NBFIs can now pay a 30% dividend to shareholders
A maximum of 15 percent can be issued as cash dividends while the remaining 15 percent can be issued as stock dividends
The Bangladesh Bank on Monday authorized non-bank financial institutions (NBFIs) to pay dividends up to 30% to its shareholders.
A maximum of 15 percent can be issued as cash dividends, while the remaining 15 percent can be issued as stock dividends.
The central bank provided the clarification after a notice it published on February 24 was criticized by stock investors.
In the notice, the BB had mentioned that NBFIs would be allowed to issue a maximum cash dividend of 15 percent to investors.
However, the notice did not mention the limit on stock dividends nor did it specify whether NBFIs would be allowed to issue stock dividends, creating confusion among investors.
To clarify the matter, the Bangladesh Securities and Exchange Commission (BSEC) discussed the matter on March 15 – as well as the dividend cap specified in the policy issued by BB on February 7 – with the central bank.
The clarification was also prompted by the declaration of a 35% dividend from IDLC Finance, which found itself at odds with the regulator for rewarding its shareholders far more than what is allowed under the dividend policy.
At the end of 2020, IDLC’s net operating cash flow per share stood at 9.05 Tk, against 4.87 Tk in negative a year earlier.
Subsequently, the company announced a 35 percent cash dividend for the year, which is the same as the previous two years.
On February 4, the BB asked IDLC Finance to be cautious in declaring dividends for the past year in anticipation of an increase in defaulted loans in the coming days.
However, it did not set any ceiling for the declaration of dividends.
This prompted IDLC Finance to ask the BB to make an exception for it because it has the ability to absorb shocks.
“We were able to declare more dividends because we made a good profit in 2020,” Arif Khan, outgoing managing director and CEO of IDLC Finance, told Dhaka Tribune on March 10.
And the board of directors had made the dividend recommendation before the arrival of the BB notice.
However, the final approval of the dividend will take place at the annual general meeting scheduled for March 31 of this year.
“We have sent a letter to the central bank asking for direction on the matter, as we have already declared a 35% cash dividend. Now we are waiting for the central bank’s response, ”said Khan, who is leaving the NBFI after five years on March 31.
Senior NBFI officials headed by Mr. Jamal Uddin, Deputy Managing Director of IDLC Finance, met with the BB on March 10 on the issue.
“The central bank would see the matter from the shareholders’ point of view,” Uddin told Dhaka Tribune.
Earlier, on March 1, the Bangladesh Merchant Bankers’ Association (BMBA) asked the central bank to revise its notice banning NBFIs from paying excessive dividends.
The association wrote a letter to the governor of the Bangladesh Bank saying that the instructions on the payment of dividends had already had a negative impact on the capital market.
But BB officials said there were no plans to revise the advisory because the financial health of most NBFIs is not good at all.
At the end of the third quarter of 2020, bad debts of the 33 NBFIs represented around 15.5% of their total outstanding of Tk 66,215.4 crore, according to central bank data. Three months earlier, overdue loans represented 13.3% of outstanding loans.
Between July and September of last year, NBFI default loans climbed 49.8% from the previous year despite the loan moratorium facility granted throughout the year.
On March 16, the BB raised the ceiling for issuing dividends for banks to 35% from 30%.
Earlier on February 7, it imposed a cap of 30% on the issuance of dividends from banks in order to strengthen the capital of entities, making compliance with the rules mandatory from the fiscal year ended December 31, 2020.
In the notice, BB marked the dividend-declaring ability of banks with their own funds so that lenders can save themselves from a sudden surge in Non-Performing Loans (NPLs), while playing a vital role in economic recovery. in the midst of the Covid-19 epidemic.
To meet the challenges induced by the coronaviruses, the adoption of a dividend policy of saving capital and liquidity support as well as a profitable management process have become essential, read the BB notice published on February 7.
In the NBFI dividend notice, the central bank indicated that NBFIs that have ranked loan ratios above 10 percent and capital ratios below 10 percent would not be allowed to declare dividends.
NBFIs that benefit from a central bank deferral facility for their provisioning deficit will not be allowed to declare dividends until the deferral period is over, he said.
But in such cases, with the authorization of the central bank, a maximum stock dividend of 5% could be allowed, the opinion added.