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Central Bank asks banks to refrain from buying back shares

09 May 2022

  • Issues new directive to ‘maintain liquidity’ in the banking sector
  • Banks not permitted to provide cash dividends until financials audited
  • Repatriation of profits prohibited until audits
    By Imesh Ranasinghe  The Central Bank of Sri Lanka (CBSL) has directed all Licensed Commercial Banks (LCBs) to refrain from buying back their shares in the market until 31 December 2022, with the aim of maintaining appropriate levels of liquidity and capital buffers in the banking sector. Issuing a directive under the Banking Act to all LCBs, the CBSL has also instructed them to defer payments of cash dividends until the financial statements for 2022 are finalised and audited by external auditors. Companies buy back shares mainly to reduce the total number of shares outstanding for a company, which has a positive impact on earnings per share (EPS) and cash flow per share, this is known as a “float shrink”, while it could also increase the share prices in the market. Further, CBSL has asked the banks to defer the repatriation of profits not already declared for the financial years 2021 and 2022 until financial statements for 2022 are finalised and audited by external auditors. “Licensed banks will give due consideration to the requirements of the Banking Act Direction No. 01 of 2016 on Capital Requirements under Basel III for licensed banks, expected assets growth, business expansion, and the potential impact of the Covid-19 pandemic and prevailing macroeconomic conditions when deciding on payments of cash dividends and profit repatriations,” the CBSL statement said.  Other directions by CBSL to LCBs include refraining from increasing management allowances and payments to directorial boards, refraining from incurring non-essential and/or non-urgent expenditure and having board-approved policy to rationalise if such expenditure is to be incurred, and exercising extreme due diligence and prudence when incurring capital expenditure, if any. Commercial Bank of Ceylon has said that it will pay the first and final dividend distribution of Rs. 7.50 per share for its shareholders with a total of Rs. 5.3 billion allocated to the dividend payment. Hatton National Bank PLC shareholders have already approved Rs. 9 per share as the final dividend payment and Sampath Bank PLC presented Rs. 4.25 per share as dividend payment with gross dividend payment of Rs. 4.8 billion.


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