the share prices of the firm. This gave rise to the following models:
As long as returns are more than the cost, a firm will retain the earnings to finance the
projects, and the shareholders will be paid the residual dividends i.e. the earnings left
after financing all the potential investments. Thus, the dividend payout fluctuates
from year to year, depending on the availability of investment opportunities.
1.2 Profile of Nabil Bank Limited
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
74 points of representation. In addition to this, 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

2
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.

Vision Statement
At Nabil, our Vision is to be a bank for all across all geopolitical zones and
socioeconomic strata of the nation that can provide myriads of financial solutions and
create values for all our stakeholders, to stand in the community with our economic
and civic roles. We look forward to emerging as a first rate bank across all strata of
the nation.

Mission Statement

We at Nabil work together up to our vision and to bring it into reality. Our mission is
therefore to prove that Nabil is driven by the spirit for realizing those visionary
aspirations. With that end in view, we work in partnership with our stakeholders and
the community at large. Our roadmap to reaching where we have set our mind on is
by maneuvering our strategic action plans through a well-teamed and synergistic
workforce into industrial end products – our customized services. Our approaches are
to differentiate our products by reengineering them with the best technologies and
management philosophy keeping in focus our customers’ satisfaction over and above
everything else at all times. We have set our goals and objectives to the skills of
inspired HR force and tailor our products and services to that end. With an all-
inclusive approach Nabil engages in customizing ranges of products catering to the
entire gamut of society from financing megaprojects to underprivileged individuals
and promoting enterprises across all segments of society by adding values to nation
building endeavors. We are branching out on a national scale through our wide-

3
ranging points of representation representing different geographic and economic
zones along with our broad global network as a 1st CHOICE PROVIDER OF
COMPLETE FINANCIAL SOLUTIONS.

1.3 Problem Statement

In the dawn of new millennium, towards the end of 2006 A.D., there are 28
commercial banks. All these banks have created a cutthroat competition in the
financial sector. Fluctuating and low interest rates on deposits, poor deposit
mobilization etc. has affected on the return of funds, total assets, total deposits and
shareholders' wealth position.

Since the liberalization policy of the government, various banks and financial
institutions have been established with a view to reinforce the economic growth of the
country. They have played an indispensable role by accepting deposits and granting
loans. Dividend of the collected funds is the most important factor for both
shareholders and the bank as they are the source of earning. Credit extended by these
banks is directly related to the national interest. Therefore, the banks should have a
sound Dividend policy.

This bank has been operating pretty well from its inception. It has been awarded
prestigious titles on account of its experience in the field of international banking, hi-
tech computerized services, professional attitude, qualified and experienced work
force, quality and reliable services that served as the key factor for its rapid progress.
It has been able to control and capture a remarkable leadership of Nepalese banking
sector in a relatively short period in terms of both market share and market price.

 What is the relationship with total dividend and net profit of bank?
 How to determine the growth rate of bank in terms of deposits, loans and
advances, dividend and profitability of the bank?
1.4 Objectives of the Study
The main objective of this study is to evaluate the dividend policy of NBL and to
recommend corrective measures, if any, in order to improve its performance. Besides,
there may be other objectives too
 To analyze deposit utilization and its relationship with total dividend and net
profit of the bank.

4
  To determine the growth rate of bank in terms of deposits, loans and advances,
dividend and profitability of the bank.
1.5 Rationale of the Study
Since, the study is concerned with NBL it will be helpful to have an in depth
knowledge about the dividend policy of the bank for a period of years. This study will
also benefit various persons and parties such as shareholders, public, management
committee, stockbrokers, government, policy makers and many more that have their
stake in this particular bank and in the overall banking sector. Apart from this, it is
also useful for other commercial banks and central bank for formulation of
appropriate dividend policies and strategies. This study will evaluate the dividend
policy and help to find the drawbacks and provide corrective measures for the proper
implementation of it.
1.6 Research Methodology
Methodology of fieldwork describes the methods and process applied in the entire
aspect of the study. It refers to the various sequential steps to be adopted by researcher
in studying a problem with certain objects in view. It helps to analyze, explain and
interpret various aspects of fieldwork.
The objective of this study is to see the relationship between the figures of dividend
policy. The analysis of trend of dividend policy follows certain methodology of
fieldwork. It includes with research design, population and sample sources of data,
data collection and techniques data analysis tools of the fieldwork.
1.6.1 Research Design
The research design refers to the overall strategy that you choose to integrate the
different components of the study in a coherent and logical way, thereby, ensuring
you will effectively address the research problem; it constitutes the blueprint for the
collection, measurement, and analysis of data. Research design is an integrated
framework of the whole study that guides the researcher in formulation, implementing
and controlling the research work. Analysis with different tools has been conducted to
find out necessary result. The procedures applied for assessing the dividend policy of
NBL. Descriptive research is defined as a research method that describes the
characteristics of the population or phenomenon that is being studied. This
methodology focuses more on the “what” of the research subject rather than the
“why” of the research subject. In other words, descriptive research primarily focuses

5
on describing the nature of a demographic segment, without focusing on “why” a
certain phenomenon occurs. In other words, it “describes” the subject of the research,
without covering “why” it happens.
1.6.2 Population and Sample
There are altogether 20 commercial banks functioning in the country and most of their
stocks are traded actively in the stock market. In this study, dividend policy has been
compared with that of NBL bank. Among them NBL bank of Nepal is undertaken for
study. Their data relating to dividend policy are studied and compared.
1.6.3 Types of Data
The study is based only secondary data. The required data and information were
collected from various published statement and materials of NBL.
1.6.4 Data Collection Procedure
Fieldwork process begins from the orientation classes taken by lectures. In orientation
class, teacher gave many ideas and guidelines about fieldwork report. After
orientation class, the researcher gets sufficient ideas and knowledge to choose the
topic and how to collect data from the organization. Then the researcher decided to
study on the dividend policy of NBL and then consulted various books, fieldwork
reports, and magazines and forms the library along with face to face conversation with
the relation officials of NBL in course of collecting necessary data required for the
study and also searched different websites.
This study is focused for few years extending from 2018/19 to 2022/23 B.S. All the
data’s presented in the study is based on the Annual report of NBL, websites, and
Published broachers of NBL.
1.6.5 Data Collection Procedure
Similarly, the secondary data and information are collected from various published
statements, internet and material of NBL. Basically secondary method of data
collection was more adopted for the purpose of this study. Thus no questionnaires
were constructed and specific method was used to collect the required data.
1.6.6 Techniques of Analysis
In this fieldwork to achieve the meaningful result of the collected data various
computer package were used to the fieldwork objectives, various statistical tools are
used for the study to make concise and clear.

6
The collected raw data were first edited and presented in appropriate tables, graphs
and diagrams. Tables, multiple bar diagram and pie charts are used to present and
analyze the data in more understandable ways.
a) Ratio Analysis
Ratio analysis helps to summarize the large quantities of financial data and to make
quantitative judgment about the firm's financial performance. Ratio is the expression
of one figures in terms of another. It is the expression of relationship between
mutually independent figures, in financial analysis; ratio is use to as an index of
yardstick for evaluating the financial position & performs of firm. Ratio analysis is
very much powerful and widely used tool of financial analysis. It is defined as the
systematic use of ratio to interpret the financial statements so that the strength and
weakness of a firm as well as its historical performance and current financial
condition can be determined. In accounting figure conveys meaning when it is related
to some other relevant information. Therefore, the ratio is the relationship between
two accounting figures expressed mathematically. It helps to summarize large
quantitative relationship helps to form a quality judgment.
There are numerous rations to analyze and interpret the financial from one of the
enterprise or from. However, for our purpose, only important and relevant ratios are
used to check the financial health of elected only one are co-operative bank (i.e. Nabil
Bank Ltd), which are as below: -
Other Indicators
Above stated ratios, throw light on various aspects of bank. Management investors
and creditors can get information regarding their interest. Some indicators are dealt
hare which provide more knowledge about the performance of the bank. They are
listed below.
i) EPS (Earning Per Share)
ii) DPS (Dividend Per Share)
iii) DPR (Dividend Payout Ratio)
iv) P/E Ratio (Price-Earnings Ratio)
i) Earnings Per Share
It is obtained by dividing earning available to common shareholders by number of
equity share outstanding.

7
EPS= Earnings Available to Common Share Holders
Number of share outstanding
Earnings per share refers to the income available to the common shareholders on per
share basis, it enables as to compare whether the earning based on per share basis has
changed over the period or not. The investors favor high EPS. It reflects the sound
profitability of the bank.
i) Dividing Per Share (DPS)
If is obtained by dividing earning paid to share holder by number of equity shares
outstanding.
DPS= Dividing earning paid to share holder
Number of share outstanding

The net profit after the deduction of dividend belongs to equity shareholder's
However, the income that really receives is the amount of earning distributed as
dividend.
Dividing may be distributed in from of cash or bonus share. Dividend distribution
affects the price of share.
iii) Dividend payout ratio (DPR)
It is obtained by dividing dividend per share by earning per share
DPR = DPS
EPS
It shows the percentage of earning distributed to the shareholders. High ratio indicates
less retention of earning in the bank. Low ratio means higher position of income is
helping the bank to grasp the profitable opportunities.

iv) Price – Earnings Ratio (P/E Ratio)

P/E ratio = Market Value Per Share
Earnings Per Share
P/E ratio is widely used to evaluate the bank's performance as expected by investors.
It represents the investor's judgment or expectation about the growth in the banks
earning.

8
Statistical Tools
Some important statistical tools are used to achieve the objective of this study. In this
study, statistical such as coefficient of correlation of important variables have been
used which are as follows:
i) Karl Pearson's Coefficient of Correlation
It is a statistical tool for measuring the intensity of the magnitude of linear
relationship between two series. Karl Pearson's measure, known as Pearson's
correlation coefficient between two variables and series X and Y is usually denoted
by 'i' and can be obtained as
N ∑ xy −∑ x . ∑ y
Coefficient of correlation (r) =
√ N ∑ x −(∑ x) X √ N ∑ y −¿ ¿ ¿ ¿ ¿
2 2 2

where,
n= number of observation in series
∑ x = sum of observation in series X
∑ y = sum of observation in series Y
X2 = sum of squared observation in series X
Y2 = sum of squared observation in series Y

The Karl Pearson's co-efficient of correlation has been used to find out the
relationship between the following variables.
a) Co-efficient of Correlation between DPS and EPS.
These tools analyze the relationship between these variables and help the bank to
make appropriate policy regarding deposit collection, fund utilization loan and
advances and investment, and maximization of profit.

(ii) Probable Error of Correlation Coefficient

Probable error of correlation coefficient is a measure of testing the reliability of an
created value of correlation coefficient. It is calculated to find the extent to which
correlation coefficient is dependable as it depends upon the condition of random
sampling. It is calculated as:
2
1−r
P.E (r) =
√n
Where,

9
 r = Standard error, n = 0.6745
The following variables will be calculated.
i) Probable Error of correlation coefficient between DPS and EPS.
1.7 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.

1.8 Review of Literature

1.8.1 Conceptual Framework
Dividend decision is an integral part of financial management decision. It is in the
sense that the firm has to choose between distributing the profits to the shareholders
or reinvesting it to finance the business. The important aspect of dividend policy is to
determine the amount of earnings to be distributed to shareholders in return to their
investment and the amount to be retained in the firm. It affects the financial structure,
the flow of funds, corporate liquidity and investor's attitudes. It is relevant for all
surrounding that mobilizes funds in terms of return and investment. Thus, it is one of
the central decision area related to policies seeking to maximize the value of firm's
common stock.
Iqbal Mathur defines the dividend and dividend policy as: "Dividends refer to that
portion of retained earnings that is paid to stockholders while dividend policy refers to
the policy or guidelines that management uses in establishing the portion of retained
earnings that is to be paid in dividends.”
The policy of a company in the division of its profits between distribution of
shareholders as dividend and retention for its investment is known as dividend policy.
All aspects and questions related to payment of dividend are contained in a dividend
policy. Generally, dividends are paid in the form of cash, which reduces the cash
balance of the company. There is a reciprocal relationship between retained earnings
and cash dividends. If retained earnings is kept more by the company, less will be
dividend and vice - versa. The decision depends upon the objective of the
management for wealth maximization.

10
What and how much it is desirable to pay dividend is always a matter of dispute
because shareholders expect higher dividend from corporation, as it tends to increase
their current wealth whereas retention of earning is desirable for the growth of firm.
These two objectives of the dividend policy are always in conflict. There is not yet
consensus on whether the firms should follow certain pattern to distribute dividend
and retained earnings. However, there are different decision models developed to
analyze the situation and reach decision. These decision models are conflicting and
consider the different aspects of the firm. One school of thought argues that dividend
payment has no impact on valuation of a firm whereas other theories of dividend
decision argues dividend to be active variable in valuation of firm. These different
models on the relationship between dividend and the value of the firm will be
discussed later on in this chapter in detail.
1.8.2 Concept of Dividend:
The various concepts of dividend defined in various books of finance are discussed
below:
(a) Residual Concept:
Dividend is the residue left after meeting all obligations and adjusting for retention of
earnings and other provisions. It is a residue since shareholders get dividends only
when there exists balance of earnings after paying fixed obligations such as operating
expenses, interest, provisions for depreciation, and setting aside reserves for future
contingencies.
Under this concept, dividend policy is a residual firm investment policy and dividends
are paid only after financing all investment opportunities. So, dividend policy is
totally passive in nature. "When we treat dividend policy as strictly a financing
decision, the payment of cash dividends is a passive residual." This concept is
discussed later on in detail page 13.
(b) Discretionary Concept:
When the board of directors declares the amount of dividend, it is known as
discretionary dividend. According to this concept, dividend payment is one of
directors' decisions and so they use discretion in declaration of dividend.
Corporations' charter vested powers to board of directors and it is up to their
discretion that determines what and how much to pay by way of dividends to
stockholders.

11
"The power to declare dividends is lodged in the board of directors of the corporation.
At a meeting of the board, in accordance with the charter and corporate by-laws, the
board passes a resolution declaring the amount of dividend, the period which it
covers, the payable date, and the record date of ownership."
Even in the context of Nepalese corporations, the payment of dividend is purely
vested in the board of directors of corporation, and it (the power to declare dividend to
the board of directors) is also insisted by the corporate acts. There are not any legal
rights to demand any part of profit in the form of dividends by the ordinary
shareholders because profits are the property of the corporations and not of individual
shareholders.
(c) Liability Concept:
Dividend once declared by the board of directors becomes a liability of the
corporation. "When the board of directors of a solvent corporation declares a cash
dividend, the amount declared becomes an obligation to pay." 1111 If the directors
avoid payment of dividend after declaration, the shareholders would have a right to
take action against the directors to force payment. The dividends declared are treated
as liabilities in the balance sheet if the shareholders do not come to claim in time.
d) Pro-Rata Distribution Concept:
"A dividend is a pro-rata distribution of cash, other assets, promises to pay, or
additional stock to the shareholders of a corporation chargeable against its surplus
accounts or (for certain liquidating dividends only) against its capital stock accounts."
The pro-rata distribution refers all shares of outstanding stock, or all shares of a given
class, participate equally in whatever is distributed. Thus, under this concept, all
shareholders enjoy equal rights according to their proportionate shareholders on the
profits or gains distributed by the corporations.
1.8.1.2 Conflicting Theories on Dividends:
Basically, there are two schools of thought on dividend policy which have been
expressed in the theoretical literature of finance. One school, associated with Myron
Gordon and John Lintner, among others, holds the capital gains expected to result
from earnings retention are riskier than are dividend expectations. In other words,
dividend yield is less risky than the expected capital gain. It also holds that investors

11

12
give more emphasis to the present dividend more than future capital gain. Investors
are not indifferent between current dividend and retention of earnings with the
prospects of future dividends, capital gain and both. Accordingly, these theorists
suggest that the earnings of a firm with a low payout ratio are typically capitalized at
higher rates than the earnings of a high payout firm, other things held constant.

The another school of thought, associated with Merton Miller and Franco Modigliani,
holds that investors are basically indifferent to returns in the form of current dividends
or retention of earnings with the prospects of future dividends, capital gain. When
firms raise or lower the dividends, their stock prices tend to raise or fall in like
manner. They argue that, given the investment decision of the firm, the value of firm
is determined safely by the firms earning power and that the manner in which the
earnings split between dividends and retained earnings does not affect the value of
firm. In other words, when investment decision of the firm is given, dividend
decision, the split of earnings between dividends and retained earnings, is of no
significance in determining the value of firm.
1.8.1.3 Types of Dividend (Forms of Dividend):
Though cash dividend is assumed as the most popular form of dividend, co-operations
need to follow various types of dividend in view of the objectives and policies, which
they implement. In Nepalese context, "the type of dividend that corporations follow is
partly of a matter of attitude of directors and partly a matter of the various
circumstances and financial constraints that bound corporate plans and policies." 1313
According to changing needs of corporations, dividend is being distributed in several
forms viz. cash dividend, stock dividend (bonus share issue), scrip dividend, property
dividend, optional dividend and bond dividend. But in Nepal and India only two types
of dividend namely cash dividend and stock dividend are being practiced.
1. Cash Dividend:
Cash dividend is one form of dividend, which is distributed to shareholders in cash
out of earnings of company. The cash account and the reserves account of a company
will be reduced when the cash dividend is paid. Thus, both the total assets and the net
worth of the company are reduced when the cash dividend is distributed. The market

13

13
price of the share drops in most cases by the amount of the cash dividend distributed.
So the companies should wisely make decision regarding payment of cash dividend.
2. Stock Dividend / Bonus Share:
A stock dividend represents a distribution of shares in addition to the cash dividend to
the existing shareholders. This has the effect of increasing the number of outstanding
shares of the company. The declaration of the bonus shares will increase the paid-up
share capital and reduce the reserve and surplus of the company. The total net worth is
not affected by the bonus issue. In fact, it represents nothing more than re-
capitalization of the owners' equity portion, i.e., the reserve and surplus. It is simply
an accounting transfer from retained earnings to capital stock.
3. Scrip Dividend:
A scrip dividend is issued when company has been suffering from the cash problem
and does not permit the cash dividend, but has earned profit. A dividend paid in
promissory notes is called a scrip dividend. Scrip is a form of promissory notes
promising to pay the holder at specified later date. Under this form of dividend,
company issues and distributes transferable promissory notes to shareholders, which
may be interest bearing or non - interest bearing. The use of scrip dividends is
desirable only when corporations have really earned profit and have only to wait for
the conversion of other current assets into cash. Therefore, in order to overcome the
temporary shortage of cash, sometimes company uses scrip dividends.

1.8.3 Review of Previous studies

Gordon, (1963). Argues that investors prefer dividends over uncertain future capital
gains because dividends provide tangible returns.

Modigliani-Miller Theorem (1961). In perfect capital markets, dividend policy is

irrelevant to firm value because investors can create their own dividend yield by
selling shares if they prefer cash flows over capital gains.

Denis and Osobov (2008) Analyzed dividend policies specifically in the banking
sector, focusing on regulatory requirements, capital adequacy ratios, and market
conditions.
Rozeff (1982) Investigated the relationship between dividend policy and stock price
volatility, finding that dividend-paying firms tend to have less volatile stock prices.

14
DeAngelo and DeAngelo (2006). Proposed the residual dividend model, which
argues that firms first finance all acceptable investments internally and then distribute
any excess cash as dividends.
1.9 Limitations of the Study

This study has been conducted appropriately however there were several
complications; which arose indigenously. As this research tries to justify the events in
accordance with the well-known or already established tools and techniques,
emphasis is not given to fundamental and decision oriented study.

1. The entire study is based on secondary data collected through the Annual
Reports of Nabil Bank Limited.
2. The data only focuses on the time period of the last 5 years i.e. from
2018/19 to 2022/023.
3. Time constraint or limited time has had an impact on shaping up the study
conducted.

15
 CHAPTER-II

RESULTS AND ANALYSIS

2.1 Data Presentation

This is an analytical chapter which contains data collected from various sources.
These are presented and analyzed to measure the various dimension of the problems
of the study and measure the findings of the study are presented systematically. These
data concern the measurement of investment management and fund mobilization.

2.2 Analysis of Results

2.2.1 Financial Tools

Financial tools are an instrument that helps to analyze and interpret the financial
performance of an organization. In other words, financial tools help to analyze the
strength and weakness of a firm. Ratio analysis is a most important part of financial
analysis, which is used in this study that gives us financial statement of Nabil Bank. It
helps to show the quantities relationship between two number two numbers. It may be
expressed in terms of proportion, rates and times or in percentage. It is used to
compare a firm's financial performance and status with other firm.

A. Ratio Analysis
Ratio analysis helps to summarize the large quantities of financial data and to make
quantitative judgment about the firm's financial performance. Ratio is the expression
of one figures in terms of another. It is the expression of relationship between
mutually independent figures, in financial analysis; ratio is use to as an index of
yardstick for evaluating the financial position & performs of firm. Ratio analysis is
very much powerful and widely used tool of financial analysis. It is defined as the
systematic use of ratio to interpret the financial statements so that the strength and
weakness of a firm as well as its historical performance and current financial
condition can be determined. In accounting figure conveys meaning when it is related
to some other relevant information. Therefore, the ratio is the relationship between
two accounting figures expressed mathematically. It helps to summarize large
quantitative relationship helps to form a quality judgment.

16
 1. Earnings Per Share (EPS)
Earnings per share show the profit that each share earns. It is the earning made by the
common shareholders on the share invested by them in company. It can be calculated
by: -
EPS (Earning Per Share) = Earnings to Common Stock holders
No. of Shares Outstanding
Table No. 2.1 Earning per share
Fiscal Earnings available to common No. of shares out standing EPS
Year shareholder (Rs in million)

2018/19 12,17,70,000 2,01,60,000 6.04

2019/20 30,50,60,000 2,01,60,000 15.13
2020/21 42,76,00,000 2,21,76,000 19.28
2021/22 62,41,40,000 2,55,02,400 24.47
2022/23 1,00,04,30,000 3,06,02,880 32.69
Annual Report of Nabil Bank 2018/19 to 2022/23
Figure No. 2.1 Earnings per share (EPS)

Earning Per Share

35
30
25
20 Earning Per Share
Ratio

15
10
5
0
2018/19 2019/20 2020/21 2021/22 2022/23

Fiscal Year
From the above table the EPS is increasing each year. It seems better financial
performance of a bank. It provides positive message to the investors for making
decision of investment in the stock of this bank. In year 2022/23 EPS is increasing as
the same way 2018/19 is in decreasing trend. It means that if EPS is higher than it is
better for every bank and attracts investors.

17
 Dividend per Share (DPS)
It is obtained by dividing earning paid to shareholder by number of equity shares
outstanding.
DPS = Earnings paid to Common Shareholders
Number of Equity Share Outstanding
Table No. 2. 2 Dividend per Share (DPS)
Fiscal Earning paid to common Number of equity share DPS
Year shareholder(Rs in million)
2018/19 11,08,80,000 2,01,60,000 5.5
2019/20 23,35,55,400 2,01,60,000 11.59
2020/21 40,26,45,000 2,21,76000 18.16
2021/22 64,41,30,000 2,55,02,400 25.26
2022/23 74,38,66,900 3,06,2,880 24.31
Annual Report of Nabil Bank 2018/19 to 2022/23
Figure No. 2.2 Dividend per Share (DPS)

Dividend Per Share (DPS)

30

25
Ratio

20

15

10

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

Fiscal Year
From the above table and the figures, the DPS of the Nabil Bank Ltd (NBL is in
increasing trend. It suggests that the bank performing is better and it attracts to the
shareholders of the bank because it's DPS payment is increasing yearly and it's
decreasing same year because NBL doesn't pay dividend in that year.

18
 Dividend Payout Ratio
Dividend payout ratio shows the percentage of earning distributed to the
shareholder's. High ratio indicates less rotation of earning in the bank. Low ratio
means higher portion of income is held in the bank to grasp the profitable
opportunities. Generally, the shareholder prefers high DPS. It is calculated by
following formula: -
DPR = DPS
EPS
Table No. 2.3 Dividend Payout Ratio
Fiscal Year DPS EPS Ratio

2018/19 5.5 6.04 0.91

2019/20 11.59 15.13 0.77

2020/21 18.16 19.28 0.94

2021/22 25.26 24.47 1.03

2022/23 24.31 32.69 0.74

Annual Report of Nabil Bank 2018/19 to 2022/23

Figure No. 2.3 Dividend Payout Ratio

Dividend Payout Ratio

1.2

1
Ratio

0.8

0.6

0.4

0.2

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

Fiscal Year

19
 Given in figure-3, the dividend payout ratio of the bank is 1.0% in FY 2018/19 after
the FY 2018/19, the DPR is increasing trend for the first 3 years. In FY 2022/23 it
decreased to 0.74. so, that it is fluctuating It implies that the bank distributed
comparatively more proportion of dividend out of its earning. In other words, it
remained more successful to attract the investors.

Price- Earnings Ratio (P/E ratio)

P/E ratio is widely used to evaluate the bank's performance as expected by investors.
It represents the investor's judgment or expectation about the growth in the banks
earning. In other words, it measures to show the market is responding towards the
earning performance of the concerned institution. High ratio indicates greater
expectation of the market towards the achievement of bank.
P/E ratio = Market Value per Share
Earning per Share
Table No. 2.4 Price earnings ratio
Fiscal Year Market Value per share Earnings per share Ratio
(Rs…) (Rs………..)
2018/19 225 6.04 37.25
2019/20 260 15.13 17.18
2020/21 638 19.28 33.09
2021/22 555 24.47 22.68
2022/23 750 32.69 23.04
Annual Report of Nabil Bank 2018/19 to 2022/23
Figure No. 2.4 Price Earnings Ratio

P/E Ratio
45
40
35
30
P/E Ratio
25
20
15
Ratio

10
5
0
2018/19 2019/20 2020/21 2021/22 2022/23

Fiscal Year

20
 In the given figure 13, price earnings ratio is 37.25 in FY 2018/19. In year 2018/19
price earnings ratio is in increasing trend because it’s financial position is good as the
someway in year 2019/20 is in decreasing trend because it's price earnings ratio is in
decreasing position. Therefore, in year 2018/19 is in good position because it is more
successful to attracts investors. It suggests that the bank performing is better.
2.2.6 Statistical Analysis
Some important statically tools are used to achieve the objective of this study. In this
study, statistical tools such as, co-efficient of correlation analysis and probable error
of correlation between different variables are used.

Co- efficient of Correlation Analysis

Under this, Karl Pearson's co- efficient of correlation is used to find out the
relationship between DPS and EPS
Table No. 2.5: Correlation Coefficient Between DPS and EPS
Rs in millions
F.Y. DPS(X EPS (Y) x x2 y=y–y y2 xy
) =X-X
2018/ 5.5 6.04 (11.464) 131.423296 (13.482) 181.764324 154.557648
19
2019/ 11.59 15.13 (5.374) 28.879876 (4.392) 19.289664 23.602608
20
2020/ 18.16 19.28 1.196 1.430416 (0.242) 0.058564 0.289432
21
2021/ 25.26 24.47 8.296 68.823616 4.948 24.482704 41.048608
22
2022/ 24.31 32.69 7.346 53.963716 13.168 173.396224 96.732128
23
n=5 ∑ X =8 ∑ Y = ∑x =0 ∑ x 2=284.5 ∑ Y = 0 ∑ Y 2= ∑ xy =
4.82 97.61 209 398.99148 316.230424

Now,
N X ∑ XY −∑ x . ∑ y
Coefficient (r) =
√ N X ∑ X −(∑ X ) X √ N XE y −(∑ Y )
1 2 2 2

21
 5× 316.230424−0 X 0
=
√5 X 284.52092 – (0) X √ 5 ×398.99148−(0)
2 2

1581.15212
= √1422.6046 X √1994.9574
1581.15212
= 252.0725245233

= 0.63
2
1−r
Probable Error (P.E.) = 0.6745 x
√n
2
1−(0.63)
= 0.6745 –
√5
0.6031
= 0.6745 -
2.24
= 0.4053
From the table, it is found that the co-efficient of correlation (r) between deposit and
investment of Nabil bank is 0.63. it shows the highly positive relationship between
two variables. It means that both variable are interdependent co- efficient of
determination i.e. r2 of Nabil bank is 0.05, which means that the 5.51% of dependent
variable i.e. total investment has been opined by the independent variable by the
independent variable i.e total deposit.
Above analysis indicates that Nabil bank is successful in minimizing the investment
of their deposit.
After calculating the probable error of correlation co-efficient of report and
investment is available to each other.
2.3 Findings
 The EPS is increasing each year. It seems better financial performance of a
bank. It provides positive message to the investors for making decision of
investment in the stock of this bank. In year 2022/23 EPS is increasing as the
same way 2018/19 is in decreasing trend. It means that if EPS is higher than it
is better for every bank and attract to investor.
 The DPS of the Nabil Bank Ltd (NBL is in increasing trend. It suggests that
the bank performing is better and it attracts to the shareholders of the bank
because it's DPS payment is increasing yearly and it's decreasing same year
because NBL doesn't pay dividend in that year.

22
 The dividend payout ratio of the bank is 1% in FY 2018/19 after the FY
2018/19, the DPR is increasing trend for the first 3 years. In FY 2022/23 it
decreased to 0.74. so, that it is fluctuating it implies that the bank distributed
comparatively more proportion of dividend out of its earning. In other words,
it remained more successful to attract the investors.
 The price earnings ratio is 37.25 in FY 2018/19. In year 2018/19 price
earnings ratio is in increasing trend because it’s financial position is good as
the someway in year 2019/20 is in decreasing trend because it's price earnings
ratio is in decreasing position. Therefore, in year 2018/19 is in good position
because it is more successful to attracts investors. It suggests that the bank
performing is better.
 The ratios are variable and less consistent. The loan and advances to current
assets ratio is in fluctuating trend. The bank is in better position to mobilize its
fund as loan and advances with respect to current assets. Hence it is found that
the bank is able to maintain liquidity position to meet the daily cash
requirement or meet its short term obligation. This means it is strong enough
from the liquidity element. It suggests that NBL is sound in this regard.

CHAPTER-III
SUMMARY AND CONCLUSION
23
3.1 Summary
Based on major findings and issues and gaps found in course of this study, some
recommendations are explained below hoping that these recommendations will
certainly be proved milestone to overcome existing issues in this field.

There is no clear – cut legal provision regarding dividend payments. So the

government should act in favors of investors and should bind through such legal
provisions or distinct rules so that the profit earning companies should distribute
certain percent of their earnings as dividend. The banks should define their dividend
strategy (policy) clearly whether the bank is going to adopt stable dividend policy,
constant payout ratio or low regular plus extra dividends. The clearly defined policy
will guide the way on how to follow dividend distribution. The bank should follow
them (defined dividend strategy) strictly in normal condition. If there is lack of clearly
defined dividend strategy, so many problems or inconveniences will be created to
many other organizational sectors especially on the financial sectors.

Banks should provide a chance to their shareholders for their interest. They should try
to know whether they (shareholders) prefer to obtain cash dividend or stock dividend
or any forms of dividend. So, instead of declaring cash or stock or any forms of
dividend, dividend declaration should be proposed to the annual general meeting of
shareholders for their approval. Furthermore, the banks should also be careful about
informing the impacts of dividends, the advantages and disadvantages of different
forms of dividend to those shareholders or potential investors who know less about
the matters.
The payment of dividend is highly fluctuating, which is neither static nor constantly
growing. Such inconsistency and irregularity in the dividend payment may create
more confusion and mis-conception about that firm. Due to higher degree of risk and
uncertainty, such fluctuation can’t impact positively in the firm's market price per
share. So these banks are advised to follow either static or constantly growing
dividend payment policy. Similarly, according to the changing context and
shareholders interest and expectation, the predetermined policies should be reviewed.
The bank should consider the existing conditions and expectations of shareholders
while distributing dividends so that the distributed dividend should meet the interests
or expectations of the shareholders as far as possible.

3.2 Conclusion
Dividend policy decision is undoubtedly one of the three major decisions of financial
management. It is right to say that dividend policy decision affects on the operation
and prosperity of a financial companies because it has the power to influence other
two decisions namely capital structure decision and investment decision. Basically an
investor has expected two types of return namely capital gain and dividend by
investing in equity capital or ordinary share. So, payment of dividend to shareholders
is an effective way to attract new investors and maintain present investors to invest in

24
shares. So, it is justified to hold that a clearly defined and effectively managed
dividend policy is required in all financial companies to fulfill the shareholder’s
expectations with that of corporate growth from internally generated funds. So, the
funds that could not be used due to lack of investment opportunities would be better
as dividend, since shareholders have investment opportunities elsewhere.
Considering time and resource constraints only one commercial bank namely NBL
have been selected as sample banks in my study to fulfill the objective of studying
dividend policy decision and other factors related to dividend. The study period
covers only last five fiscal years from 2018/19 to 2022/23. The available secondary
data have been analyzed using various financial and statistical tools in this study. So,
the reliability of the conclusions of this study is determined on the accuracy of
secondary data.

By this study, it is obvious that:

(i) Commercial banks represent a robust body of profit earning organization in
comparison to the other sectors such as manufacturing, trading etc.
(ii) Instability of dividend and inconsistent payout ratio is the most applied
phenomena of Nepalese dividend distribution practices. None of the banks are
guided by an appropriate dividend policy. This is actually affect the market
price and goodwill of all such companies in the long run.
(iii) Shares of the financial institution are actively traded and market prices are
increasing in stock market. So, the market prices of shares are significantly
higher than net worth.
(iv) The Shareholders in Nepal don't seem to be investing their capital on the basis
of financial performances of the financial institution as such. The main reason
behind this statement is that market price of the shares don't seem to be more
or less dependent upon earning per share and dividend per share.

Bibliography
Abrol, P.N., Dictionary of Accounting, Anmol Publications, Reprint 1993, India.

25
(Gordon, 1963), Financial Management, Theory and Practice, 4th Edition, The
Dryden Press, 1963.

Modigliani-Miller Theorem (1961)., Business Financial Management, Houghton

Miffin Company, Boston, New York, 1961.

Encyclopedia, The wordbook, America: Grolier Incorporated, Vol.- 3,1984.

Denis and Osobov (2008) Investment: Analysis and Management, MC Graw Hill
Book Company, Inc., New York, 2008.

Rozeff (1982) Principles of Managerial Finance, Harper Collins College Publishers,

7th Edition, 1982.
Gupta, S.P., Statistical Methods, Sultan Chand and Sons Publications, New Delhi,
26th Edition, 1991.

Hastings, P.G., The Management of Business Finance, Von Nostrand Co., New
York, 1966.

DeAngelo and DeAngelo (2006)., Corporate Financial Management, Richard D.

Irwin, Inc. Homewood, Illinois, 2006.
Khan, M.Y. and Jain, P.K., Financial Management, Text and Problems, Tata Mc
Graw –Hill Publishing Company Limited, New Delhi, 2nd Edition, 1992.

Kothari, C.R., Quantitative Techniques, Vikas Publishing House P. Ltd., New Delhi,
1984, Reprint 1994.

www.google.com

www.nbl.com.np

Appendix-I

Earnings per share

26
Fiscal Year Earnings available to common No. of shares out EPS
shareholder (Rs million) tending

2018/19 12,17,70,000 2,01,60,000 6.04

2019/20 30,50,60,000 2,01,60,000 15.13
2020/21 42,76,00,000 2,21,76,000 19.28
2021/22 62,41,40,000 2,55,02,400 24.47
2022/23 1,00,04,30,000 3,06,02,880 32.69
Annual Report of Nabil Bank 2018/19 to 2022/23

Dividend per share (DPS)

Fiscal Year Earning paid to common Number of equity DPS
shareholder (Rs million) share
2018/19 11,08,80,000 2,01,60,000 5.5
2019/20 23,35,55,400 2,01,60,000 11.59
2020/21 40,26,45,000 2,21,76000 18.16
2021/22 64,41,30,000 2,55,02,400 25.26
2022/23 74,38,66,900 3,06,2,880 24.31
Annual Report of Nabil Bank 2018/19 to 2022/23

27