The never-ending conflict between Bangladesh Bank and Bangladesh Securities and Exchange Commission (BSEC) continues, with the latter announcing recently that listed banks will not be downgraded to the "Z" category of stock trading, should they fail to pay cash dividend to their shareholders.
According to BSEC sources, this facility is only applicable for listed banks, but it may be extended to non-banking financial institutions (NBFIs) and/or insurance companies as well.
Regarding the new instruction, DSE chief operating officer M Shaifur Rahman Mazumdar said that the banks which were banned from declaring dividends by Bangladesh Bank will not be transferred to "Z" category of stocks, as per the guidelines of BSEC.
Though now this facility only belongs to listed banks, in future it may be applicable for NBFIs or insurance companies as well, he added.
Asked about the reasons behind the decision and how much the banks would benefit from it, a BSEC official told Dhaka Tribune on condition of anonymity that the restriction for banks, who cannot pay cash dividends in cases of inadequate capitalization or provisioning, was relaxed so that they could operate without being tightly monitored in the capital market.
The rule from September 2020 was that if a company failed to pay cash dividends for two consecutive years, it will be in the Z category. But due to the delay in securing the reserve deficit on other issues including loans, few private sector banks as per the directives of Bangladesh Bank had not been able to pay cash dividend, even if they wanted to, he further said.
BSEC's relaxation comes as a big relief as its shares will not be treated as Z category in the bourses, he added.
Earlier the BSEC in a letter to the bourses in this regard.
Due to differences in the law between Bangladesh Bank and BSEC, several banks had earlier faced problems with dividends.
Four listed commercial banks could not pay any cash dividends to their shareholders for 2020 and only paid some stock dividends.
Now they would be placed in the “Z” category in the stock exchanges this year in cases of failure to pay any cash dividends for 2021.
‘Z’ category stocks face multiple problems as margin loans cannot be distributed against those, their trading settlement cycle is longer than A, B or N category stocks and very importantly many institutional investors face regulated restrictions in buying ‘Z’ category stocks – all meant to discourage the demand for such stocks.
In a meeting with the Bangladesh Bank and the BSEC last month, bankers sought the relaxation among some others while discussing the reasons behind banks' ongoing low appetite for stock investments.
The “Z” category is a unique creation to punish companies that lack regularity in shareholders' general meetings, dividends payout and operations.
