The Bangladesh Bank on Wednesday tightened rules on dividend declaration by non-bank financial institutions to ensure adequate cash flow in the financial institutions.
To tackle the coronavirus-induced challenges, adoption of capital saving and liquidity supportive dividend policy along with cost-efficient management process has become essential, said a circular issued by the central bank in this regard on the day.
The NBFIs which have classified loan ratio more than 10 per cent and capital adequacy ratio below 10 per cent will not be allowed to declare any dividend.
The NBFIs which are taking deferral facility from the central bank for their provisioning deficit will not be allowed to declare dividend until the deferral is over, it said.
But, in such cases, with permission from the central bank a maximum 5 per cent stock dividend could be allowed, said the circular.
The financial institutions should also not declare more than 15 per cent cash dividend considering the overall situation, it added.
The embargo on the NBFIs’ dividend declaration has been slapped at a time when the sector has been facing sever credibility issue amid plundering of money from at least four entities, leaving these four entities in an inoperative state due to poor liquidity.
People’s Leasing and Financial Services is facing liquidation.
The central bank on February 15 formed a fact-finding committee headed by its deputy governor AKM Sajedur Rahman Khan to investigate role of individuals, including its officials, in irregularities that took place in Bangladesh Industrial Finance Company Ltd.
On February 7, the BB imposed a 30-per cent ceiling on banks’ dividend issuance to strengthen the entities’ capital base, making compliance with the rules mandatory from the year ended on December 31, 2020.
In the circular, the central bank tagged banks’ dividend declaration capacity with the entity’s capital base so that the banks can save them from sudden hike in non-performing loans along with playing a vital role in the economy revival.
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