A good number of banks in the country will likely be unable to pay dividends after the Bangladesh Bank tightened the relevant rules through a notice yesterday.

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.

Additionally, banks with non-performing loans (NPLs) exceeding 10 percent of their total loans will not be able to declare dividends to shareholders from 2025.

NPLs reached a record Tk 345,764 crore at the end of December last year, accounting for 20.20 percent of total disbursed loans.

However, in its monetary policy for the January-June period of 2025, the central bank forecast a surge in NPLs, saying they are likely to exceed 30 percent of total outstanding loans by June.

Furthermore, lenders will 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).

Another stipulation states that cash dividends can only be paid from the profits of the calendar year, but no cash dividends can be distributed from previously accumulated profits.

Officials of the central bank said many banks will be unable to pay dividends for 2025 because of the stricter rules.

Of the 61 scheduled banks in the country, only 10 to 12 may be able to pay a good dividend, they added.

Asif Khan, president of CFA Society Bangladesh, said the move was aimed at strengthening the banking sector's capital base.

"Hence, it is a good move given the circumstances. Some of the stipulations look a bit harsh but can be relaxed in the future if needed," he said.

However, it is important that the National Board of Revenue also removes penalties for lower dividends caused by complying with the new rules, he added.

"The immediate reaction to this move in the stock market may be knee-jerk given our investors tend to be short-term oriented. However, for the long-term, this is a good decision for the economy and the stock market."

The central bank said the overall situation of the country's banking sector, protection of depositors' interests, financial capacity of banks, and attracting investors to shares of banks were factors considered.

Md Moniruzzaman, managing director and chief executive officer of Prime Bank Securities, said, "Although this may impact the dividend payment capacity of some weak banks, it will strengthen the capital base of banks. Keeping provisioning shortfalls year after year and paying out cash is a form of taking away the bank's money in disguise."

DIVIDEND PAYOUT RATIO FRAMED

The amount of dividend will be determined by the 'dividend payout ratio'.

The dividend payout ratio will be based on the ratio of the bank's declared dividend amount to the bank's tax after profit. However, the amount of dividend declared may not exceed 30 percent of the bank's paid-up capital.

The central bank notice said that banks that can maintain a minimum of 15 percent capital adequacy ratio, including a 2.5 percent capital conservation buffer against risk-based assets, after meeting other expenses, will be able to pay cash and stock dividends.

In such cases, their dividend payout ratio may not exceed a maximum of 50 percent.

Banks that maintain a minimum 12.5 percent capital adequacy ratio, including a capital conservation buffer of 2.5 percent, can also pay cash and stock dividends, but their dividend payout ratio will not exceed a maximum of 40 percent.

Banks that maintain less than 12.5 percent capital adequacy ratio, including conservation buffer, but have a minimum ratio of over 10 percent will be able to declare only stock dividends.

According to this policy, banks paying dividends will have to submit a report to the Bangladesh Bank within 7 days of the declaration of dividends.