The securities regulator has decided to change the rules tied to the handling of cash dividends paid by listed companies, including banks, aiming to facilitate efficient use of the funds and protect the interest of shareholders.
Currently, when a company's board recommends a cash dividend, the equivalent cash must be deposited into a separate bank account within 10 days after the announcement.
The money remains unused until the annual general meeting (AGM) where shareholders give final approval. Between the dividend announcement and the AGM, often up to three months, the fund sits idle.
The Bangladesh Securities and Exchange Commission (BSEC) has decided that companies will no longer be required to set aside the money immediately after the boards' approval of cash dividends. Instead, the funds can now be deposited just a day before the AGM.
That way the companies will have more cash available as working capital until the AGM, which is anticipated to boost profits.
However, the business entities, upon the change in the rules, must share proper documentation with the stock exchanges, showing the deposit of the cash ahead of the AGM.
The decision to change the policy over the payment of cash dividends came in response to a proposal of the Bangladesh Association of Publicly Listed Companies (BAPLC).
The BAPLC had proposed that companies be allowed to deposit the funds 10 days after the AGM, but the BSEC in considering shareholders' interest suggested keeping the funds with the companies until the day before the AGM.
"It would ensure companies' convenience while safeguarding investors' interests. An order [on the matter] will be issued soon," said BSEC spokesperson and director Abul Kalam.
BAPLC's argument
In a letter dated October 22, 2023, the then BAPLC president M. Anis Ud Dowla told the former BSEC chief that the existing rules force companies to lock in large sums, sometimes hundreds of crores, for months, before shareholders' approval of recommended cash dividends.
Not only does the regulatory obligation block capital unnecessarily but also impacts businesses' performance, according to the letter.
Existing rules
The record date must be within 14-30 days after the board meeting when a dividend is recommended. An AGM must be held within 45 working days from the record date.
Listed companies must disburse approved cash dividends within 30 days after the AGM.
Companies have to deposit cash equivalent to dividends into a separate bank account within 10 days after the board's approval even though the amount is not final until the shareholders' consent.
Major changes to be brought to the dividend policy
Annual cash dividends must be deposited into a separate bank account at least a day before the AGM. If shareholders approve a lower dividend than declared, the surplus amount can be withdrawn.
A bank certificate confirming the deposit must be signed by the company's managing director, chief financial officer and company secretary and then submitted to the stock exchanges and presented at the AGM.
For interim dividends, the amount must be kept in a separate account within 15 days after the record date.
The changes are expected to ease pressure on companies' working capital while maintaining transparency and investor confidence in the market, market experts say.
BB tightens rules on dividends paid by banks
Meanwhile, a good number of listed banks are likely to be unable to pay dividends after the Bangladesh Bank (BB) tightened the relevant rules last month.
Under the new rules, banks that have taken a deferral facility from the central bank to maintain provisioning requirements will be barred from paying dividends from 2024 onwards.
Moreover, banks with non-performing loans (NPLs) exceeding 10 percent of their total loans disbursed will not be able to declare dividends to shareholders this year onwards.
Lenders will also be barred from declaring dividends if a penalty or fine is imposed due to a shortfall in the CRR (cash reserve ratio) and SLR (statutory liquidity ratio).
The move was aimed at strengthening the banking sector's capital base.
There are 36 banks listed in the stock market with a market cap of Tk 654 billion, the highest among the sectors, accounting for 18.7 percent of the Dhaka bourse's total market value.
Most of the listed banks generally pay a good amount of cash dividends every year as they have significantly high paid-up capital.
As per the directive of the BB, cash dividends can only be paid from the profits earned in the relevant year; no cash dividends from retained profits.
Officials of the central bank said many banks will be unable to pay dividends for 2025 because of the stricter rules.
The Bangladesh Bank said it had considered the overall situation of the banking sector, protection of depositors' money, financial capacity of banks, and fresh investments in bank stocks before deciding the changes in banks' dividend payments.
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