Shareholders of Access Holdings Plc, Fidelity Bank Plc and FBN Holding Plc smiled to the bank like never before in 2023.
The three banks recorded the largest growth in dividend payments to their shareholders last year, thanks to a surge in profit.
According to the latest annual financial statements of the nine banks surveyed by BusinessDay, Access Holdings Plc recorded a 246.3 percent increase in dividend payments to N115.3 billion in 2023 from N33.3 billion the previous year, followed by Fidelity with 60 percent to N20.8 billion and FBN Holdings which rose by 42.1 percent to N17.9 billion.
Others like United Bank for Africa (UBA) Plc grew by 31.9 percent, FCMB Group Plc (25 percent), Wema Plc (24.9 percent), Guaranty Trust Holding Company Plc (11.1 percent), Zenith Bank Plc (9.54 percent) and Stanbic IBTC Holdings Company Plc (0.2 percent).
Further analysis shows that the lenders’ combined dividend payout rose by 37.8 percent to N465.7 billion in 2023 from N337.9 billion in the previous year. The percentage growth is higher than a 15 percent increase in 2022.
“Last year was very remarkable for Nigerian banks across various lines of income,” Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said.
“Even if you ignore the widely published increase in foreign exchange gains on their performance, net interest income soared. For instance, it rose to as much as 39 percent of earnings in the first nine months of 2023,” Omosuyi said.
He said the increase should be the highest level in nearly a decade and that it makes a lot of sense to share some of the commendable performance with investors.
“Secondly, fixed income yields are now very attractive. I also think that banks were tempted to delight investors with some decent dividend yields, as this is typically below 10 percent for most banks. One cannot ignore the impact of share price appreciation on total returns for investors. But new investors want to see good yields,” he added.
Banks engage in dividend payouts as a way to distribute profits to shareholders.
It’s a sign of financial health and can attract investors seeking regular income.
Additionally, consistent dividend payouts can enhance the bank’s reputation and increase shareholder loyalty.
The FX gains were a major contributing factor to the banks’ total profits, which more than tripled to N2.8 trillion in 2023 from N897.4 billion.
Access Holdings, UBA, and GTCO recorded the highest growth in after-tax profit last year with 305 percent, 256.8 percent, and 219 percent respectively.
Wema Bank recorded 214.9 percent growth in profit, followed by FCMB Group (207.1 percent), Zenith (202.3 percent), Fidelity (116.9 percent), Stanbic IBTC Holdings (74.2 percent) and Sterling Financial Holdings Company (11.4 percent).
Last June, the Central Bank of Nigeria (CBN) reintroduced the willing buyer, willing seller model in the foreign exchange market.
The official exchange rate has fallen from N463.38/$ at the time to N1,400.4 /$ as of May 3, 2024. At the parallel market, the naira is being traded at around 1,410/$ as against 762/$ before the FX reform.
There were a lot of gains from the naira devaluation for the banks leading them to raise dividend payments, according to Ayorinde Akinloye, a Lagos-based investor relations analyst.
“With the recapitalisation on the horizon, banks will go to the capital market to raise money. There are a lot of factors that will impact the decision of banks when it comes to their dividend payout this year,” he said.
He added that a lot of them may want to be seen as attractive by encouraging shareholders that they will continue to return cash to them. “This might force them to increase their dividend payouts to position themselves as attractive.”
A recent report by Ernst & Young Global Limited noted that by paying out dividends, the financial position of shareholders will be strengthened.
“With the exclusion of retained earnings as a source of capital, we expect aggressive dividend payouts by banks over the next few years,” the report said
“This is to strengthen the financial position of shareholders to enable them to take advantage of options such as right issues or placement that the banks may want to pursue as their preferred way to raise the additional capital,” it added.
Last year, the CBN instructed banks to not utilise the FX revaluation gains to pay dividends or for other operational expenses. It instead advised them to save the money to hedge against any future volatility.
“Banks are required to exercise utmost prudence and set aside the foreign currency revaluation gains as a counter-cyclical buffer to cushion any future adverse movements in the FX rate in this regard, banks shall not utilise such FX revaluation gains to pay dividends or meet operating expenses,” CBN said in a statement.
The apex bank in March also announced a ten-fold jump in minimum capital requirements for commercial banks and varying increases for other banks, nearly two decades since the last exercise. It aims to enhance the resilience of an industry faced with high inflation, naira devaluation, and a weak economy.
Olayemi Cardoso, the CBN governor, set the minimum capital requirements for Nigerian banks as follows: N500 billion for those with international authorisation, N200 billion for commercial banks with national authorisation, and N50 billion for those with regional authorisation.
Increased paid-in capital requirements for Nigerian banks will spur equity issuance over the next two years, supporting a recovery in the banking sector’s capitalisation, according to a recent note by Fitch Ratings, a global credit rating agency.
“The sharp devaluation of the Nigerian naira since May 2023 has depressed capital ratios via the inflation of foreign-currency-denominated risk-weighted assets. Some small and medium-sized banks may struggle to raise the necessary capital, leading to increased M&A,” the report noted.
Fitch added that this would result in a more concentrated banking sector, with higher barriers to entry, greater economies of scale, and stronger long-term profitability.
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