Remove bar on dividend limits for NBFIs

The Bangladesh Merchant Bankers Association (BMBA) has requested the central bank to revise its notice that imposed a bar on providing excessive dividends by non-bank financial institutions (NBFIs).

The association wrote a letter to Bangladesh Bank governor on March 1 saying that the instructions of giving dividend have already put an adverse impact on the capital market.

On February 24, the banking watchdog barred NBFIs with sound financial health from paying more than 15 per cent cash dividend in view of the challenges posed by the pandemic.

This is the first time in recent years that the BB gave the directive and it came at a time when a number of NBFIs are facing capital shortage and high classified loans because of scams.

The BB asked some NBFIs in the first week of February not to pay excessive dividend given the ongoing business slowdown.

Despite that, some NBFIs declared excessive dividend ignoring the regulatory instruction.

Against the backdrop, the NBFIs now try to reverse the central bank instructions by way of using the BMBA, BB officials said. 

Md Sayadur Rahman, president of the BMBA, said the association is now concerned about the capital market.

"The central bank should allow the NBFIs having a strong financial heath to declare dividend without any limit in the interest of the capital market."

At least 10 NBFIs are now unable to repay the depositors' money despite maturity of the fund.

But the BMBA said the central bank notice has already had a negative impact on the capital market.

"And the market is going towards an unstable situation due to the central bank instructions," it said.

Non-performing loans at 33 NBFIs stood at Tk 8,905 crore in June, which were 13.29 per cent of the outstanding loans, data from the central bank showed.

The amount was Tk 6,399 crore, or 9.5 per cent of the total loans as of December last year.

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

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

The central bank said financial institutions with more than 10 per cent default loans would need to get approval to announce dividends.