Basel II whittles down dividend payout on NSE to N377bn

Banks’ compliance with the provisions of Basel II was responsible for the reduction of dividend payout by companies listed on the Nigerian Stock Exchange (NSE) to N377 billion in FY2014 as against N427 billion paid to shareholders in comparable period in FY2013, the analysis of corporate actions of quoted companies by BusinessDay Research and Intelligence Unit (BRIU) has shown.

The BRIU analysis shows that out of total difference of N48.8 billion which shareholders lost last year, the banking sector accounted for N45.9 billion or 94 percent reduction.

This is because the shareholders of the 11 banks, among the largely capitalised stocks in our analysis collectively received N142.6 billion in FY2014 as against N188.4 billion paid to them in FY2013.

Basel II is an international business standard that requires financial institutions to maintain enough cash reserves to cover risks incurred by operations. The Basel accords are a series of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision (BSBS).

The desire of banks to fully comply with BASEL II requirements and to plough back their earnings for future expansion, among others, were believed to be responsible.

Some analysts said yesterday that the development is imperative for the local lenders to remain internationally relevant and also comply with international standards, while expressing optimism of improved earnings by the end of the year.

According to Abiola Rasaq, head, investor relations, the United Bank for Africa (UBA),  “More precisely for Nigerian banks, the lower dividend is reflective of proactive retention of earnings to provide capital buffer ahead of the full implementation of BASEL II, which is apparently more stringent in capital adequacy ratio measurement, relative to the prudential guideline.

“Notably, the higher earnings retention is particularly important when put in the perspective of the bearish capital market which limits the ability of banks (as well as companies in other sectors) to access new capital by way of either seasoned equity offering or debt capital offering.

“Whilst valuation of most banks’ equity is still depressed (thus discouraging new equity offering to avoid undue dilution on existing shareholders), the relatively high yield environment also discourages debt offerings.”

Rasaq further said, “dividend payout should improve in 2015 financial year, as most banks have largely met BASEL II requirement and earnings outlook remain relatively strong, despite macroeconomic pressures.”

Further analysis of the research showed that 77 listed companies were covered in our analysis which as at July 9 this year, accounted for 83 percent of the market capitalisation of all equities listed on the NSE.

In addition, nine out of ten companies under the coverage of BRIU analysis have their financial year end in December.

On a sectoral basis, the cumulative dividend paid to shareholders of companies operating in the agric subsector, as well as insurance, manufacturing and oil & gas was higher in FY2014 as against FY2013. Okomu Oil Palm, Presco and Livestock Feeds from this sector collectively paid N1.48 billion as dividend in FY2014 above N1.05 billion paid in same period in FY2013.  Custodian and Allied Insurance, NEM, Niger Insurance, Cornerstone, Royal Exchange and Continental Re, rewarded their shareholders with N3.32 billion dividend, compared with N1.6 billion paid in FY2013.

Our analysis also shows that investors with interest in stocks listed in the manufacturing sub sector were better by N190.8 million, in view of the fact that a total of N1.41 billion was paid as dividend for FY2014 in contrast to N1.22 billion they received as dividend in 2013.

And despite the dwindling oil prices in the international market, investors in oil and gas companies went home with N20 billion as dividend and that represents a 104 percent increase over N9.86 billion paid in FY 2013.

The increase came from Caverton Offshore and Seplat, which joined the league of dividend paying companies as they declared N0.10 per share and $0.09 per share respectively.

On the contrary, the airline sub sector, as well as banking, conglomerates, food and beverages, healthcare, IT/ICT sub sectors paid lower dividend. NAHCO and Airline Services and Logistics (ASL) which in FY2013 rewarded shareholders with N519 million only paid N390 million in FY2014.

By collectively paying N7.28 billion in FY2014, companies in the conglomerates sub sector sharply brought down the amount of dividend paid by 54 percent, compared with N15.71 billion paid in FY2013. In particular, Unilever which paid N1.25 per share in FY2013 declared just 10k per share in FY2014.

Interestingly, some of these stocks have attractive dividend yields as at July 9 this year. The stocks with a minimum of 10 percent dividend yield include FCMB, Fidelity Bank, Access Bank, UBA Capital, Royal Exchange and NPF Microfinance Bank. Others are Continental Re, ABC Transport, A.G. Leventis, African Prudential Registrars, Smart Products and Vono Products.

TELIAT SULE