No dividends for banks with liquidity or loan deficits
Muhammad Ayub Ali :
The Bangladesh Bank (BB) has recently introduced a new policy regarding the payment of dividends by banks, which is expected to impact approximately 13 listed banks this year.
Under this policy, banks with non-performing loans exceeding 10 per cent will no longer be permitted to distribute dividends.
As of December 2024, 23 out of the 61 banks in Bangladesh had non-performing loans above the 10 per cent threshold, including 13 that are listed in the stock market.
The new policy, which takes effect for dividend payments in 2025, introduces stricter conditions compared to previous regulations.
During the Covid-19 period, from 2020 onwards, various restrictions were imposed on dividend distribution. Previously, banks that had taken advantage of deferral facilities were restricted from distributing dividends solely to preserve provisions. However, the new policy incorporates additional conditions.
According to the updated regulations, dividends can only be paid from the bank’s net profit for the relevant calendar year and cannot be drawn from accumulated profits.
Furthermore, banks with a classified loan rate exceeding 10 per cent will be barred from issuing dividends. They must also ensure there is no resource shortfall against loans, investments, or other assets.
Additional restrictions apply to banks experiencing liquidity shortages, deposit deficits, or those reliant on loans from Bangladesh Bank.
The maximum allowable dividend has been capped at 30 per cent of capital, and only banks that maintain sufficient capital reserves will be eligible to declare dividends under these conditions.
Moreover, if a bank has outstanding penalty interest or fines due to Cash Reserve Ratio (CRR) or Statutory Liquidity Ratio (SLR) deficits, it will be prohibited from paying dividends.
Similarly, banks benefiting from deferral facilities to cover expenses, including provisioning, will not be allowed to distribute dividends. Compliance with Sections 22 and 24 of the Bank Companies Act is mandatory in such cases.
Among the listed banks affected by this policy due to their high levels of defaulted loans are National Bank, ICB Islamic Bank, Union Bank, IFIC Bank, Social Islami Bank, Rupali Bank, Global Islami Bank, First Security Islami Bank, AB Bank, Islami Bank, United Commercial Bank, One Bank, and Bank Asia.
According to Bangladesh Bank data, the proportion of non-performing loans in these banks varies significantly, with ICB Islamic Bank at 90.72 per cent, Union Bank at 87.98 per cent, National Bank at 60.50 per cent, IFIC Bank at 38.59 per cent, Social Islami Bank at 34.79 per cent, Rupali Bank at 31.73 per cent, Global Islami Bank at 30.86 per cent, First Security Islami Bank at 29.33 per cent, AB Bank at 25.99 per cent, Islami Bank at 21.08 per cent, United Commercial Bank at 12.11 per cent, One Bank at 10.58 per cent, and Bank Asia at 10 per cent.
It is important to note that this policy applies to dividend declarations for 2025, while the regulations from 2021 will remain in effect for 2024.
Additionally, the previous provision allowing banks with deferral facilities to issue a 5 per cent stock dividend has been revoked.
Consequently, banks that have availed themselves of deferral facilities will not be permitted to distribute any dividends for 2024.
Despite these restrictions, policymakers believe the revised policy will encourage banks to strengthen their financial positions and prioritise deposit protection over shareholder returns.