Rupali Bank Limited will now pay a 2% cash dividend to its shareholders for 2021 after the Bangladesh Securities and Exchange Commission (BSEC) denied approval for its previously declared 2% stock dividend.
The state-owned lender secured its shareholders' approval of the cash dividend at an annual general meeting (AGM) on Sunday. It will disburse the dividend after approval from the Bangladesh Bank.
In a letter in June this year, the commission asked the financial institution to explain its failure to pay cash dividends and maintain provisions against default loans.
The letter stated that the bank had already paid a 2% stock dividend to its shareholders for 2021, and added that the lender has been paying only stock dividends for more than a decade.
Also, through the stock dividends, the bank's paid-up capital has increased by 140%.
As per rules, if a company fails to pay cash dividends for two consecutive years, it will be sent to the 'Z' category of the stock market.
Currently, Rupali Bank's shares are traded in the 'A' category but they will now be traded under the 'Z' category, the letter added.
According to the central bank guidelines, a bank cannot pay cash dividends if it has a provision deficit.
Rupali Bank's required provision against its classified loans is Tk5,135 crore. But it has a provision of only Tk2,064 crore which means the bank has a provision deficit of Tk3,078 crore.
Therefore, in response to the BSEC letter, the bank said it was following the central bank's guidelines, and hence, failed to pay cash dividends.
Because of this provision deficit, the bank's net asset value and earnings per share (EPS) increased in 2021 which is a concern for investors, says BSEC.
At the end of 2021, the bank's total defaulted loans stood at Tk6,666 crore, which is 18.84% of the total disbursed loans.
According to its audited financial statements for 2021, the lender's defaulted loans increased by 68% compared to the previous year.
It made a net profit of Tk13 crore in the first half of this year, a 28% lower compared to the January to June period of 2021.
At the end of June, its consolidated EPS stood at Tk0.29, which was Tk0.39 a year ago.
In a recent meeting, the state-owned bank decided to raise its paid-up capital by issuing shares in favour of the government against its share money deposit (money paid in exchange for shares) of Tk679.99 crore.
Earlier, the government had injected the fund as a share money deposit for the bank to cater to its capital shortfall. Now, Rupali Bank will convert the amount into shares, subject to the BSEC's approval.
Rupali Bank was listed on the capital market by issuing 9.81% shares in 1986.
On Monday, its shares closed at Tk26.70 each on the Dhaka Stock Exchange. Its share price reached the highest of Tk41.70 in the last two years.