PCBs prefer to declare stock dividend instead of cash
Sheikh Shahariar Zaman | Thursday, 5 March 2009
Private commercial banks (PCBs) prefer to declare stock dividend instead of cash to increase their capital bases.
Seven PCBs, so far, proposed their dividends for 2008 and six of them announced only stock dividend and the other one both stock and cash dividend.
Twenty-five out of 30 listed banks also gave stock dividends for 2007, according to DSE statistics.
"The banks have already started taking preparation for meeting the requirements of Basel II, which is going to be implemented fully from the year 2012," said Dewan Mujibur Rahman, managing director of Mercantile Bank, which proposed 20 per cent stock dividend for 2008.
The banks must have strong capital base to meet the required capital under the Basel accord, he said.
The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when framing regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.
"Bangladesh Bank has also instructed the banking sector to comply with international best practices to make the bank's capital more risk-sensitive and build the banking industry more shock absorbent and stable," Mr Dewan said.
The preference to give stock dividend has positively affected the capital bases and capital market, he said.
"Stock dividend increases capital base and it also increases number of good fundamental shares in the market, which ultimately widens the scope of investment," he explained.
A senior official of National Credit and Commerce Bank said a bank needs to have capital of Tk 4.0-4.5 billion if its credit portfolio is Tk 45-50 billion, but under Basel II it will go up to Tk 6.0 billion.
"Credit, market and operational risks are included in the Basel II whereas only credit risk is calculated under Basel I," he said.
Medium-size banks are expected to need over Tk 8.0 billion required capital after the Basel II agreement comes into full effect, he said.
"If a bank wants to grow it needs to give more advance and it also needs to maintain more capital against its lending," he explained.
The central bank puts a bank under 'problem bank' category if it fails to maintain required capital, he said adding: "The provision will also compel the banks to increase their capital bases.
Seven PCBs, so far, proposed their dividends for 2008 and six of them announced only stock dividend and the other one both stock and cash dividend.
Twenty-five out of 30 listed banks also gave stock dividends for 2007, according to DSE statistics.
"The banks have already started taking preparation for meeting the requirements of Basel II, which is going to be implemented fully from the year 2012," said Dewan Mujibur Rahman, managing director of Mercantile Bank, which proposed 20 per cent stock dividend for 2008.
The banks must have strong capital base to meet the required capital under the Basel accord, he said.
The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when framing regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.
"Bangladesh Bank has also instructed the banking sector to comply with international best practices to make the bank's capital more risk-sensitive and build the banking industry more shock absorbent and stable," Mr Dewan said.
The preference to give stock dividend has positively affected the capital bases and capital market, he said.
"Stock dividend increases capital base and it also increases number of good fundamental shares in the market, which ultimately widens the scope of investment," he explained.
A senior official of National Credit and Commerce Bank said a bank needs to have capital of Tk 4.0-4.5 billion if its credit portfolio is Tk 45-50 billion, but under Basel II it will go up to Tk 6.0 billion.
"Credit, market and operational risks are included in the Basel II whereas only credit risk is calculated under Basel I," he said.
Medium-size banks are expected to need over Tk 8.0 billion required capital after the Basel II agreement comes into full effect, he said.
"If a bank wants to grow it needs to give more advance and it also needs to maintain more capital against its lending," he explained.
The central bank puts a bank under 'problem bank' category if it fails to maintain required capital, he said adding: "The provision will also compel the banks to increase their capital bases.