The dust generated by the recent policy of the Central Bank of Nigeria on the guidelines for the payments of dividends by deposit money banks and discount houses is yet to settle, as some shareholders under the aegis of Pragmatic Shareholders Association of Nigeria, PSAN, have decried the recent Central Bank of Nigeria, CBN’s rule that barred banks with huge bad loans from paying dividends and have called on the National Assembly to intervene with the aim of protecting local investors.
The shareholders, however, threaten to take legal actions against the apex bank if it does not rescind its decision.
According to its Coordinator, Bisi Bakare, the timing of the CBN policy directives to deposit money banks, and discount houses just two weeks to the release of the 2017 banks financial results will complicate the expectations of domestic investors/shareholders lamenting that the policy directive by the CBN will block domestic investor’s paltry return on their investments.
They further accused the CBN board and management of the high-level complicity and sabotage in the reoccurring banks’ loans and its attendant negative impact on domestic savings through portfolio investments.
They, therefore, asked the CBN as a matter of duty to Nigerians and the international community to publish the profile of the loans defaulters and invoke the operating laws through the banks on all bad loans.
According to the association,
“The contentious banks’ bad loans are failure pointers and collapsing state of the national financial regulatory institutions in the proactive management of the economy.”
Highlights of the circular includes
- 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.
But according to an industry expert, Mr. Ola Yussuf, MD, Trust Yield Securities the new circular is meant to protect the banks and their shareholders to make sure that the banks are strong and their liquidity is not threatened by the decision to pay out dividends.
Stressing that the market as a whole should not view the policy as a negative development.
Noting that even if a company does not pay dividend, as long as that company is making reasonable profit and reinvesting that profit back to the company, it strengthens the financial state of the company and that should be reflected in the share price, hence, a shareholder is not losing because if the price of the share goes up as a result of non-payment of dividend, then you can always sell a portion of your share to compensate for whatever dividend you would have received if the company had paid dividend.
