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The report examines the different determinants of the dividend payout ratio and I doing so the
data of Standard Chartered Bank is also analysed. It compares two year financials indicators
for the evaluation and the analysis of situation of financial resources of Standard Chartered
Bank. The paper also shows the vivid picture of the Standard Chartered Bank in relation with
the dividend and shareholders. This paper aims to show the different determinants that affect
the dividend payout ratio directly or indirectly.
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Contents
Abstract ......................................................................................................................................ii
1. Introduction ........................................................................................................................ 1
2. Objectives ........................................................................................................................... 2
3. Conceptual understandings ................................................................................................. 2
4. Methodology....................................................................................................................... 2
5. Literature review................................................................................................................. 3
5.1 Study variables ................................................................................................................. 3
6. Financial tools..................................................................................................................... 4
6.1 Cash Dividend per Share (DPS): ..................................................................................... 4
6.2 Earnings per Share (EPS): ............................................................................................... 4
6.3 Market value per share (MPS): ........................................................................................ 4
6.4 Price Earnings ratio (P/E ratio): ....................................................................................... 4
6.5 Net worth (NW): .............................................................................................................. 5
7. ANALYSIS ........................................................................................................................ 5
7.1 Earnings per Share (EPS)..................................................................................................... 5
7.2 Market value per share (MPS): ........................................................................................ 5
7.3 Price Earnings Ratio (P/E): .............................................................................................. 6
7.4 Cash Dividend per share (DPS): ...................................................................................... 6
7.5 Dividend pay-out ratio: .................................................................................................... 6
8. Determinants of corporate Dividend Policy and Dividend Payout Ratio ........................... 7
8.1 Ownership structure ......................................................................................................... 7
8.1.1 Share capital detail ........................................................................................................ 7
8.1.2 Share ownership detail .................................................................................................. 8
8.2 Age of corporation ...................................................................................................... 9
8.3 Investment Opportunity Sets: .......................................................................................... 9
8.4 Taxation: .......................................................................................................................... 9
8.5 Profitability .................................................................................................................... 10
8.6 Leverage ......................................................................................................................... 10
8.7 Board Size ...................................................................................................................... 11
9. Conclusion ........................................................................................................................ 11
10. References ..................................................................................................................... 12
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1. Introduction
Standard Chartered Bank Nepal Limited is the largest international bank operating in Nepal. It
was initially registered as a joint-venture operation and has been operating in Nepal since 1987
when it. The Bank is an integral part of Standard Chartered Group whose ownership in Nepal
is of 70.21% in the company with 29.79% shares owned by the Nepalese public.
Standard Chartered Bank has 15 points of representation, 23 ATMs across the country and
more than 450 local staff. Standard Chartered Bank Nepal Ltd. is in a position to serve its
clients and customers through an extensive domestic network. In addition, the global network
of Standard Chartered Group gives the Bank a unique opportunity to provide truly international
banking services. Along with that it offers a full range of banking products and services to a
wide range of clients and customers encompassing individuals, mid-market local corporate,
multinationals, large public sector companies, government corporations, airlines, hotels as well
as the DO segment comprising of embassies, aid agencies, NGOs and INGOs.
It is the first Bank in Nepal that has implemented the Anti-Money Laundering policy and
applied the 'Know Your Customer' procedure on all the customer accounts. It has been the
pioneer in introducing 'customer focused' products and services in the country and aspires to
continue to be a leader in introducing new products in delivering superior services.
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The value of Standard Chartered Bank is, “Everything we do is about being here for good
– in business, through life, and when it matters most for our clients.”
Dividend policy refers to the policy used by the corporate company to decide how much it
will pay out to its investors or Shareholders in dividend. Through the dividend policy made
by the management they make different dividend payout decision, like the size and pattern of
cash distribution over a time to shareholders. Taking some financial indicators and
determinants for Dividend payout ratio, we have tried show the dividend and financial
situation of Standard Charter bank Nepal and the affects of determinants in financial
situation.
2. Objectives
To find out the financial data of the Standard charter Bank and present its situation of
financial indicators of year 2015 and 2016.
Relating the different determinants of Dividend policy with the bank and providing
clear situation of impact of Dividend payout in Standard Charter Bank.
3. Conceptual understandings
The report will be dealing with the information of the financial situation of Standard Charter
bank. It will be also discussing information regarding the determinants and Dividend policy
impact or the Dividend payment impact of Standard Charter bank. The theories relevancy in
the context of Nepal or do Nepal focuses on other aspects rather than the Dividend policy while
determining the payment.
4. Methodology
The report has used different data sources and calculation in order to get the information. The
methods used in the report are divided into two parts. They are:
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4.1 Primary Data source:
5. Literature review
5.1.1 Profitability
Profitability results in the firm’s earnings. The size of the profits is one of major determinants
for the dividend payout ratio. When there is sufficient profits earned by the firm then firm
will be paying higher dividend to the investors.
The investment opportunities available to firm constitute an important market value. The
investment opportunities also represent the firm’s investment and growth. Investment
opportunities have been measured in various ways by the various writers.
5.1.3. Taxation
The taxation has also a very important determinant of dividend payout ratio. The increase in
the tax liability results in the decrease in the payment. There is a negative relationship
between taxation and dividend payment.
5.1.4. Leverage
The firm’s also finance their activities from debt. The debt financing of the firm also puts
pressure on the liquidity of the firm. The increase in the debts and the interest payments
results in reduce of the firm’s income to guarantee the dividend payment. There is a negative
impact of debt on dividend payments.
This represents the number of board of directors and shareholders holding the investments
and shares in the company. The increase in the numbers of shareholders decreases the
dividend payment amount and portion. The increase in shareholder results in firm paying
high earnings as dividends.
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6. Financial tools
We used some of the financial tools to calculate the variables and getting the data in order to
relate it with the Standard Charter bank. The financial tools are as follows:
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6.5 Net worth (NW):
This ratio refers to the ratio of shareholders’ equity to the number of shares. NW is calculated
as:
NW = shareholders’ equity
Number of Shares
7. ANALYSIS
Table 1:
The EPS increase is an indicator of the growing performance of the bank which shows the
better position of the bank in stock market. However the comparative between the two years
in Standard Charter bank shows the decline in the earnings per share and inconsistency. Thus
may result in decrease of dividend pay out to shareholders.
Table 2:
Despite the inconsistence and decline in the EPS of standard Charter Bank. There is still
increase in the MPS resulting the better economic performance of the bank.
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7.3 Price Earnings Ratio (P/E):
It shows the relative performance of the bank. The ratio increases as both MPS and EPS
increases and decrease in EPS in compare to the MPS. In the case of Standard Charter Bank
the Ratio is shown:
Table 3:
Even though there is decrease in the Earnings per Share but increase in the Market value per
share has increased the Price Earnings ratio. The increase isn’t considered as good due to the
decrease in the EPS.
Table 4:
Since, the demand of share increases if the bank pays higher DPS. But in case of Standard
Charter Bank the DPS has been decreasing.
In the case of the Standard Charter bank the Payout ratio has been decreased. It is not due to
retain of investment but because of the decrease in the net profit of the company.
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The summary indicators show that the Standard Charter Bank financial performance has been
declining and inconsistent. The firm should re-evaluate their plans and try to increase their
performance in coming years as the company’s value might get later affected due to the
decrease resulting in the insufficiency of the resources.
Today the Bank is an integral part of Standard Chartered Group has an ownership of 75% in
the company with 25% shares owned by the Nepalese public. The Bank enjoys the status of
the largest international bank currently operating in Nepal. There are no basic shareholders in
the bank as no shareholder except the SCB Group, holds more than 1% of the paid up capital
of the Company. There has been no information received from the SCB Group in this regard
from the bank in the annual report. The Bank has not purchased its own shares in the year
under review that is 2016.
The ownership structure of the bank also affects the dividend policy. A company with higher
promoters’ holding will prefer low dividend payout and low paying dividend may cause a
decline in the value of stock. Whereas a high institutional ownership will favour high payout
as it helps them to increase the control over management. In the case of the Standard
Chartered Bank we see similar situation where the Standard Chartered Group has higher
ownership than the public.
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Share Capital Distribution
Authorised Capital
Issued Capital
Paid up capital
Foreign Ownership
Domestic Ownership
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8.2 Age of corporation
Standard Chartered Bank Nepal Limited has been in operation in Nepal since 1987 when it
was initially registered as a joint-venture operation which offers a full range of banking
products and services to a wide range of clients and customers encompassing individuals,
mid-market local corporate, multinationals, large public sector companies, government
corporations, airlines, hotels as well as the DO segment comprising of embassies, aid
agencies, NGOs and INGOs.
According to function and nature of bank, in Nepal banks are classified in following types:-
1) Central Bank
2) Commercial Bank (Class A)
3) Development Bank (Class B)
4) Finance Companies (Class C)
5) Micro Credit Development Bank (Class D)
Standard Charted bank is a commercial bank that is ranked Class A among the commercial
banks of Nepal. Since, it is an international Bank that branches in most of the Asian and other
countries. There is strong belief in the performance of the bank. The bank has a higher
expected rate of return (Dividend) by its shareholders and has a higher demand of shares due
to the firm’s image. The bank also tries to keep up with the expectation and try to maximize
the wealth of shareholders by providing higher dividend.
8.4 Taxation:
The tax rate on dividends and how dividends are taxed relative to capital gains affect
investors’ preferences and, hence, companies’ dividend policy. In case of double taxation
system, if personal tax rates are higher than corporate tax rates, a firm will have an incentive
to reduce dividend payouts. However, if personal tax rates are lower than corporate tax rates,
a firm will have an incentive to pay out any excess cash as dividends.
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8.5 Profitability
The size of a firm’s profit has been a long standing determinant of dividend policy. Directors
normally recommend the payment of dividend when the firm has made sufficient profit to
warrant such payments. Profitability is among the main characteristics that strongly and
directly influences the dividend policy. Current and past years’ profits, the year-to-year and
prior years’ dividend are the important factors that influence dividend policy. Thus, a highly
profitable company generally pays higher dividends and a company with less or no profit will
adopt a conservative dividend policy. The profitability of Standard Chartered Bank as per
their annual report of (2015/2016) is mentioned below:
The above mentioned table shows that the profitability of the bank has been decreased in
2016 as compared with the data of 2015.
8.6 Leverage
Banks that finance their activities mostly with debt put pressure on their liquidity. Debt
principal and interest payments reduce the ability of firms to have residual income to
guarantee dividend payment. Consequently, it is expected that debt would impact negatively
on the amount of dividend paid for a period. More indebted firms prefer to pay lower
dividends. So, dividend payout is negatively related to leverage ratio. Similarly, liquidity has
a direct relation with the dividend policy. If a bank has a strong liquidity and enough cash for
its working capital, it can afford to pay higher dividends. However, a bank with less liquidity
will choose a conservative dividend policy.
The above mentioned table shows the debt of Standard Chartered Bank as per the annual
report of 15 July, 2016. Similarly, the liquidity ration of Standard Chartered Bank is
mentioned in the table below:
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Particulars Year 2014/15 Year 2015/16
The above mentioned figure shows that the liquidity ratio is very high in year 2014/15 which
shows that the opportunity cost for the bank was increased. For rs.1 of its current liability, it
has rs.24 of current assets to settle it which is supposed to be very high. Similarly in year
2015/16, the liquidity ratio of the bank is decreased in comparison to year 2014/15.
9. Conclusion
This report investigates the financial position of standard charted bank as well as the
effect of dividend policy on financing decision. The above study showed that the earning per
share has decreased which indicates lack of growth. However despite the decrease in EPS the
market price per share has increased which shows a good economic performance of the bank.
Similarly the significant reduction of dividend payout ratio is due to the decrease in net profit
of the company.
So from the above analysis we have concluded that the performance of Standard
Charted Bank has been decreasing as well as inconsistent. What the bank can do is revaluate
their plans and policies and try to have effective management so as to increase the company’s
growth and value.
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10. References
Eliasu NUHU. (2014). Determinants of Dividend Pay-out of Financial Firms and Non-
Financial Firms. Retrieved from
http://hrmars.com/hrmars_papers/Article_11_Determinants_of_Dividend_Payout_of_Financi
al_Firms--N.pdf
Giraiti. (2015). Free Cash Flow, Dividend Policy and Investment Opportunity Sets. Retrieved
from: https://ac.els-cdn.com/S1877042816300738/1-s2.0-S1877042816300738-main.pdf
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