Since I entered the market two years ago i’ve heard and was suggested banks being safer investment. for a long period of time i believed it was. i still believe it is somewhat safe investment. however, i think hay day of bank stocks are over.

while bank’s recent dividend announcement was not bad it isn’t that good either. dividend of KBL, SBI, SCB has been a laughing stock.

I believe majority of banks will struggle to give above 20. 13-16 will likely become dividend of many. Why i think banks won’t give good return like it used to do?

I think it’s branch network is major culprit. Rapid branch expansion of Banks happened after NICA started to spread. With increase in branch it began absorbing deposit and loan. banks who were pessimistic about NICA started to do same to capture/re-gain market.

From what I’ve heard, NICA strategy was done after a detail consulting from foreign consultant. there are research that backs theory more branch = more profit, better stability and bigger deposit/lending portfolio. However, this paper was from mid 2000s. When all 27 banks counting finance and development banks are increasing branches in similar pace money starts getting dividing and after a certain time profit starts decreasing. If we take dividend as measuring rod we can see the decrease with time. It seems the market has saturated and i see very limited growth.

More branch means more maintenance cost. and as rude as it sounds, there will be number of customers which require maintenance but provide little return. While other countries are cutting branches, nepali banks are extending more of them and it surprising they still haven’t thought of switching to technology.

Banking employees too are high maintenance and are major cost. If we take hydros for example, they required high initial capital but will be like cash cow after certain time (not all though). Literally 0 marketing/branding cost and not effected by market condition.

More at: r/NepalStock by captainright1

3 comments
  1. >I think it’s branch network is major culprit.

    They will expand their branches as long as they can squeeze the market and will pull the shutters down once the market dries up.

    On the other hand, if banks decide to close those branches, it would only mean that they have adopted the technology that make face-to-face interactions with customers redundant. With fewer staff and automation, banks are in position to increase their profits, not decrease them.

    And, banks are heavily involved in hydro projects. Even this guy from Nabil was saying the other day that if hydro sectors were to go bust, it will drag the banks along with it. Whenever there’s a new hydro project, it’s a business for banks too. I would say that they are complementary to one another.

    You are making a point that banks are bad and hydro is good for investment. Can’t one invest in both sectors? Why limit oneself to one or two sectors only? Besides banks and hydro, I find insurance equally promising. Manufacturing and trading are doing great and we need more of them through another stock exchange that deals with start-ups/growth-oriented companies (low-cap companies).

  2. 13-16 % over a period of 15 -20 years would be a good investment mero bichar ma chai. Rule of 72 anushar 4.8 years ma double hunxa in 15% return vayo vane. 20years ma 4 fold le money increase hunxa. I guess that decent enough for safe investment. Multibaggers ta hudaina aaba banking stocks but ramro banks ma invest gare good enough chai hunxa jasto lagxa. Currently stocks price herda chai aile ramrai time jasto lagxa ali ali gardai banking stocks vela parna

  3. Closing note:
    I don’t see market bouncing back. and likely to be like this till end of chaitra. may be we will see something good after chaitra if everything goes well.
    my market sentiment is same it was 3 months ago. Averaging is probably they strategy that might work (for dividend paying stock) [https://www.reddit.com/r/NepalStock/comments/pph2nd/it_seems_nrb_successfully_stopped_the_bull_run/](https://www.reddit.com/r/NepalStock/comments/pph2nd/it_seems_nrb_successfully_stopped_the_bull_run/)

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