Professional Documents
Culture Documents
himalayan
himalayan
Submitted by:
Diwakar Ale Magar
TU Regd. No. 7-2-455-18-2019
Pinnacle College
Lagankhel, Lalitpur
Group: Finance
Submitted to:
Faculty of Management
Tribhuvan University
Kathmandu, Nepal
Kathmandu, Nepal
april, 2024
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.
………………………….
April 2024
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Supervisor’s recommendation
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Endorsement
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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.
April, 2024
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TABLE OF CONTENTS
Title page i
Declaration ii
Endorsement iv
Acknowledgement v
Table of contents vi
Abbreviations ix
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1.8 Research Gap 13
1.9 Limitation of Study 13
BIBLIOGRAPHY
APPENDICES
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LIST OF TABLES
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LIST OF FIGURES
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ABBREVIATIONS
CHAPTER I
INTRODUCTION
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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.
Bank is a financial institution, which primarily deals in borrowing and leading. Banking is a vital
part of the national economy and vehicle for the mobilization of the economy's financial
resources and extension of credit to the business and service enterprises. Loans and advances are
the income generating items in banks’ balance sheets. This should be given with carein the right
time to the right customer. Banks should indulge schemes regarding loans with greater facilities
to the borrowers. The bank should indulge good policies regarding repayment of loan. Such that
it is not acquainted to loss due to fraud. It should adopt all the new facilities possible so that can
provide efficient and prompt service reducing its Operating expenses. Proper planning of
investment should be done to increase income. According to Crowther, “The banker’s business is
to take the debts of other people to offer his own in exchange, and thereby create money.”
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Chamber's Twentieth Century Dictionary defines a bank as an “institution for keeping. lending
and exchanging, etc. of money.”
According to Kent, “A bank is an organization whose principal operations are concerned with
the accumulation of the temporarily idle money of the general public for the purpose of
advancing others for expenditure.”
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. Data obtained were analyzed
regression analysis with the aid of Statistical Package for Social Science (SPSS). 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 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° o in Nepal. Dividend policy is the
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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.
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
sector of Nepal. The most recent rating of HBL by Bankers ‘Almanac as the country's number 1
Bank easily confirms our claim.
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
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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
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 determine the prevailing policies and practices regarding dividend in the Nepalese
● To identify if there is any uniformity in DPS, EPS, MPS and DPR of the Himalayan Bank
Limited.
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;
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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.
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.
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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:
b) Bond dividend:
If dividends are paid in the form of a bond, promising that it will mature in the future is known
as bond dividend. Bonds used to pay carry interest and it means that the company assumes the
fixed obligation of interest payment annually and principal amount of bond at maturity date.
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d) Stock repurchases:
It is the process of repurchasing bank outstanding share of any company. A corporation
repurchase of its stock can serve as a tax advantages substitute for dividend payout. Repurchases
have the effect of raising share prices so that shareholders can be taxed at the capital gain rate
instead of ordinary dividend rate on cash dividend.
e) 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
dividends are paid it is directly beneficiary to the investor as it immediately increases the cash
flow of the investors.
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.
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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
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.
1.7Research 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.
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here to make the analysis more effective. financial tools, statistical tools and testing models are
also used.
● Data are collected for the year 2015/16 to 2020/2021 as five-year data are analyzed.
● official websites.
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inserted in meaningful Tables, which have been shown in appendices. Data have been analyzed
and interpreted using financial and statistical tools.
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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:
Dividend per share
DPR = Earning per share
2. Statistical Tools
a) Mean
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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,
∑X
x̄ =
n
Where,
x̄ = Arthematic mean
X = Sum of all the values of variable X
n = Number of observations
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,
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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
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
● 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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