'Unjust' suspension of dividends.

Byline: Dilawar Hussain

THE State Bank of Pakistan (SBP) advised banks, microfinance banks (MFBs) and development financial institutions (DFIs) on April 22 to suspend the distribution of profits by way of dividends in any manner (cash or stock) for the quarter ended on March 31 and the half year ending on June 30.

But the trouble is that MCB Bank, United Bank, Habib Bank and Allied Bank have already unveiled their first-quarter financial results and declared cash dividends. A large number of investors who bought these shares to earn dividends, which inevitably increased stock prices, are now grumbling.

The central bank realised its mistake and issued a clarification afterwards: 'The banks that approved the dividend for the March quarter on or before April 22 are allowed to implement the dividend pay-out decision taken by their respective boards.'

The SBP clarified that these banks will not declare dividend for the quarter ending on Sept 30.

Banking companies are regulated by the Banking Companies Ordinance of 1962. Its section on the restrictions on the payment of dividend states: 'If the State Bank of Pakistan (SBP) is satisfied that conditions are not favourable for such payment, or the financial position of a banking company so warrants, it may, by order in writing stating reasons, restrict or prohibit any banking company from paying dividends to its shareholders for such period as may be specified in the order and the SBP shall exercise the power reasonably, fairly and justly.'

It adds, 'No order shall be made unless the banking company concerned has been given an opportunity of making a representation to the SBP and where the SBP is of the opinion that any delay would be detrimental to the public interest or the interest of the banking company or its depositors, the SBP may, at the time of giving the opportunity aforesaid or at any time thereafter and pending the consideration of the representation aforesaid, if any, make an appropriate interim order.'

The apex regulator should have stood up to uphold the rights of the banks' shareholders, says a former SECP chairman

Khalid Mirza, former chairman of the Securities and Exchange Commission of Pakistan (SECP) and the Competition Commission of Pakistan (CCP), maintains that the SBP decision to restrict banks from paying dividends to shareholders is 'unjust, unfair and against the law'.

Mr Mirza was chairman of the SECP Policy Board until last Tuesday when he resigned. But he still retains...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT