Financial Times

Right of Reply
NTB on non-payment of dividend
The Nations Trust Bank (NTB) has sent a clarification on an article in The Sunday Times FT on March 19 headlined “NTB annual report in a mess” which refers to the non payment of dividend by the Bank.

The NTB letter sent by Theja Silva, head of Legal at the Bank, says:
“The merger between Nations Trust Bank Ltd (NTB) and Mercantile Leasing Ltd (MLL) took effect on 1st January 2006. When accounting for this merger in accordance with Sri Lanka Accounting Standards (SLAS) 25 on Business Combinations, it gives rise to a goodwill provision in the books of the Bank as at that date.

The relevant statutory provision in the Banking Act, which is Section 22 of the Banking Act 30 of 1988 as subsequently amended, states very clearly that a Commercial Bank shall not pay any dividend on its shares until all its capitalized expenses, includng preliminary expenses and other items of expenditure not represented by tangible assets, have been completely written off.

Taking the above factors into account, it is clear that any payment of a dividend on or after January 1, 2006 without writing off the goodwill in its books, (even though the goodwill arose after year-end), will be in violation of the relevant provisions in the Banking Act.

In respect of the payment of a dividend of Rs 42.5 million in 2003, this dividend was paid out of the Bank profits and the goodwill referred to of Rs 76.5 million was arising on consolidation and was reflected in the Group accounts.

The restriction on the payment of dividends in terms of Section 22 of the Banking Act refers to the Bank as a legal entity and as such the goodwill arising out of the consolidation of the Group accounts had no bearing on the ability to pay dividends.

Our reporter says: This explanation clears doubts over the dividend issue. Our point was that to laypersons and that includes shareholders, some references in the chairman’s message relating to the merger could have confused shareholders.

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