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BB makes banks' dividend payments conditional

Siddique Islam | May 12, 2020 00:00:00

The central bank on Monday suspended the payment of cash dividends by the banks until September 30 this year, officials say.

Even the banks, which have already declared their dividends for 2019, will have to revise it if it clashes with the new step.

The banks, according to the Bangladesh bank (BB) directive, are allowed to declare 30 per cent dividends, including a maximum of 15 per cent cash dividend, for 2019 if the banks are able to maintain 12.5 per cent capital-to-risk weighted-asset ratio, or CRAR.

Also, the lenders will have to set aside 2.5 per cent capital conservation buffer, in line with the Basel-III framework without availing any regulatory restraint for maintaining the required provision against their loans.

The buffer is designed to ensure that banks build up capital cushion during normal times, which can be drawn down in case banks incur losses during stressed situation.

"We've announced the dividend policy for 2019 to help banks strengthen their capital base so that they can implement stimulus packages intended to recover from the Covid-19 economic disruptions," a senior BB official told the FE while explaining the main objective of the policy.

The policy will restrict the banks to provide loans under the stimulus packages without having adequate capital, he added.

Bankers have extended their support to the new measure.

Mehmood Husain, Managing Director and Chief Executive Officer of NRB Bank Limited, said the new measure will help the banks manage their funds prudently for the rescue packages.

"It will help boost the banks' capital base while facilitating foreign trade in the long-term," Khairul Bashar Abu Taher Mohammed, chief executive officer of MTB Capital, told the FE.

In contrast, banks that will maintain CRAR with buffer at lower than 12.50 per cent, may declare 15 per cent dividend including a maximum of 7.5 per cent cash.

Banks, which have already availed regulatory forbearance, are allowed to announce 10 per cent dividend including 5.0 per cent cash only if their capital stands at 11.25 per cent or more after the adjustment of the regulatory forbearance from the central bank.

However, banks, which can maintain CRAR with buffer at lower than 10 per cent, will be allowed to announce 5.0 per cent stock dividend with permission from the central bank.

As of Thursday, eight out of 30 listed banks declared aggregate cash dividends of Tk 9.11 billion for December 31, 2019 without considering the impact of Covid-19 pandemic.

In the west, the European Central Bank has asked the Eurozone banks not to pay any dividends in order to boost their capacity to absorb losses due to the pandemic.

The Bank of England also ordered lenders to cancel plans to offer dividends for shareholders, and asked to boost their strengths ahead of a recession believed to be worse than the Great Depression of the 1930s.

In the region, the Reserve Bank of India (RBI) has recently barred banks from paying dividends for the fiscal year ending in March 2020 so that they conserve capital in these testing times.

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