Experts say directors of banks, who will be benefited the most by dividend payment, should refrain from taking dividend and prioritise strengthening their respective banks’ reserve
In the mid-1990s, a businessman became a sponsor director of a private bank with shares worth Tk50 lakh. If the bank gives 10 percent dividend (minimum) he gets at least Tk2 crore a year. And, he has been getting this amount every year for over two decades.
Returns would be much higher in the period between 2008 and 2010 when the capital market was flying high and banks were lending aggressively. Some banks offered 70-80 percent dividends, including stocks.
Over the years, his Tk50 lakh worth of shares are now valued at around Tk20 crore.
"Banks are a golden goose in Bangladesh. Which business can give a return of more than 100 times the investment in two decades?" said the businessman.
He is irritated to see directors taking out cash from banks in the name of dividends at the time of pandemic when banks need liquidity to support the borrowers. According to him, banks could have strengthened their reserves to create a buffer against crises like the Covid-19 by not taking dividends this year.
But directors of banks have chosen the other way. So far, eight out of 30 banks listed on the Dhaka Stock Exchange have announced dividends for 2019. Of these, three banks have offered dividends between 25 percent and 35 percent for the last year.
The minimum dividend declared was 10 percent which is enough to cash out Tk100 crore from each of the 30 banks as their average paid-up capital would be around Tk1,000 crore.
If each bank gives 10 percent dividend, the cumulative figure of the 30 banks' dividend stands at Tk3,000 crore. As per regulatory order, directors and sponsors must have 30 percent stakes in a bank – meaning the share of the directors of the aforementioned 30 banks in their dividends would be around Tk1,000 crore this year.
"The general public who hold majority shares in a bank should get the dividend as they wait for it all through the year. But directors and other sponsors could have forgone it this year considering the pandemic situation and the banks' need for cash," said a managing director of a bank requesting not to be named.
The central bank of Bangladesh has left the issue with the banks concerned, but its counterpart in India has acted fast with imposing an embargo on banks' dividends this year.
In the middle of the last month, the Reserve Bank of India ordered lenders to freeze dividends in a bid to help banks strengthen their position.
Prof Prashanta Kumar Banerjee of the Bangladesh Institute of Bank Management (BIBM) said giving dividends, especially to directors and sponsors, must be stopped now.
"Banks that have announced dividends for 2019 should cancel it," said Banerjee who teaches banking and finance at the BIBM.
He urged the directors to set an example by not taking dividends and said if they do so then their employees will also come forward with helping hands.
It is deemed that directors of banks will be benefited from the financial packages announced by the government to tackle the impacts of the Covid-19 as they are mostly businessmen.
Also, they will gain from the suspension of interest payments for two months as they have huge loan exposure.
As of September last year, the amount of total outstanding loans of bank directors was Tk1,71,600 crore or 11.21 percent of the total loans disbursed by all banks, according to the Bangladesh Bank.
The central bank's decision to suspend interests will help these bank directors to avoid payment of Tk2,500 crore in interests in these two months.
Mashrur Arfein, managing director of City Bank, however, has batted for giving dividends. He said if banks do not give dividends, people will lose trust in the sector.
"The general people hold the majority of our shares and they expect dividends at the year end. Dividends also put impact on the capital market," he said.