Non-banks’ dividend capped at 30pc

The central bank yesterday imposed a dividend cap of 30 per cent on non-bank financial institutions (NBFIs).

Of the amount, the NBFIs will have to pay 15 per cent in the stock dividend, and the rest will be paid in the form of cash. 

On February 24, the Bangladesh Bank had barred the NBFIs from paying more than 15 per cent in cash dividend. It said nothing about the stock dividend.

But some of the NBFIs, along with the Bangladesh Merchant Bankers Association, repeatedly requested that the central bank reconsider the decision to allow the payment of more than 15 per cent dividend.

"They misinterpreted the issue, alleging that the instructions of giving 15 per cent cash dividend have already put an adverse impact on the capital market," said a central bank official. 

The BB asked some of the NBFIs in the first week of February not to declare dividends in excess, given the ongoing slowdown in business.

Still, some of the NBFIs announced excessive cash dividend, ignoring the regulatory instruction.

The central bank has issued the notice with the revision to bring an end to all misinterpretations.

This is the first time in recent years that the BB gave a directive to the NBFIs to be cautious in providing dividends, given the vulnerable financial health of some lenders.

A good number of NBFIs face a capital shortage and high amounts of classified loans because of a wide range of scams.

As per the central bank policy, the NBFIs, which have a capital adequacy ratio (CAR) of less than 10 per cent and default loans of more than 10 per cent, will not be able to declare any dividend.

The central bank said the NBFIs whose default loans went past more than 10 per cent would need to get approval to announce dividends.

Bangladesh has 36 NBFIs, and at least 10 of them struggle to pay back depositors money despite those reaching maturity.

As of December 2020, the CAR of six of the NBFIs was less than what was required to be maintained, which is 10 per cent. A total of 13 had default loans of more than 10 per cent.

The CAR is a ratio of capital of a financial institution as percentage of its risk-weighted assets and current liabilities. Regulators fix the CAR to protect depositors' money.

Industry insiders say following the BB order, many of the NBFIs would not be allowed to declare either cash or stock dividend for their shareholders for the year that ended on December 31 as their ratio of classified loans was high.