Why BSEC took a year to approve 2 banks' stock dividends

The Bangladesh Securities and Exchange Commission (BSEC) has taken nearly one year to approve the stock dividends declared by two newly listed banks.

The Union Bank, on 28 April last year, declared 5% cash and 5% stock dividends to its shareholders for 2021, and the South Bangla Agriculture and Commerce Bank (SBAC) on 27 April 2022 declared 3% cash and 1% stock dividends for 2021.

On 2 April this year, the banks finally got consent from the stock market regulator to raise their paid-up capital through stock dividends.

When asked about the delay, Rezaul Karim, spokesperson and executive director of BSEC, told The Business Standard (TBS), "The two banks failed to meet the conditions of the commission. But the commission gave a late approval under special consideration as the banks are also obliged to meet the conditions of Basel-III."

The SBAC Bank and Union Bank got shareholders' approval for the dividends at the annual general meeting (AGM) held in June and July last year respectively. They disbursed the declared cash dividends among shareholders in August.

But as per the BSEC rules, it needs prior approval from the commission to disburse stock dividends to shareholders' beneficiary owners (BO) accounts.

According to the BSEC notification, an application must be submitted to the commission for approval to distribute stock dividends within five working days of the approval of dividends at the AGM. And if the company is eligible for the disbursement of stock dividends, the commission will approve the application within 15 working days.

A senior official of BSEC, on condition of anonymity, told TBS that the Union Bank was listed in the stock market in 2022 and the SBAC Bank in 2021. But the BSEC notification issued on 30 June 2021 said, a company, within the first three years of stock market enlistment, cannot declare stock dividends. 

"Apart from this, the stock market regulator, in the initial public offering consent letter to the two banks, gave a condition for them to invest in the secondary market of the stock market. But the investment made by both banks was far below the legal limit. That is why the bill of approval of their stock dividend was pending for so long," the BSEC official added.

The Union Bank raised Tk428 crore through offloading shares at a face value of Tk10 each, whereas the SBAC Bank raised Tk100 crore from the capital market.

The Union Bank shares traded below face value at Tk9.30 each and the SBAC Bank shares are being traded at Tk10.60 each on the Dhaka Stock Exchange.

The Union Bank's earnings per share (EPS) soared by 8% to Tk1.34 in the January-September period in 2022, where its net operating cash flow per share was Tk0.98 negative. NOCFPS negative means it faces a net operating cash shortage.

On the other hand, the SBAC Bank's EPS fell by 9% to Tk0.72 during the same period in 2022 and it also faced a net operating cash shortage.