Weak NBFIs barred from paying a dividend
With a number of non-bank financial institutions (NBFIs) suffering from an extreme cash crunch, the central bank yesterday barred finance institutions with lower capital and higher default loans from paying dividends.
The move is aimed at helping struggling NBFIs as they may possibly face further difficulties in the coming months as non-performing loans are anticipated to escalate.
The Bangladesh Bank said the NBFIs, which have a capital adequacy ratio (CAR) of significantly less than 10 % and more than 10 per cent default loans, will not be in a position to declare any dividend.
Arif Khan, chief executive and managing director of IDLC Financing, said the BB decision would bring about confident impact for the personal industry.
"It appears that the Bangladesh Bank possesses issued the directive to ensure that NBFIs can avoid a stress circumstances in the event of a growth in classified loans later on," he said.
The NBFIs that have low-cash flow will not see funds falling due to dividend non-payment, he said.
Similar measures have been suggested for banks too.
On February 7, the central bank declared a dividend insurance plan for banks for 2020, permitting them to reward their shareholders based on the strength of the administrative centre base because of the persisting pandemic.
Banks, that have a more robust capital base, will be permitted to provide higher dividend in the sort of cash and stock when compared to weak lenders.
The central bank said finance institutions with an increase of than 10 % default loans would have to get approval to announce dividends.
This is the first time in recent years the BB gave the directive and it came at a time whenever a number of NBFIs are facing capital shortage and high classified loans because of scams.
Bangladesh features 36 NBFIs, and at least 10 of these are struggling to pay back depositors money in spite of maturity.
As of December 2020, the CAR of six NBFIs was significantly less than the mandatory level, which is 10 %. Thirteen had a lot more than 10 per cent of default loans.
The NBFIs are Bangladesh Industrial Financing Provider Ltd (BIFC), Fareast, Fas Finance, First Finance, GSP Financing, Industrial and Infrastructure Production Finance Company Ltd, International Leasing, Midas Financing, National Financing, Premier Leasing, Prime Finance, Reliance Financing, and Union Capital.
The CAR is a ratio of capital of a lender as percentage of its risk-weighted assets and current liabilities. Regulators repair CAR to protect depositors' money.
Industry insiders mention following the BB buy, many NBFIs wouldn't normally be allowed to declare either money or inventory dividend for their shareholders for the entire year that ended on December 31 due to their ratio of classified loans is great.
Non-performing loans at 33 NBFIs stood at Tk 8,905 crore in June, that have been 13.29 % of the outstanding loans, according to data from the central bank.
It was Tk 6,399 crore, or 9.5 per cent of the full total loans as of December last year.
The central bank also barred the NBFIs with sound financial health from paying a lot more than 15 % cash dividend in view of the challenges in the aftermath of the Covid-19 pandemic led wreckage throughout the market.
