BM Desk : A new policy on dividend payments by banks was recently released by Bangladesh Bank. The new regulation states that a bank will no longer be eligible to pay dividends if its default loan rate exceeds 10 percent. Dividend payments under the policy will begin in the fiscal year 2025.

Previously, during the Corona era in 2020, a number of limits were placed on the distribution of dividends. Up until now, banks that had taken out a deferral facility primarily to preserve provisions were not allowed to distribute dividends. Several new conditions have been implemented this time.

The policy states that a bank can only pay cash dividends from the profit of the calendar year in question. Cash dividends cannot be distributed from accumulated profits in any way.

In this case too, some more conditions have to be met. If the classified loan rate of a bank is more than a maximum of 10 percent, it will not be able to pay dividends. There should not be any resource deficit against loans, investments and other assets.

In addition, if a bank has a deposit rate or liquidity deficit, or if they take any loan facility from Bangladesh Bank, they will not be able to pay dividends. The amount of dividend has also been specified – it cannot exceed 30 percent of the capital. However, banks that can preserve their capital to a sufficient extent can declare dividends as per the conditions.

Again, if the penalty interest and fine imposed due to CRR and SLR deficit are unpaid, dividends cannot be paid. Dividends cannot be paid while the deferral facility from Bangladesh Bank is in force to meet other expenses including provisioning. In this case, sections 22 and 24 of the Bank Companies Act must be properly complied with.

Among the banks in the stock market, the list of defaulted banks with more than 10 percent of their loans includes 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, the current non-performing loan amount is 90.72 percent of ICB Islamic Bank, 87.98 percent of Union Bank, 60.50 percent of National Bank, 38.59 percent of IFIC Bank, 34.79 percent of Social Islamic Bank, 31.73 percent of Rupali Bank, 30.86 percent of Global Islamic Bank, 29.33 percent of First Security Islamic Bank, 25.99 percent of AB Bank, 21.08 percent of Islami Bank, 12.11 percent of United Commercial Bank, 10.58 percent of One Bank and 10 percent of Bank Asia.

It should be mentioned that Bangladesh Bank’s policy would apply to dividend announcements for 2025. For the 2024 dividend declaration, the guidelines from 2021 must be adhered to.

However, the prior instructions have eliminated the possibility of paying a five percent equity dividend to banks that use the deferral mechanism. Banks that have used the deferral facility will therefore be unable to pay dividends in 2024.

The new regulation, according to authorities, will push banks to fortify their balance sheets and prioritize deposit protection over shareholder rewards.