Business
Banks that may be barred from paying dividends
By Odunewu Segun
From all indications none of the Tier 1 Banks are affected by the new Central Bank of Nigeria guidelines regarding dividend payment by banks and discount houses except for FBNH, National Daily has gathered.
According to Banks NPL report for January to September 2017, only FBNH was above the 10% NPL threshold among the top banks with an NPL of 20.1%. It may therefore be restricted from paying dividends based on the new directives.
However, 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.
A breakdown of statistics of the NPL of the banks for January to September, 2017 are ETI- 9.6%; FBN-20.1%; Zenith Bank—4.2%; UBA- 2.3%; Access Bank—2.3%; GTB—3.9%; Diamond—9.5%; Fidelity—5.9% and FCMB -4.7%
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.
Banks like Union Bank, Union Bank and Skye Bank may be affected following the banks inability to meet the requirements as stated in the directives.
From indications, the following banks will pay 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 and Wema Bank -restricted to 30% of profits
Meanwhile, Access Bank; GT Bank; UBA and Zenith Bank will pay dividends without restrictions.
In the circular, any bank that does not meet the minimum capital adequacy ratio shall not be allowed to pay dividends. Similarly, 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.
The circularly also directed that 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.
It also stated among other guidelines that no bank or discount house shall be allowed to pay a dividend out of reserves.
