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.