Dividends to be kept as reserve fund as per RMA directives

Thukten Zangpo 

Financial institutions (FIs) will not declare dividends despite making profits in the past year.

The FIs’ profit after tax almost doubled – from Nu 1.63 billion (B) in March last year to Nu 3.37B in March this year. According to the Royal Monetary Authority (RMA) report, the profits were mainly from the decrease in non-performing loans that subsequently resulted in write-back of loan provision by Nu 800 million (M).

However, the authority had instructed the FIs to not declare dividends. A banker said that the central bank asked the FIs to keep their profits, as a reserve to be used for operation should the FIs face any unexpected problem in the future.

“Keeping the reserve makes FIs stable and sound because the country is still not completely out of the Covid-19 pandemic, ” he said, adding that the money will still be retained with the banks.

With many expecting dividends after knowing that banks did well in the past year, a banker said that the RMA has the authority to stop FIs from declaring dividends since the authority is interested in the soundness of the FIs. 

As per the Financial Services Act of Bhutan 2011, FIs can transfer the net profits of each year (after due provision made for taxation) before declaring any dividend to its reserve fund.

FIs can transfer not less than 50 percent of the net profits, if the amount of the reserve fund is less than 50 percent of the paid-up capital.

Or, not less than 25 percent of the net profits of the year, if the amount of the reserve fund is 50 percent but not less than 100 percent of the paid-up capital.

According to the RMA, the initial paid-up capital requirement for a bank has to be Nu 600M. 

An official from Royal Securities Exchange of Bhutan Limited (RSEBL) said that there is no rule stating that the company needs to declare dividends.

Another banker said that the company is comfortable to declare dividends if the RMA allows because the company’s performance was good last year.

Last year, many bought shares floated in the initial public offerings by the Royal Insurance Corporation of Bhutan Limited (RICBL) and Bhutan National Bank Limited (BNBL) held in the name of Sungchob Fund and Kidu Fund.

RSEBL announced a sale of 15,640,000 shares of RICBL at a floor price of Nu 70, and 17,620,000 shares of BNBL at a floor price of Nu 33 between June 15 and July 15.

Additionally, 15,640,000 shares at floor price of Nu 72.5 was floated by RICBL between August 20 and September 2 last year.

The last time, RICBL declared dividend was for the year 2017 at 12.6 percent.

Similarly, BNBL declared a dividend of 0.69 percent for 2019 and 10 percent for 2018.

Druk Punjab National Bank Limited declared a dividend of 15 percent for the year 2018 and 12 percent for 2017.

Since its operation, the Tashi Bank Limited declared a dividend of 11 percent for 2019.