Fewer bank dividends under new policy signal a weaker financial ecosystem

Bangladesh's banking sector is facing growing pressure as more than half of the banks failed to declare dividends for the year 2025. This situation reflects both the weak financial condition of many banks and the impact of stricter regulatory measures introduced by Bangladesh Bank.

Under DOS Circular No. 01 dated 13 March 2025, Bangladesh Bank introduced a new "Dividend Declaration Policy against Shares." The main objective of this policy is to strengthen the financial stability of banks before they distribute profits to shareholders.

According to this circular, banks must meet several conditions to declare dividends. First, they must fully comply with the Bank Company Act and all regulatory requirements. If there is any shortfall in loan or investment provisioning, the bank is not allowed to declare dividends. Banks must also maintain the required Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). Failure to maintain these requirements disqualifies them from distributing dividends.

The policy also places strong emphasis on loan quality. If a bank's non-performing loan (NPL) ratio exceeds 10 percent, it cannot declare any dividend. At present, around 29 banks have NPL ratios above 29 percent, which is one of the main reasons behind the widespread failure to declare dividends this year.

The policy also places strong emphasis on the Dividend Payout Ratio, which is calculated as the declared dividend divided by net profit after tax. Bangladesh Bank has set strict limits on dividend distribution to ensure that banks retain sufficient earnings to strengthen their capital base. Under the regulation, no bank can declare dividends exceeding 30 per cent of its paid-up capital or 50 per cent or 40 per cent of its net profit-whichever is lower-subject to meeting the requirements for adequate loan and investment provisioning and maintaining a Capital Adequacy Ratio (CAR) of at least 15 per cent or between 12.50 per cent and less than 15 per cent, as applicable. Furthermore, banks with a CAR above 10 per cent but below 12.50 per cent are permitted to declare only stock dividends, not cash dividends. These provisions ensure that only financially sound banks with adequate capital strength are allowed to distribute dividends, while relatively weaker banks retain earnings to improve their financial position.

The circular further states that if a bank receives any regulatory forbearance, such as deferred provisioning benefits, it cannot declare dividends during that period. This rule ensures that weak banks are not allowed to distribute profits without first addressing their financial vulnerabilities.

Due to these strict conditions, only 18 out of 52 banks declared dividends in 2025. Among the 36 listed banks, only 16 announced dividends. This has also negatively affected investor confidence in the stock market, as bank shares are traditionally considered attractive for regular dividend income.

Among the better-performing banks, several declared the maximum allowed dividend of 30 per cent. These include BRAC Bank, City Bank, Pubali Bank, Dutch-Bangla Bank, Prime Bank, and Uttara Bank. Jamuna Bank declared a 29 per cent dividend, while Eastern Bank declared 28 per cent. NCC Bank announced 21 per cent, and Bank Asia declared 17 per cent. Shahjalal Islami Bank and Trust Bank both declared 13 per cent, while Mutual Trust Bank (MTB) declared 12 per cent. Southeast Bank and Dhaka Bank each declared 10 per cent dividends, while Midland Bank declared 6 per cent. Outside listed banks, Community Bank and Bengal Commercial Bank also declared dividends.

However, many banks failed to declare any dividend. Islami Bank Bangladesh PLC, once a strong 'A' category bank, has now moved to the 'Z' category, indicating severe financial distress. Other banks that did not declare dividends include IFIC Bank, Standard Bank, UCB, Mercantile Bank, AB Bank, Al-Arafah Islami Bank, ICB Islamic Bank, National Bank, NRB Bank, NRBC Bank, ONE Bank, Premier Bank, and South Bangla Agriculture and Commerce Bank.

Some banks have also undergone mergers due to weak financial conditions. These include EXIM Bank, First Security Islami Bank, Social Islami Bank, Union Bank, and Global Islami Bank. These institutions are no longer operating independently, which has further impacted the overall banking landscape.

Among non-listed banks, Bangladesh Commerce Bank, Meghna Bank, Madhumati Bank, Padma Bank, and Shimanto Bank did not declare dividends. Citizens Bank earned profit but did not distribute dividends, possibly to strengthen its capital position.

State-owned banks are also under significant financial pressure. Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, BASIC Bank, Bangladesh Development Bank Limited (BDBL), Bangladesh Krishi Bank (BKB), Rajshahi Krishi Unnayan Bank (RAKUB), and Probashi Kallyan Bank were unable to declare dividends to the government.

One positive development is that all banks completed their financial statements on time this year. Bangladesh Bank also provided limited support by relaxing provisioning requirements for funds stuck in merged banks. The current situation clearly indicates that the banking sector remains under stress. High default loans, weak governance, and poor lending practices continue to be major challenges.

If more banks were able to declare dividends, it would have strengthened investor confidence and improved the overall financial ecosystem. Regular dividend distribution plays an important role in attracting investors and maintaining trust in the banking sector.

In conclusion, the new dividend policy is a necessary step to strengthen the banking sector. However, it also highlights the structural weaknesses of many banks. To improve the situation, banks must reduce non-performing loans, enhance governance, and strictly follow regulatory guidelines. Only then can the financial ecosystem of Bangladesh become more stable and resilient.

Md. Zakaria, First Assistant Vice President, CRM-CMSME Division, NCC Bank PLC. zak.dufbs15@gmail.com