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Home Opinions Blurb

This is why the CBN Dividend rule does not apply to FBNH

Nairametrics by Nairametrics
February 21, 2018
in Blurb
CBN Governor, naira

Godwin Emefiele CBN Governor

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RENCAP: A local newspaper reported today that CBN released a circular barring banks with significant NPL ratios from paying dividends. While a circular was indeed released recently, unlike what the news article suggests, this ban is not a new development. It was originally implemented on 8 October, 2014 in a circular which stipulated that a bank’s ability to pay dividend is based on;

  • NPL ratio ; where banks with NPL ratios above 10% shall not be allowed to pay dividend.
  • Capital position ; where banks which do not meet the minimum capital adequacy ratio shall not be allowed to pay dividend.
  • Credit risk ratings (CRR) ; which are not typically disclosed by the banks.

The revised circular, however, includes an additional provision; banks that have capital adequacy ratios (CAR) of at least 3% above the minimum requirement, CRR of “Low” and NPL ratio of more than 5% but less than 10%, shall have a dividend pay-out ratio of not more than 75% of profit after tax. These restrictions only apply to the banking entity, and not the group ;

FBNH for instance paid out ₦0.20k per share (51% dividend pay-out) in FY16, despite an NPL ratio of 24.4%. This was paid out of the other non-banking subsidiaries within the group.

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Based on our conversations with management, we think that a 75% pay -out ratio is highly unlikely. We note that the highest dividend pay-out ratio for the banks in our coverage universe in FY17E is c. 50% (GTBank and Zenith). We expect the banks to take a conservative stance on dividend pay-out in light of IFRS 9 capital requirements, which could reduce CAR by as much as 150bpts in a worst case scenario.

Zenith, UBA and Fidelity offer attractive dividend yields of 7-8% based on our FY17 estimates while GTBank and Access stand closer to 5-6%. Dividends will be declared with the release of FY17 numbers, which we expect in about two weeks.

Source: Rencap
Tags: CBNDividendsGTCO Holdings - Analysis
Nairametrics

Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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