By Ademola Alawiye   Monday, 27 Sep 2010

 

 

Investigation has revealed that the Deposit Money Banks that failed the Central Bank of Nigeria’s stress test and had to be rescued by the apex bank may not pay dividends to shareholders until the recapitalisation process is over.

 

A source from one of the banks told our correspondent that the DMBs with negative shareholders’ funds currently, would have to wait till after recapitalisation before they could pay dividends to shareholders.

 

The source also added that the law does not allow them to pay dividends as long as shareholders’ funds are in deficit.

According to the source, who craved anonymity, the banks have to ensure that shareholders‘ funds exceed regulatory minimum, plus some cushion, before they can pay dividend to shareholders.

 

Our correspondent also gathered that most of the rescued banks could only have positive shareholders’ funds after they must have got core investors, as some of them have negative shareholders’ funds of N200bn.

 

Shareholders’ fund is capital invested in a business by its shareholders, including retained profits or part of a bank’s financial assets consisting of share capital and retained earnings. It is an alternative term for owners’ equity.

 

Nigeria‘s rescued banks have returned to profitability this year but negative shareholders’ funds remain one of the main concerns for potential investors.

 

Although some of the banks’ officials declined to make comments on when they will pay dividends, our correspondent gathered that the banks’ focus was on how to grow their shareholders‘ funds.

 

According to a senior official of one of the banks, who pleaded not to be mentioned, the main focus now is growing the bank’s shareholders‘ funds.

 

He said, “We value our shareholders so much but we cannot pay dividend now because we are just returning to profitability. We are trying to grow our shareholders’ funds so that our bank can look attractive to institutional investors.”

He added, “Not all banks that are categorised as ‘strong banks’ are paying dividends. So it’s not just the rescued banks. The sector as a whole is passing through a difficult time. But with the Asset Management Corporation, we believe things are definitely going to turn around for the banking industry. We have so much confidence in the AMCON because it will buy a large portion of banks’ problem (non-performing loan).”

 

The Chief Executive Officer, Dranet Investment Capital Limited, Mr. Charles Etaga, noted that negative shareholder fund was a position of technical insolvency.

 

He said, “The banks can‘t think of paying dividends with their current condition. There’s no way a bank that has negative shareholders fund and also in loss position can pay dividend. It means borrowing money to do that and that is not in line with corporate governance.”

 

He added, “The banks can only get back on their feet when AMCON takes effect or when a core investor buys majority shares in the company. Some of the banks have negative owner‘s equity of N250bn, which means that such banks will need over that amount to get back on their feet.”

Source: The Punch