The Bangladesh Bank has introduced a set of stringent regulations aimed at tightening the rules for dividend distribution in the country’s banking sector. These measures, which will apply to the financial year ending 31 December 2025, aim to bolster the financial health of banks and protect depositors, following ongoing concerns regarding the stability of the sector.
Under the new guidelines, banks with non-performing loans (NPLs) that exceed 10% of their total loans will be prohibited from distributing dividends to their shareholders. This move is expected to disqualify a number of banks from paying dividends in 2025, particularly as the industry faces a more stringent loan classification rule starting in April this year.
As of December 2024, 23 out of 61 banks in the country had NPLs exceeding 10%, and the sector’s average NPL ratio stood at more than 20% last year. This was primarily driven by the large volume of classified loans within state-owned banks.
In addition to this, banks will no longer be permitted to offer cash dividends from retained earnings. The new restrictions also state that banks with outstanding penalties or fines for failing to meet their statutory cash reserve ratio (CRR) or statutory liquidity ratio (SLR) will be ineligible to pay dividends altogether. Those banks that fall short of the required provisions, or have obtained deferrals to cover such shortfalls, will also face a ban on dividend payouts.
The policy has also introduced a cap on the amount of dividend that can be paid to shareholders. Even compliant banks will now be limited to paying a dividend of no more than 30% of their paid-up capital.
However, banks that maintain a capital adequacy ratio (CAR) of at least 15%, including a 2.5% capital conservation buffer, will be allowed to pay up to 50% in dividends, provided that the payout does not lower their CAR below 13%. Banks with a CAR of 12.5% (including the conservation buffer) will be able to distribute up to 40% of dividends, while those with a CAR between 10% and 12.5% will only be able to issue stock dividends.
This measure is part of the Bangladesh Bank’s broader effort to address concerns over the resilience of the country’s banking system, which has been under intense scrutiny due to high levels of bad debt and insufficient capital reserves.
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The new restrictions come as part of the central bank’s ongoing effort to safeguard the banking system and restore confidence in the sector. Bankers have expressed concerns that the policy could hinder the ability of many banks to declare dividends, highlighting the severe financial distress some lenders are facing.
Economists, however, argue that these tougher regulations will ultimately lead to improved governance within the banking sector. By ensuring that banks focus more on strengthening their financial health rather than prioritising shareholder returns, the regulations are expected to pave the way for a more resilient banking environment.
The situation also raises questions about the growing issue of loan defaults linked to sponsor-directors, who are accused of taking loans from multiple banks without repaying them. These practices have reportedly contributed to the deterioration of many banks’ financial conditions, and the new rules could help mitigate these irregularities.
This decision may also have repercussions for the stock market, as it is anticipated that the share prices of banks that can no longer distribute dividends may be negatively affected.