CBN curbs three lenders’ dividend payout to 30 percent

The Central Bank of Nigeria (CBN) has restricted the dividend payment of three lenders as the apex bank seek to prevent the erosion of capital base of banks.

Diamond Bank, Fidelity Bank, and Sterling Bank are restricted to 30 –percent of dividend pay-out  because they have a Cash Reserve Ratio (CRR)  of “Above Average” while non-performing Loans (NPLs) ratio are more than 5 percent but less than 10 percent.

Stanbic IBTC Holdings Plc have dividend pay-out ratio of not more than 75 percent of profit after tax as the lender have capital adequacy ratios of at least 3 percent above the minimum requirement, CRR of “Low” and NPL ratio of more than 5% but less than 10%.

According to a report by research house CSL Stock Brokers Limited, only FirstBank Limited can reward owners of the business while the holding company is not allowed to make distribution of profit.

However, tier 1 lenders or the big banks will pay dividend to shareholders without encumbrances as they have met all regulatory requirements amid a tough and unpredictable macroeconomic environment.

Analysts say tier one lenders are to drive dividend pay-outs in 2018 as they continue to enjoy consistent earnings growth amid a tough and volatile economic environment.

“We estimate 21 percent average growth in dividend per share for our coverage banks in 2017, driven primarily by strong earnings growth,” said analysts at Stanbic IBTC.

The analysts further said, “Within our coverage, we expect the tier 1 banks to continue to dominate in absolute dividend paid and dividend pay-out ratio, driven by a combination of their more robust earnings generation capacity and stronger capital positions.”

There are indications the share price of the affected banks could slump as investors could dump the stocks in search of dividend paying ones.

BusinessDay had reported that Union Bank, Unity Bank, and Wema will not reward their owners as they have negative retained earnings of N254.40 billion, N273.64 billion, and N36.14 billion in their balance as at September 2017.

The law prohibits a firm from paying dividend from negative retained earnings and even if it makes a profit in a given year, such profit must be used to reduce or offset accumulated losses.

The CBN sets different minimum CARs for banks in the country: 16 per cent for those it considers to be systemically important; 15 per cent for those with international banking licences; and 10 per cent for the rest.

The circular, which was made public on Sunday, read in part, “Globally, retained earnings have been identified as an important source of growing an institution’s capital. Advantages of retained earnings include being a source of long-term finance; being easier and cheaper to raise than external finance; curtailment of financial risks; and improving liquidity and profitability.

“However, it has been observed that rather than take advantage of this beneficial means of capital generation, some institutions pay out a greater proportion of their profits, irrespective of their risk profile and the need to build resilience through adequate capital buffers.”

It added, “In order to facilitate sufficient and adequate capital build up for banks in tandem with their risk appetite, the following directives will now apply:

“Any Deposit Money Bank or discount house that does not meet the minimum capital adequacy ratio shall not be allowed to pay dividend.

“The DMBs and DHs that have a Composite Risk Rating of ‘High’ or a non-performing loan ratio of above 10 per cent shall not be allowed to pay dividend.

“The DMBs and DHs that meet the minimum capital adequacy ratio but have a CRR of ‘Above Average’ or an NPL ratio of more than five per cent but less than 10 per cent shall have dividend pay-out ratio of not more than 30 per cent.

BALA AUGIE