Bangladesh Relaxes Rules Prohibiting Bank Dividends

Banks are allowed to distribute cash dividends to general shareholders and stock dividends to sponsors and institutional investors.

Bangladesh Bank has revised a directive that has prohibited banks in the country from distributing dividends to investors before October.

In May, in response to Covid-19, the central bank directed banks not to distribute cash dividends to any shareholders until after 30 September, in a bid to boost banks’ capacity to support customers and absorb losses.

In a fresh directive, Bangladesh Bank has now said banks can now distribute cash dividends to general shareholders including foreign investors for 2019.

Sponsors and institutional investors will continue to be barred from receiving cash dividends until after September, but they will be entitled to receive stock dividends for the time being.

After 30 September, both cash and stock dividends will be allowed.

According to reports, the proposal for Bangladesh Bank to allow banks to disburse cash dividends to general shareholders came from newly appointed BSEC (Bangladesh Securities and Exchange Commission) chairman Shibli Rubayat Ul Islam, to address negative sentiments that followed the initial outright ban on bank dividends.

The prohibition on dividends was seen to make share ownership less attractive, and to be hurting investors who rely on a steady income from their stock holdings.

“Most retail investors in Bangladesh depend on the cash dividends. At this time, where the profits are declared by banks, the retailers rely on dividends. This is why we relaxed the earlier rule,” said Bangladesh Bank executive director Abu Farah Md Nasser.

While banks will bear a large part of the burden to support current economic disruptions through additional lending to households and businesses, Nasser said banks have sufficient liquidity, and that private sector credit growth has been slower than expected.

Australia, New Zealand, India, Sri Lanka and Pakistan are among the other Asian jurisdictions that have issued similar restrictions on bank dividends as a result of Covid-19.

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