Bangladesh Bank puts 30pc cap on banks’ dividend issuance

Staff Correspondent | Published at 11:24pm on February 07, 2021

The Bangladesh Bank on Sunday 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.

The central bank issued a circular in this regard on the day under the section 45 of the Bank Company Act, 1991 (amended in 2018), setting six dividend sub-slabs under two slabs for the banks based on their liquidity situation.

On May 11, 2020 the central bank had issued a similar circular that was applicable to the banks in issuing dividends only for the year 2019.

In the latest BB circular, the dividend issuance scope for banks has been tightened further.

Sunday’s BB circular said that the previous circular of the BB aimed at strengthening banks capital base by keeping profit of the banks undisbursed, as much as it is possible, so that the banks can contribute more to the country’s economy.

The BB had taken the move following the outbreak of coronavirus and to keep banks free from its impact.

The government has taken measures to vaccinate a greater segment of the population as like other countries, said the BB circular, adding that the measures to restore the country’s economic state to pre-COVID situation were also in place by the way of implementing stimulus packages.

Under the circumstances, the necessity to strengthen banks’ capital base further has become vital for the coming years, the BB circular said.

As per the circular, the banks, which have refrained from taking deferral for maintaining provision and maintained 15 per cent as capital including 2.5 per cent capital conservation buffer, would be allowed to announce up to 30 per cent dividend, including the maximum 15 per cent cash dividend.

The banks, which have refrained from taking deferral for maintaining provision and maintained 13.5 per cent capital including 2.5 per cent capital conservation buffer, would be allowed to announce up to 25 per cent dividend, including the maximum 12.5 per cent cash dividend.

Upon maintaining 11.875 per cent capital, including capital conservation buffer, the banks, which have refrained from taking deferral facility in maintaining provision expenses along with other expenses, would be allowed to issue up to 15 per cent dividend, including the highest 7.5 per cent cash dividend.

For the banks, which have maintained capital including capital conservation buffer between 10.625 per cent and 11.785 per cent after taking deferral facility to maintain provision or refrained from taking deferral facility to maintain provision, would be allowed to issue the highest 5 per cent stock dividend.

If any bank’s capital based stands at 12.5 per cent or above, including capital conservation butter upon adjustment of the deferred provision, the bank would be allowed to issue up to 12 per cent dividend, including the maximum 6 per cent cash dividend upon approval from the central bank.

Under the fourth criteria, if any bank’s capital base ranges from 12.4 per cent to 11.875 per cent, including capital conservation buffer upon adjustment of the deferred provision, the bank would be allowed to issue up to 10 per cent dividend, including the maximum 5 per cent stock dividend.

A BB official said that the banks, which would fail to maintain the capital as specified in the circular, would not be allowed to issue any dividend.

As per the BB’s report, 11 banks suffered Tk 19,296 crore in capital shortfall at the end of September, 2020.

Five state-owned commercial banks, two state-owned specialised banks, three private commercial banks and one foreign bank witnessed capital shortfalls.