IDLC wants dividend policy revision

The IDLC Finance Limited has requested the Bangladesh Bank to revise its policy which bars the non-bank financial institutions (NBFIs) from paying more than 15% cash dividend.        

IDLC, the country's largest NBFI, sent a letter to the banking watchdog in this regard, citing that IDLC's financial performance is completely different from other NBFIs.

In February, the Bangladesh Bank barred NBFIs with sound financial health from paying more than 15% cash dividend considering the challenges posed by the pandemic.

Meantime, IDLC declared a 35% cash dividend to its shareholders for 2020 – the third time in a row.

IDLC Managing Director and Chief Executive Officer Arif Khan said, "We requested the central bank to either reconsider the policy for IDLC, or to provide us a guideline about how we will adjust the dividend to 15%." 

He claimed, "IDLC is capable of providing 60% cash dividend as its default loans ratio stand at 1.79% while the capital adequacy ratio is at 17% -- which is even better than many banks."

The CEO said their earnings per share was Tk6.74 when they announced Tk3.50 cash dividend.

"Even amid the pandemic, IDLC posted the highest profit of Tk253 crore in its 35-year history. The company has been maintaining a mere 2-3% default loan ratio for the last five years even after lending at higher rates," Arif Khan added.

The average non-performing loan ratio in the NBFI industry was above 9% last year, while it was more than 10% in the banking sector.

The new dividend policy has already affected IDLC's share price. On 25 February – a day after the announcement of the policy – IDLC's share fell by more than Tk3 to Tk64.4 from Tk67.6. IDLC share price was at Tk66.7 Tuesday. 

IDLC's paid-up capital is Tk377 crore and the authorised capital is Tk1,000 crore.

On 1 March, the Bangladesh Merchant Bankers Association wrote a letter to the central bank governor to suspend the new dividend policy.

However, central bank officials said they had no plan to change the policy. If any institution has already declared dividends beyond the limits set by the policy, then it will adjust the payments.

In the dividend notice, the Bangladesh Bank said financial institutions that are availing the central bank's deferral facility to meet the liquidity crisis will not qualify for declaring a cash dividend. However, the institutions can announce a 5% stock dividend with the central bank approval. 

On the other hand, NBFIs with a defaulted loan of more than 10% and a capital adequacy ratio of less than 10% will not qualify for any dividend.

The central bank came up with the policy as part of the capital austerity measure, and to retain liquidity cushioning the virus fallout.  

Mominul Islam, managing director and chief executive officer of IPDC Finance, said the new dividend policy looks fine to him. "But, the Bangladesh Bank could have been a bit more progressive in cash dividend limits. The bar in the dividend has sent a negative message to the capital market," he told The Business Standard.

He also thinks the central bank should consider alternatives for NBFIs who have the capacity to pay cash dividends beyond the policy limits.

However, Md Kyser Hamid, managing director and CEO of another NBFI BD Finance, observed the central bank had made the right decision.

"None currently has the capacity to pay more than 15% cash dividend except a few," he commented. He said the Bangladesh Leasing and Finance Companies Association, a platform of the NBFIs, had not made any request to the central bank to change the policy.

Several NBFIs, including People's Leasing, are in dire financial health owing to loan scams. 

In a recent meeting with the central bank, the chief executives of the NBFIs demanded forming a fund to save the institutions. On the other hand, the Bangladesh Bank has instructed the NBFIs to be more cautious on loan approvals and follow-ups.