Cash dividend pay-out by banks halted till September

In a bid to make a strong capital base and retain an adequate liquidity in the banking system to support the virus-struck economy, banks have been asked to refrain from disbursing cash dividends till September this year.

The Bangladesh Bank has issued a dividend policy for all banks, limiting the declaration of the highest dividend at 30 percent including maximum 15 percent in cash for 2019.

Banks that have already announced dividends for 2019 but the amount is inconsistent with the new policy have been asked to suspend it.

They will have to announce the dividend afresh in line with the new policy, said the guideline issued on Monday.

Syed Mahbubur Rahman, former chairman of Association of Bankers, Bangladesh (ABB), said the decision will temporarily put negative impacts on shareholders but will strengthen banks' capital bases in the long run.

It will also help them to remain afloat with surplus liquidity, he added.

CFA Charter Holder Asif Khan, a partner of Edge Asset Management, also lent his support for the latest decision as higher dividend pay-out might impact banks' liquidity and equity while both are very essential now.

Many policymakers across the world are thinking in the same line, he said.

Shakil Rizvi, a director of the Dhaka Stock Exchange, said the decision might impact the shareholders of banks who depend on dividends each year.

But their short-term pains would help banks' resilience and benefit the shareholders ultimately, he also said.

As per the new guidelines, banks that have refrained from taking deferral for maintaining provision and kept up a capital of 12.5 percent or above, including 2.5 percent conservation buffer, would be allowed to announce up to 30 percent dividends, including maximum 15 percent in cash.

But those with a capital retention ranging between 11.25 percent and 12.50 percent, including 2.5 percent capital conservation buffer, can announce up to 15 percent dividend, including highest 7.5 percent in cash.

The central bank lowered the dividend payment capacity for the banks which have taken deferral facility against provisioning.

If any bank's capital base stands at 11.25 percent or above, including 2.5 percent capital conservation buffer upon adjustment of the deferred provision, it would be allowed to issue up to 10 percent dividends, including maximum 5 percent in cash.

According to the fourth criterion of the guidelines, if any bank's capital base is minimum 10 percent but below 11.25 percent, including 2.5 percent capital conservation buffer upon adjustment, it would be allowed to issue up to 5 percent stock dividend.

An official of the central bank said the banks that would fail to maintain 10 percent capital, including 2.5 percent conservation buffer upon adjustment, would not be allowed to issue any dividend.

As per the Bangladesh Bank statement, 12 banks suffered a capital shortfall of over Tk23,612 crore at the end of December 2019.

Five state-owned banks, four private commercial banks, two specialised banks and one foreign commercial bank failed to maintain the required capital.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank and former chairman of ABB, said, "The initiative has been taken to strengthen banks' capital base. Now banks need an adequate cash flow."

"In our country, a common practice is to declare cash dividends. But most countries announce stock dividends. Warren Buffet declared cash dividends only once in his lifetime.

"Shareholders should follow this. If banks' capital base improves, shareholders will gain ultimately," he added.