You' recall earlier that the CB UAE had imposed restrictions on UAE banks' dividends for 2009, limiting cash dividends to 50% of net profit and script or bonus share dividends to 60%. The given rationale for the measure being to preserve liquidity and capital within the banking sector.
At that time I posted that the restriction on script dividends seemed strange as the issue of bonus shares actually was a stronger form of capital retention than a mere ban on the payment of cash dividends.
The neat thing about bonus shares is that a shareholder desiring cash can sell the extra shares and thus receive cash, though in doing so he or she reduces his or her relative percentage ownership in the bank. No cash leaves the bank because this is a secondary market transaction. Cash is exchanged between shareholders. Bonus shares also have a downside: they dilute future earnings per share.
Apparently, bankers in the UAE "shared" my view and persuaded the CB to rescind its restriction on 2009 bonus share issuance. Bonus shares up to 100% of 2009 profit may therefore be issued. The article notes that this restirction on dividends was the first time the CB UAE had intervened in such a fashion. Also it noted that bankers argued that stock dividends actually strengthened capital. Shareholders are said to be happy though not as happy as they would have been with bigger cash dividends.
The limit on cash dividends was not lifted or modified.
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