Flash Report /
Bangladesh

Bangladesh: Central bank restricts dividends to maintain banks' liquidity

  • Per-share dividend payment depends on a bank’s CAR, with a cap of BDT1.5/share. Details in the report.

  • No dividend disbursement before 30th September 2020

  • BRAC’s dividend unchanged, while EBL and DUBA need to revise down. CITY, PRIME, UCB are yet to declare.

IDLC Securities
12 May 2020
Published byIDLC Securities

To maintain liquidity for executing the stimulus package declared by the government and to strengthen the capital base, Bangladesh Bank (BB - the central bank of Bangladesh) has introduced some conditions for disbursing dividend of the year 2019 by scheduled banks.

Table 1: Summary of the regulation

CAR (inclusive of Conservation Buffer)

Deferral Facility

Maximum Dividend

 CAR ≥ 12.5%

Not Availed

15% Cash (BDT 1.5); 30% Total

 11.25%≤ CAR <12.5%

Not Availed

7.5% Cash (BDT 0.75; 15% Total

 10.0% ≤ CAR <11.25% 

Not Availed

5% Stock Dividend

 11.25% ≤ CAR

Availed in 2019 or before but adjusted in full

5% Cash (BDT 0.5); 10% Total

 10% ≤ CAR ≤ 11.25%

Availed in 2019 or before but adjusted in full

5% Stock Dividend

Source: Bangladesh Bank, IDLC Securities Limited

Details

  • No banks can disburse cash dividend before 30 September 2020. 
  • Banks that have not availed deferral facility for the provision and other costs coverage or any type of deferral facility in 2019
    • Banks with more than 12.5% capital adequacy ratio (CAR)- inclusive of 2.5% capital conservation buffer can declare a maximum 15% cash dividend (BDT 1.5) and 30% total dividend. 
    • Banks with less than 12.5% CAR but more than 11.25% can declare a maximum 7.5% cash dividend (BDT 0.75) and 15% dividend in total.
    • Banks with less than 11.25% CAR but more than 10.0% can declare a maximum 5% stock dividend subject to BB approval. 
  • Banks that have availed deferral facility for the provision and other cost coverage in 2019 or before but adjusted them in full 
    • Banks that have more than 11.25% CAR (inclusive of the capital conservation buffer) can declare a maximum 5% cash dividend (BDT 0.5) and 10% total dividend. 
    • Banks that have less than 11.25% but more than 10% of CAR can declare only a 5% stock dividend.
  • Banks that have already declared dividends will have to take corrective measures if it contradicts the conditions of the circular

Impact on our coverage

  • BRAC has declared BDT0.75 cash dividend and 7.5% stock dividend for the year 2019. The policy will not impact its declaration. However, BRAC cannot disburse the cash dividend before 30 September 2020. 
  • Among our other six coverage, two (EBL and DUBA) have declared dividends, but they need to revise it down due to this newly introduced policy. The maximum cash dividend is BDT1.5/share for EBL and DUBA as per the regulatory regulation. 
  • The other four banks (CITYBA, ISLAMI, PRIME and UCB) are yet to declare any dividend. The maximum possible cash dividend is BDT1.5/share for CITYBA and PRIME. For UCB, maximum BDT1.5/share cash dividend if its CAR in 2019 is like that of 2018. However, UCB's CAR in December 2019 might be lower than that in 2018 (12.77%). Should that fall below 12.5%, UCB can declare a maximum BDT0.75/share. For ISLAMI, maximum BDT0.75/share.  
Table 2: Impact on our covered banks
BankCAR (Solo)

Recommended Dividend for 2019

Comments

BRAC Bank (BRAC BD)

15.06% as of Dec 2019

7.5% Cash (BDT 0.75/share); 15% Total

The declaration will remain unchanged. But shareholders will get a cash dividend after September 2020.

Eastern Bank
(EBL BD)

14.74% as of Dec 2019

25% Cash (BDT 2.5)

Needs to revise down the dividend. The maximum possible dividend is BDT1.5 cash/share and 15% stock.

Dutch Bangla Bank (DUBA BD)

15.74% as of Sep 2019

30% Cash (BDT 3.0)

Considering the CAR level of Sep 2019, it is likely to be well above 12.5% at the end of Dec 2019. However, the recommended cash dividend needs a decrease of 50% to BDT1.5/share as the declaration exceeds the regulatory limit.

Islami Bank (ISLAMI BD)

11.97% as of Dec 2018

Not declared

 

Can declare a maximum BDT0.75 cash dividend and 7.5% stock dividend.

City Bank (CITYBA BD)

13.2% as of Sep 2019

Not declared

The maximum possible dividend is BDT1.5 cash/share and 15% stock.

Prime Bank (PRIME BD)

16.2% as of Sep 2019

Not declared

The maximum possible dividend is BDT1.5 cash/share and 15% stock.

UCB (UCB BD)

12.77% as of Dec 2018

Not declared

Maximum BDT1.5/share cash dividend and 15% stock dividend if UCB’s CAR in 2019 like that of 2018. However, UCB’s CAR in December 2019 might be lower than that in 2018 (12.77%). Should that fall below 12.5%, UCB can declare maximum BDT0.75/share.

Source: IDLC Securities Limited