Opposition wants BoJ to review decision to suspend dividend payments

The Opposition wants the Bank of Jamaica (BoJ) to reconsider its decision to suspend the payment of dividends.

In announcing the suspension this week, the BoJ said the action was based on consultation.

READ: Deposit-taking institutions suspend dividend payments 

It said too that it was aimed at conserving capital and further enhancing licensees’ lending and loss absorption capacities.

But according to Opposition spokesman on Finance Mark Golding, this is not a sound approach to this economically sensitive matter.

SEE OPPOSITION'S FULL STATEMENT BELOW:

The Opposition is calling on the Bank of Jamaica (BOJ) to review its policy that the financial sector is not to pay dividends at this time.

Shadow Finance Minister Mark Golding stated:

“The Opposition does not regard the blanket ban on dividends as being a sound approach to this economically sensitive matter, because:

1.  Many small shareholders and pension funds will be adversely affected by the prohibition on financial sector dividends, as they rely on this income to meet their expenses and obligations. The ban on dividends is insensitive to these Jamaicans at a crucial time, and should not have been imposed without broad-based consultation including their representatives. 

2. The Jamaican stock market has reacted negatively to this development, further eroding confidence in the economy.

3.  One large financial holding company has very recently paid a dividend, while another has decided to postpone payment, giving the appearance of inconsistent treatment. This may be resented by those bearing the brunt of the ban. It is worth recalling that a dividend, once declared, becomes a debt owing to shareholders by the company; a debt which, by virtue of the “mutual understanding “between the BOJ and some financial holding companies, is no longer to be paid when due.

4.  Rather than an outright ban, the BOJ can use its powers and influence to ensure that dividends do not compromise prudential capital and liquidity ratios. And the BOJ may require more frequent regulatory reporting by these entities, to monitor their continued financial health even more carefully before a dividend is paid. 

5.  The BOJ’s public notice said that the ban on dividends is a “mutual understanding” it has reached with the boards of directors of financial holding companies. This appears to be another example of the Jamaican authorities responding to the crisis without putting in place an appropriate legal framework. Despite the legal implications of the policy, the “mutual understanding” not to pay dividends is merely voluntary, and has not been imposed by using any of the wide-ranging regulatory powers vested in the BOJ by law for the protection of Jamaica’s financial system.”

The Opposition fully appreciates that Jamaica is facing a massive economic contraction and reduction of foreign exchange inflows, as a result of the COVID-19 pandemic. It is prudent that the capital and liquidity of the financial system should be preserved, to help our deposit-taking institutions withstand whatever economic challenges are to come. However, these objectives can be achieved without the severity of an outright ban on dividends.

Perhaps the main reason behind the BOJ’s action, though not mentioned in its public notice, is that overseas companies are large shareholders in Jamaica’s financial sector, who typically convert their dividends into foreign currency and take them out of the country. At a time when foreign-exchange flows are way down and our currency is depreciating, paying large dividends to overseas shareholders could put more pressure on the foreign exchange market.

Nevertheless, the solution is not to ban dividends. The BOJ should instead require any financial holding company paying a dividend during this crisis to ensure that its overseas shareholders commit to holding their dividends in local currency instruments in Jamaica. If so, dividends will not prejudice the foreign exchange market.

For all these reasons. The Opposition is urging the BOJ to reconsider the ban on financial sector dividends.”

Follow The Gleaner on Twitter and Instagram @JamaicaGleaner and on Facebook @GleanerJamaica. Send us a message on WhatsApp at 1-876-499-0169 or email us at onlinefeedback@gleanerjm.com or editors@gleanerjm.com.