Stronger the capital base, higher the dividend

The central bank yesterday declared a dividend policy for banks for 2020, allowing them to reward their shareholders based on the strength of the capital base because of the persisting pandemic.

Banks, which have a stronger capital base, will be allowed to provide higher dividend in the form of cash and stock compared to the weak lenders.

The central bank said the economy was gaining momentum on the back of implementation of stimulus packages and policy supports from the government and the central bank.

"The dividend policy shall be followed by all banks for 2020," the BB said in a notice.

Banks that are capable of keeping 15 per cent or more in capital reserve on all risk-weighted assets, including 2.5 per cent capital conservation buffers, will be allowed to provide 30 per cent dividend, including 15 per cent cash dividend.

Lenders are allowed to announce 25 per cent dividend, including 12.5 per cent cash dividend if they can keep the capital reserve ranging from 13.5 per cent to 15 per cent, the policy said.

Banks can announce 15 per cent dividend, including a 7.5 per cent cash dividend if they can preserve 11.87 per cent capital against the risk-weighted assets.

The BB has tightened dividend declaration rules for the banks that are facing provisioning shortfall.

If the banks can retain a capital reserve of 12.5 per cent or higher, excluding the shortfall in provisioning, it can declare 12 per cent dividend, including a maximum 6 per cent cash dividend. 

If a bank can maintain a capital reserve from 11.875 per cent to 12.5 per cent, it can announce 10 per cent dividend, including a maximum 5 per cent cash dividend. Banks will have to take into account the shortfall in the provisioning while calculating the capital adequacy.

Similarly, banks with at least 10.625 per cent to 11.875 per cent capital reserve can offer 5 per cent stock dividend.

On May 11 last year, the BB ordered banks not to provide any dividend to sponsors for 2019. In June, it allowed the lenders to offer dividends to the general shareholders for the year for the sake of the stock market.

As the mass Covid-19 vaccination started in Bangladesh, the central bank has decided to allow giving dividends to the sponsors and directors, the BB said.