BB bars 18 banks from dividend payouts

The Bangladesh Bank (BB) has barred 18 listed banks from paying dividends, citing their fragile financial health.

Despite repeated appeals from bank directors and top executives over the past month, the central bank held firm.

To the lenders, BB issued letters on May 21 that cited Section 22 of the Bank Company Act, 1991, which prohibits ailing lenders from distributing dividends. 

However, the banking regulator has allowed most of these banks to defer provisions against their non-performing loans (NPLs).

Contacted, Areif Hussain Khan, executive director and spokesperson of the central bank, said, "The banking regulator is strict with its decision that the banks that take deferral facilities for meeting their provision shortfall will not be allowed to pay dividends."

This decision has cast uncertainty over the dividend declarations of AB Bank, Al-Arafah Islami Bank, Exim Bank, First Security Islami Bank, Global Islami Bank,  IFIC Bank, Islami Bank Bangladesh, Mercantile Bank, NRB Bank, NRB Commercial Bank, Premier Bank, Social Islami Bank, SBAC Bank, Southeast Bank, Standard Bank, Union Bank, United Commercial Bank, and the state-owned Rupali Bank.

Of the 36 banks listed on the stock market, only 18 managed to finalise their annual financial reports for the past year within the stipulated time.

ICB Islamic Bank and National Bank posted losses, while One Bank opted not to issue dividends despite recording a profit.

A letter seen by The Daily Star from the central bank said those banks do not have sufficient profit to fully meet their provision shortfall. As a result, financial statements for the year ending December 31, 2024, are to be prepared without adjusting for these deficits.

To overcome the shortfalls in provisions and capital, the central bank instructed the banks to submit realistic and time-bound action plans approved by their respective boards within a month, according to that central bank letter.

The letters also directed banks to clearly disclose the extent of their provision shortfall in their financial statements and stock market disclosures as of December 31, 2024.

The shortfall must be reflected in areas concerning provision maintenance, profit and loss calculations, and capital adequacy.

The central bank also said that any discrepancies between submitted information and audited financial statements would prompt action under the Bank Company Act.

Speaking on condition of anonymity, a senior official of Social Islami Bank, admitted the bank was not in a position to pay dividends.

"The banking regulator instructed the bank to show the actual provision shortfall in the disclosure for the stock market, but it would not be shown in the bank's balance sheet," he said.

"We will provide a five-year plan to the central bank to reduce the provision and capital shortfall," the official added.

In March this year, the central bank issued new rules for dividend payouts. From 2024, banks that obtain provisioning deferrals are no longer allowed to issue dividends.

From next year, the bar will extend to any bank with NPLs more than 10 percent of its total portfolio.

Abdul Hai Sarkar, chairman of the Bangladesh Association of Banks (BAB), expressed concern over the BB decision.

He said that banks are running with the confidence of depositors, shareholders, and customers, but if they are not able to pay dividends, it will create a confidence crisis.

"We were trying to convince the central bank in various ways to withdraw the restriction, but the regulator did not listen," he added.

Most banks, including those 18 market-listed lenders, failed to finalise their financial statements by the April 30 deadline due to insufficient provisioning.

With approval from the interim government, the central bank extended the deadline to May 31. 

An official from United Commercial Bank (UCB) told The Daily Star the bank had received a no-objection certificate from the regulator to complete its financial report. However, he said that paying dividends this year would be difficult.

Among the 36 listed banks, City Bank, BRAC Bank, Pubali Bank, Uttara Bank, Eastern Bank, Prime Bank, NCC Bank, Dutch-Bangla Bank, Mutual Trust Bank, Bank Asia, Jamuna Bank, Shahjalal Islami Bank, Trust Bank, and Midland Bank have declared dividends.