BSEC asks Rupali Bank to explain provision shortfall, failures to pay cash dividends

The stock market regulator has asked Rupali Bank to explain its failure to pay cash dividends to its shareholders and maintain provisions against default loans.

In a recent letter to its managing director, the Bangladesh Securities and Exchange Commission (BSEC) has asked the state-owned lender to submit documents and explanations to the regulator within five working days.

The regulator in the letter stated that the bank paid 2% stock dividend to its shareholders for 2021, and added that the lender has been paying only stock dividends for more than a decade.

And through the stock dividends, the paid-up capital of the state-run bank has increased by 140%. But according to laws, if the cash dividend is not paid for two consecutive years, the company is sent to the 'Z' category in the stock market. The bank's shares are currently trading in the 'A' category, but will now go to the 'Z', added the letter.

Meanwhile, as per the guidelines of the Bangladesh Bank, the bank's required provision against its classified loans is Tk5,135 crore. But it has a provision of only Tk2,064 crore. In other words, the provision deficit stands at Tk3,078 crore.

Due to this deficit, the bank's net asset value and earnings per share have 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 loans disbursed. In 2021, the bank's defaulted loans increased by 68% compared to the previous year, according to its audited statement.

A senior BSEC official said the financial condition of Rupali Bank was deteriorating. This has created the possibility of suffering losses by investors. The decision will be made after verifying the bank's explanation and documents.

Rupali Bank was listed on the capital market in 1986, issuing 9.81% shares.

The closing price of the stock on the Dhaka Stock Exchange (DSE) on Tuesday was Tk25.90. The highest share price of the bank in the last two years was Tk40.

Meanwhile, the bank's core business has not been going well for the past few years. Its net interest income has become negative as it operates loan activities with high-interest deposits. Even then, the bank is showing regular profits. And this has been possible because of large investments in government securities and the stock market. Besides, low provisioning has also helped it to show a profit.

Thus, the bank has been able to show a 150% growth in profits in 2021. Profits also rose 29% in the first quarter of this year.

A senior official of Rupali Bank said on condition of anonymity that they have taken time from the Bangladesh Bank to fill the provision deficit. So, the pressure to meet this deficit will not impact the profits.

He further said that according to the rules of the central bank, cash dividends cannot be paid if there is a provision deficit.