Bangladesh Bank (BB) has asked the First Security Islami Bank (FSIB) not to offer cash dividend for the year 2014 because of its provision shortfall.

Bangladesh Bank sent a letter to the bank yesterday with an instruction for not announcing any cash dividend, according to BB sources.

On the other hand, the FSIB board of directors is scheduled to sit today to decide on the dividend issue for the year 2014, considering the audited financial statements of the bank.

A primary investigation of the central bank conducted over the quick report of the FSIB has found the provision shortfall of Tk15 crore at the year-end of 2014.

Of the shortfall amount, the bank maintained only Tk3 crore in December last year. However, The bank has requested the central bank for an exemption from provisioning the rest of the amount of 12 crore till the year 2015.

In response, Bangladesh Bank allowed the bank to maintain the shortfall in two phases by June and September quarter this year.  At the same time the bank has been asked not to provide any cash dividend to the shareholders.

Bank company act also does not allow cash dividend for a company that suffers from provision shortfall.

Earlier, at the bankers meeting held December last year, the top managers had demanded for allowing banks to offer cash dividend to the shareholders, which is now prohibited as a pre-condition of the exemption in provisioning.

The banks were given the provision facility, against the losses they incurred through investing in the capital market in 2010, on a condition that they won’t be able to declare cash dividends.

Meanwhile, First Security Islami Bank made a decision to announce 10% cash dividend for last year, as the company was not in a shortfall before the investigation by the central bank, said a senior executive of Bangladesh Bank.

Though the maintained provision was Tk268 crore in the quick review report prepared by the bank, the investigation team of the central bank identified more accounts as classified, which caused the provision shortfall of the bank, he said.

The bank showed huge operating profit of Tk221 crore in the year 2014 but the net profit came down to only Tk67 crore due to more provisioning, he observed.

The bank had declared 10% cash dividend to the shareholders in the year 2013. It is running with paid up capital of Tk617 crore.

The non-performing loans of the bank stood at Tk340 crore at the end of December last year from Tk248 crore in the same period of the previous year, according to the Bangladesh Bank data.