Retail shareholders expecting bumper dividends from some banks in the country, may be disappointed as the Central Bank of Nigeria (CBN) has issued a circular updating its rules regarding dividend payments by banks and discount houses.
Most banks in the country are gearing up for the release of their audited financial statements for the 2017 financial year.
Highlights of the circular
- Any bank that does not meet the minimum capital adequacy ratio shall not be allowed to pay dividends.
- Banks or discount houses that have a high composite risk rating of high or Non-Performing Loan (NPL) ratio of above 10% shall not be allowed to pay dividends.
- Deposit Money Banks and Discount Houses that meet the minimum capital adequacy ratio but have a CRR of “Above Average” or an NPL ratio of more than 5% but less than 10% shall have dividend payout ratio of not more than 30%.
- Deposit Money Banks and Discount Houses that have capital adequacy ratios of at least 3% above the minimum requirement, CRR of “Low” and NPL ratio of more than 5% but less than 10%, shall have dividend payout ratio of not more than 75% of profit after tax.
- There shall be no regulatory restriction on dividend pay-out for Deposit Money Banks and Discount Houses that meet the minimum capital adequacy ratio, have a CRR of “low” or “moderate” and an NPL ratio of not more than 5%. However, it is expected that the Board of such institutions will recommend payouts based on effective risk assessment and economic realities.
- No bank or discount house shall be allowed to pay a dividend out of reserves.
Banks shall submit their Board approved dividend payout policy to the CBN before the payment of dividend shall be permitted.
A Non-Performing Loan (NPL) is one in which the borrower is neither paying the interest or the principal. Capital Adequacy Ratio (CAR) is the Capital Adequacy Ratio (CAR) i is the proportion of a bank’s own equity in relation to its risk exposure.
The capital adequacy ratio (CAR) for banks in Nigeria currently stands at 10% and 15% for national/regional banks and banks with an international banking licence, respectively.
Banks that are likely to be affected
Tier two banks will be hard hit by the new policy as they historically have had higher Non Performing Loans (NPLs) and lower Capital Adequacy Ratios (CARs). This could in some cases lead to some of the banks not paying dividends or being placed on the 30-75% payout band.
According to a report from Stabnic IBTC, from a CAR perspective none of the Tier 1 Banks are affected using 9M 2017 unaudited numbers.
From a NPL ratio perspective, FBN would be captured at bank level at 9M 2017, but banks which belong to a HoldCo structure such as FBNH can typically still pay dividend derived from their non-bank subsidiaries.
Not paying Dividends
From all indications, banks like Union Bank, Unity Bank and Skye Bank are not eligible to pay dividends in 2017.
Paying Dividends but with likely restrictions
- FBNH – restricted to 30% of profits
- Ecobank – restricted to 30% of profits
- Stanbic IBTC – restricted to 75% of profits
- FCMB – restricted to 30% of profits
- Fidelity Bank – restricted to 30% of profits
- Sterling Bank – restricted to 30% of profits
- Wema Bank -restricted to 30% of profits
Paying Dividends without restrictions
- Access Bank
- GT Bank
- Zenith Bank