By Yakubu LAAH InvestAdvocate
Lagos (INVESTADVOCATE)-There is indication that the Central Bank of Nigeria (CBN) will henceforth regulate dividend payment by Banks in the country as new rules has been introduced to prevent banks that do not meet minimum capital requirements from doing so, a Reuters report quoted a document made available to it.
According to the report, the measure to prevent lenders that do not meet minimum capital requirements from paying dividend to investors is in a bid to shore up the sector.
The report quoted a CBN’s circular entitled ‘’Internal Capital Generation and Dividend Payout Ratio’’ dated October 8 and signed by Tokunbo Martins, director of banking supervision department to all deposit money banks and discount houses that the amount banks can pay in dividends would depend on their capital levels, statutory reserve requirements and the proportion of non-performing loans.
The CBN said banks in the past paid out a high proportion of net profit as dividends, despite their risk profiles and capital levels, this situation the apex bank said it wanted to correct with the new rules.
“There shall be no regulatory restriction on dividend payout for banks that meet the minimum capital adequacy ratio, have a cash reserve requirement of ‘low’ or ‘moderate’ and a non-performing loan ratio of not more than 5 percent,” CBN said in the circular.
The report says the banking sector had been making bumper profits by mopping up government deposits and using the cash to buy high-yielding treasury bonds and declaring huge dividends. As a result, banks had little incentive to lend to the real economy.
Reuters said some analysts endorsed the new rules; but affirmed they might hurt banking stocks if cash payments to investors fall. ‘’The rules may also lower loan growth as banks try to conserve more cash, which in turn could hit profits,’’ the analysts said.
The analysts also affirmed that lenders had to adopt stricter international capital requirements, which has seen capital ratios for most banks drop by 100-400 basis points to near the regulatory minimum of 16 percent under the new rules.
According to the report, analysts at Renaissance Capital said FBN Holdings, United Bank for Africa Plc (UBA) and First City Monument Bank (FCMB) has capital ratios close to the minimum requirement.
The analysts at Renaissance Capital further affirmed that some banks are currently shoring up their balance sheet. Access Bank Plc and its proposed N68 billion rights issue, Sterling Bank Plc and its N19.8 billion special or private placement to strategic investors.
Similarly, Nigeria’s tier one lender United Bank for Africa Plc (UBA) has announced plans to shore up its tier one capital by way of rights issue, while Diamond Bank and Unity Bank have just concluded rights issues.
“We do not think GTBank, Zenith and Stanbic get affected much by these directives … we expect them to consider lowering payout ratios from 2014. Other banks in a less favourable capital position are likely to have deeper dividend cuts,” Renaissance Capital said.
