The recent directive from Bangladesh Bank (BB) prohibiting 18 listed banks from disbursing dividends has sent shockwaves through the capital market, triggering a significant downturn in investor sentiment.
The New Nation on Saturday reported that this move, ostensibly aimed at enforcing financial discipline, has had immediate and far-reaching consequences, particularly for the banking sector, which constitutes the largest component of the Dhaka Stock Exchange (DSE).
The impact of this directive has been stark. Banking stocks led the market decline, with sharp price falls prompting panic selling across various sectors and dragging down the overall market index.
Between May 23 and May 29, the benchmark index plummeted by 189 points, reflecting a growing unease among investors.
Notably, banks such as NRB Bank, Mercantile Bank, and SBAC Bank emerged as significant losers, with retail investors facing unexpected losses as their dividend expectations were dashed.
The abrupt nature of the dividend ban has eroded investor confidence, particularly among retail investors who were counting on these payouts.
The BB’s decision followed the failure of 18 out of 36 listed banks to finalise their annual financial reports by the original deadline of April 30, primarily due to shortfalls in loan provisioning.
While the government extended the deadline to May 31, the central bank remained resolute, rejecting appeals from bank directors to reconsider the restrictions.
This regulatory action, while intended to reinforce financial prudence, has destabilised the market due to its sudden execution.
Analysts argue that a more phased or pre-announced approach could have mitigated the adverse effects on market sentiment.
The dividend suspension has also underscored the structural challenges within Bangladesh’s banking sector, particularly concerning asset quality and compliance with provisioning requirements.
To restore investor confidence and market stability, urgent measures are necessary.
Clear and timely communication from regulators, better coordination among financial institutions, and enhanced corporate transparency are essential steps.
Furthermore, the government must introduce a comprehensive reform roadmap for the banking sector, improve liquidity conditions, and foster a more investor-friendly capital market environment.
Without swift and coordinated interventions, the erosion of trust could deepen, exacerbating the liquidity crunch and prolonging the market’s downward trajectory.
Stakeholders now must come together to navigate this storm, ensuring a resilient and transparent banking sector that can support the broader economy.
