A maximum of 15 per cent can be issued as cash dividends while the remaining 15 per cent can be issued as stock dividends
The Bangladesh Bank on Monday permitted non-bank financial institutions (NBFIs) to issue up to 30 per cent dividends to its shareholders.
A maximum of 15 per cent can be issued as cash dividends while the remaining 15 per cent can be issued as stock dividends.
The central bank came up with the clarification after a notice it issued on February 24 faced criticism from stock market investors.
In the notice, the BB had mentioned that NBFIs would be allowed to issue a maximum 15 per cent cash dividend to investors.
However, the notice neither mentioned the stock dividend limit nor specified whether the NBFIs would be allowed to issue any stock dividend at all, creating confusion among investors.
To clarify the issue, the Bangladesh Securities and Exchange Commission (BSEC) on March 15 took up the matter -- along with the dividend ceiling specified in the policy issued by BB on February 7 -- with the central bank.
The clarification was also prompted by the 35 per cent dividend declaration of IDLC Finance, which found itself afoul of the regulator for rewarding its shareholders way more than what is allowed under the dividend policy.
At the end of 2020, IDLC’s net operating cash flow per share stood at Tk 9.05, in contrast to Tk 4.87 in the negative a year earlier.
Subsequently, the company announced a 35 per cent cash dividend for the year, which is the same as in the previous two years.
On February 4, the BB instructed IDLC Finance to be conservative in declaring dividends for the concluding year in anticipation of a spike in default loans in the upcoming days.
It, however, did not give any ceiling for dividend declaration.
This prompted IDLC Finance to ask the BB to make an exception for it as it has the capacity to absorb the shocks.
“We were able to declare more dividend as we made a good profit in the year of 2020,” Arif Khan, the outgoing managing director and CEO of IDLC Finance, told Dhaka Tribune on March 10.
And the board had made the dividend recommendation before the BB notice came in.
However, the final approval of the dividend will come during the annual general meeting scheduled for March 31 this year.
“We sent a letter to the central bank seeking guidelines about the issue because we already declared a 35 per cent cash dividend. Now, we are waiting for the reply of the central bank,” said Khan, who leaves the NBFI after five years on March 31.
Top officials of the NBFI led by M Jamal Uddin, deputy managing director of IDLC Finance, met with the BB on March 10 over the issue.
“The central bank would view the matter from the perspective of the shareholders,” Uddin told Dhaka Tribune.
Previously on March 1, the Bangladesh Merchant Bankers’ Association (BMBA) requested the central bank to revise its notice that barred NBFIs from providing excessive dividends.
The association wrote a letter to the Bangladesh Bank governor saying that the instructions on giving dividends had already resulted in an adverse impact on the capital market.
But BB officials said that there was no plan to revise the notice because the financial health of most of the NBFIs is not good at all.
At the end of the third quarter of 2020, the 33 NBFIs’ bad loans accounted for about 15.5 per cent of their total outstanding loans of Tk 66,215.4 crore, according to data from the central bank. Three months earlier, default loans accounted for 13.3 per cent of the outstanding loans.
Between July and September last year, default loans at the NBFIs soared 49.8 per cent from a year earlier despite the loan moratorium facility given throughout the year.
On March 16, the BB raised the dividend issuance ceiling for banks to 35 per cent from 30 per cent.
Earlier on February 7, it had imposed a 30 per cent ceiling on banks’ dividend issuance to strengthen the entities’ capital bases, making compliance with the rules mandatory from the year ended on December 31, 2020.
In the notice, BB tagged the dividend declaration capacity of banks with their capital bases so that the lenders could save themselves from sudden hikes in non-performing loans (NPLs), along with playing a vital role in the economic revival amid the Covid-19 outbreak.
To tackle the coronavirus-induced challenges, adoption of capital-saving and liquidity-supportive dividend policy along with cost-efficient management process has become essential, read the BB notice issued on February 7.
In the notice on NBFIs’ dividends, the central bank mentioned that the NBFIs which have classified loan ratios of more than 10 per cent and capital adequacy ratios below 10 per cent would not be allowed to declare any dividends.
Those NBFIs which are taking deferral facility from the central bank for their provisioning deficit will not be allowed to declare dividends until the deferral period is over, it said.
But in such cases, with permission from the central bank, a maximum 5 per cent stock dividend could be allowed, the notice added.