Bangladesh Bank on Sunday strengthened its conditions for banks to declare dividends for their shareholders with the view to safeguarding the financial health of lenders that are bound to see a spike in loan delinquency in the coming days as a result of the pandemic.
The central bank has decided to not extend the loan moratorium facility beyond December 31 last year, a development that is expected to raise the volume of default loans on the lenders’ books as businesses impaired by the pandemic fail to make instalments on their loans.
To prevent the banks’ from sinking into capital shortfall, the central bank has now put in roadblocks.
Banks that can maintain a minimum 15 per cent capital adequacy ratio (CAR) -- which is a bank’s capital reserve to cover their risk exposure -- with 2.5 per cent capital conservation buffer or more without the deferral provisioning facility offered by the BB for the pandemic can declare as high as 30 per cent dividend with a maximum of 15 per cent cash dividend.
Those who are capable of keeping a CAR of 13.5 per cent to 15 per cent with 2.5 per cent capital conservation buffer will be able to declare a total 25 per cent dividend with a maximum 12.5 per cent in cash dividend.
Prior approval of the central bank is needed for announcing the dividend, said the BB notice yesterday.
Furthermore, banks that can keep a minimum 11.875 per cent capital or more with 2.5 per cent capital conservation buffer without the deferral provisioning facility of the BB could declare a total 15 per cent dividend with a maximum of 7.5 per cent in cash dividend.
Lenders that keep 12.5 per cent capital could declare a total of 12 per cent dividend with a maximum of 6 per cent in cash dividend.
Those who can keep CAR of 11.875 per cent to 12.5 per cent along with the deferral facility of the central bank could declare a total of 10 per cent dividend with a maximum of 5 per cent in cash dividend.
The banks could declare a maximum 5 per cent stock dividend if they keep a minimum 10.625 per cent and maximum 11.875 per cent capital.
The instruction has been given under the power of section 45 of the Banking Companies ACT 1991 (as amended till 2018).
The dividend declaration policy of the central bank would be effective for 2020.
The latest decision of the central bank will help banks to tackle the economic fallout created by the ongoing pandemic, said Pubali Bank Managing Director MA Halim Chowdhury.
These types of conditions to declare dividend will also help banks to keep strong financial health amid the pandemic.
“The banks’ capital base will be strengthened,” Chowdhury said.
Of the 60 banks, 31 are listed with the capital market.
On May 11 last year, for the first time, the central bank had imposed conditions for banks for declaring a dividend for their shareholders for the year of 2019.
According to the BB guidelines on risk-based capital adequacy, banks have to maintain a minimum CAR of 12.5 per cent by 2019, in line with the BASEL III requirement.
As of September last year, 11 banks have failed to meet the minimum capital requirement despite the central bank’s deferral facility on keeping their provisioning against defaulted loans.
The banks faced a combined capital shortfall of Tk 19,296 crore, according to the latest data from the BB.
