Saudi Hollandi Bank, the kingdom's oldest lender, cut its cash dividend for 2015 but is planning a large bonus share issue to investors.

The bank said in a bourse filing on Tuesday that its board had recommended paying a cash dividend of 0.25 riyals ($0.06) per share for 2015. This compared with the 1 riyal per share payout given for the previous year.

However, in a separate statement Hollandi said its board was recommending shareholders receive one bonus share for every one share currently owned as part of a plan to double the bank's capital to SR11.4 billion ($3.04 billion).

No money is being raised from shareholders, who are getting the new shares for free, but the move is an accounting device which in effect boosts the company's equity and therefore underpins future growth.

The capital increase will be paid for using 1.6 billion riyals from the bank's retained earnings, as well as SR4.1 billion ($1.09 billion) from a separate reserve, it said.

Hollandi usually offers free shares at the end of each year but not on the scale announced on Tuesday. For 2013 and 2014, it distributed one free share for every five shares held.

Despite enhancing the capital at a time when Saudi Arabia's economy is suffering from the effects of lower oil prices, the measure is not necessarily an indicator of troubles ahead for the firm.

Saudi banks hold significantly-higher capital levels than their Western counterparts: Hollandi's total capital adequacy ratio, a key indicator of a bank's health, stood at 15.92 per cent at the end of June.

Shareholders would be eligible for the bonus share issue if they held stock at the end of the business day on which Hollandi's EGM was held. This will be during the first quarter of 2016, the statement added without specifying a date. - Reuters