Why ONE Bank skips dividend despite profit growth, share price slumps

ONE Bank PLC has announced that it will not pay any dividend to its shareholders for the year 2024, despite posting a 14% year-on-year growth in profit.

This marks the first time since its listing on the stock exchanges that the bank has failed to declare a dividend.

Following the announcement, disclosed through the Dhaka Stock Exchange (DSE) yesterday, ONE Bank's share price dropped by 7.89% to close at Tk7. As a result, its market capitalisation declined by Tk64 crore to Tk746 crore.

In 2023, the bank declared a 3.50% cash and 3.50% stock dividends.

According to its latest disclosure, ONE Bank reported a consolidated earnings per share (EPS) of Tk1.24 for 2024, up from Tk1.09 in the previous year.

The bank's annual general meeting (AGM) to approve the financial statements and dividend decision is scheduled for 14 August, with the record date set for 24 June.

Meanwhile, ONE Bank also released its financials for the January-March quarter of 2024, reporting a 56% year-on-year jump in consolidated EPS to Tk0.61, compared to Tk0.39 in the same period of 2023.

Why it failed to declare dividend?

ASM Shahidullah Khan, chairman of ONE Bank, told The Business Standard, "The Bangladesh Bank did not allow us to declare any dividends. We even applied to issue only stock dividends, but that too was not approved."

He added, "Essentially, banks that have taken deferral facilities to cover provisioning shortfalls against non-performing loans are not being permitted to declare dividends."

Shahidullah further noted that on 13 March, the central bank issued a circular regarding dividend declarations, which was supposed to come into effect for the financial year 2025.

"However, the Bangladesh Bank has started enforcing the circular from the 2024 financial statements," he added.

According to the circular, banks that have availed deferral facilities for provisioning against non-performing loans have not been granted approval for dividend distribution.

Shahidullah explained, "ONE Bank has a provisioning shortfall exceeding Tk1,000 crore, which is why we availed the deferral facility.

"Notably, the central bank has instructed banks to make 100% provisioning even against non-performing loans that are under stay orders from the High Court. Previously, there was no such practice in the banking sector. This new requirement is the primary reason we have ended up with a provisioning shortfall."

In the price-sensitive statement, ONE Bank said it did not recognise a provision of Tk1,797 crore against loans and advances due to a deferment permitted by the Bangladesh Bank.

Meanwhile, conversations with officials from several other banks revealed that due to the immediate enforcement of the circular issued on 13 March, around 15 to 20 banks will be unable to declare dividends for the 2024 financial year. The implementation of this directive ahead of schedule is largely attributed to pressure from the International Monetary Fund (IMF).

According to the circular, banks are no longer allowed to offer cash dividends from their retained earnings. Additionally, those with non-performing loans exceeding 10% are prohibited from declaring any form of dividend. Institutions that have outstanding penalties or fines for failing to maintain the required Cash Reserve Ratio (CRR) or Statutory Liquidity Ratio (SLR) are also ineligible to pay dividends. 

Furthermore, banks facing shortfalls in required provisions, or those that have obtained deferral facilities to cover such gaps, will similarly be barred from making dividend payments. Even banks that fully comply with regulatory requirements must now limit their total dividend payout to no more than 30% of their paid-up capital.