Banks with capital or provision shortfall can't pay incentive bonuses: BB
Incentive bonuses can only be paid from profits earned based on the current year’s actual income and expenses
Bangladesh Bank has directed that no commercial bank with a capital shortfall or provision shortfall can pay incentive or performance bonuses to its employees.
Previously, banks could distribute such bonuses even if they had deficits.
The central bank issued a circular today (9 December) to the managing directors and chief executives of all banks outlining the new rules.
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According to the circular, incentive bonuses can only be paid from profits earned based on the current year's actual income and expenses. Bonuses cannot be paid from retained earnings.
A senior Bangladesh Bank official told The Business Standard, "Incentive bonuses are based on profits calculated from the current year's income and expenses, not on retained earnings. Banks with regulatory capital or provision shortfalls cannot pay bonuses. Similarly, banks using deferral facilities or those with classified or written-off loans are also barred from issuing incentive bonuses."
Syed Mahbubur Rahman, MD and CEO of MTB, expressed concern over the policy.
"If a bank currently faces a shortfall due to past incidents, employees cannot receive incentive bonuses even if the bank performs well now. Many employees not involved in the previous issues will still be deprived of bonuses," he said.
He added, "Banks meeting these criteria may be performing well today, but employees could become demotivated and move to banks allowed to give incentive bonuses. This could create retention challenges, particularly for banks with talented staff. While strong banks will remain unaffected, weaker banks risk losing skilled employees to competitors."
