Freeze on cash dividends by banks to be reviewed

Banks’ decision to freeze shareholders’ cash dividends will be reviewed in due course taking into consideration the performance of the sector, as the banks weathered the pandemic’s headwinds effectively while remaining largely unscathed despite dismal forecasts. 

The Central Bank halted cash dividends of the banking sector for 2020 at the height of the pandemic early this year to preserve capital and liquidity to face the pandemic. 

But banks are emerging largely unhurt from the pandemic due to regulatory forbearance measures on capital and liquidity, moratoria, leniency on recognising loss provisions and large amount of liquidity made available for on-lend as well as to backstop borrowers from defaulting. 

While the decision to review cash dividends would apply on financial years starting from January 1, 2021, the existing freeze is likely to stay as banks are not completely out of the woods yet. 
The interim reports of the banks for the most recent fiscal quarter ended in September showed that they had fared better in their bottom lines while improving asset quality. 

Meanwhile, elsewhere in the corporate sector some have continued their generous dividend payouts to shareholders on the rebound seen in the economy in the September quarter and the optimism on the economy ahead. 

“The group will follow its dividend policy which corresponds with growth in profits, whilst ensuring that the company maintains adequate funds to ensure business continuity given the unprecedented nature of the current circumstances,” Krishan Balendra, Chairman of John Keells Holdings, Sri Lanka’s largest listed company said in a statement few weeks ago.

Some of the other companies, which were initially uncertain about dividend payouts in the ongoing financial year, now appear to be reviewing the matter at board levels given their solid liquidity piles.