Nepal Rastra Bank (NRB) has issued the “Dividend Distribution Guidelines 2082” for institutions licensed to operate payment-related activities.
According to NRB Executive Director Kiran Pandit, the guidelines aim to make the distribution of earned profits and dividends more transparent and systematic. The central bank introduced this provision to bring clarity and organization to profit-sharing and dividend payouts.
It is expected that the implementation of this guideline will enhance the institutions’ capacity to bear risks and improve their overall performance. It will also contribute to the development of a safe, sound, and efficient payment system by ensuring more effective profit distribution and reinvestment practices.
Institutions must now formulate and implement their dividend distribution policies based on these guidelines. Such policies must be approved by their board of directors. The policies should include details about capital adequacy planning, cash and stock dividend strategies, and arrangements for risk-bearing and reserve funds. A certain percentage of profits must be allocated to such funds, which can be used to manage unexpected losses. Any expenses incurred from the fund must be reported to the central bank.
According to the guideline, payment system operators must also establish an infrastructure development fund and allocate a fixed percentage of their profits into it. The funds can then be used for expanding institutional infrastructure.
When declaring dividends, the institution’s retained earnings must not be negative, and the declaration should be based only on the financial statements of a profit-making fiscal year. Additionally, while announcing cash dividends, the institution must have sufficient cash reserves, and there must be no conditions in loan agreements that restrict dividend distribution.
The new guidelines are expected to promote good governance, transparency, and long-term sustainability within the financial sector.
