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Stats: 1,282 members, 11,437 Topics. Date: June 18, 2018, 5:56 pm

New Dividend Policy Shocks Banks As Investors Lose N100bn In 2 Days

BiafraSay Forum | BiafraSay General | #Politics* | New Dividend Policy Shocks Banks As Investors Lose N100bn In 2 Days (76 Views)

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By Peter Egwuatu & Nkiruka Nnorom
Investors with shares in the banking sector on the Nigerian Stock Exchange, NSE have lost over N100.8 billion in two trading days of the week following the directive by the Central Bank of Nigeria, CBN that restricted dividend payments by banks with high Non Performing Loans, NPLs, and low Capital Adequacy Ratio, CAR from paying dividend to their shareholders.

Vanguard’s trail of the implications and impacts on the banks quoted on the Nigerian Stock Exchange, NSE, shows that while 11 out of the 16 banks in the NSE began losing prices in the market on Monday, the remaining joined by Tuesday, except United Bank for Africa Plc (UBA).
The banks that appreciated include: Access Bank (5 kobo) per share to close at N12.56 per share from N12.60 per share, GTBank gained N1.00 per share to close at N47.50 per share, from N46.50 per share, Fidelity Bank gained (8kobo) per share to close at N3.28 per share from N3.20 per share and Jaiz Bank gained 4 kobo per share to close at N1.04 per share from N1.00 per share.
In the second day (Tuesday) trading session, investors reacted as the news on CBN’s directive filtered to the market, with virtually all the banks’ share prices dropping, except UBA which gained 20 kobo per share to close at N12.20 from N12.00 per share it closed on Monday.
The high point in the CBN’s revised guideline on payment of dividend which came to public knowledge through media reports on Monday, was that no bank shall pay dividend on its shares until all its preliminary expenses, organisational expenses, share selling commission, brokerage, amount of losses incurred and other capitalised expenses not represented by tangible assets have been completely written off; and adequate provisions have been made to the satisfaction of the bank for actual and contingency losses on the risk assets, liabilities, off balance sheet commitments and such unearned incomes as are derivable there from.
In line with recent developments as well as perception of potential risks on the horizon, the apex bank’s further guidelines had diverse impact on the different banks.
In its analysis of the impact, analysts at Afinvest West Africa, a Lagos based investment house, stated: “All the Nigerian banks under our coverage, save for Unity Bank and Union Bank, meet the minimum requirement stipulated by the CBN. For Unity Bank, the current CAR (as at nine months, 9M:2017) is unavailable while Union Bank had a CAR of 13.3% (below CBN requirement of 15.0% in first half, H1:2017). We envisage Union Bank’s CAR will improve by full year, FY:2017, adjusting for the capital raise of N50.0billion via rights issue in 2017.
“Banks that have a Composite Risk Rating (CRR) of “High” or a Non-Performing Loan (NPL) ratio of above 10.0% shall not be allowed to pay dividend. Only First Bank Nigeria Holdings, FBNH has an NPL ratio above 10.0% which should disqualify the entity from paying dividend. However, given the Holding company structure operated by FBNH, we believe dividend can be paid from earnings of subsidiaries, other than the bank.
Banks that meet the minimum capital adequacy ratio but have a Cash Reserve Ratio, CRR of “Above Average” or an NPL ratio of more than 5.0% but less than 10.0% shall have dividend payout ratio of not more than 30.0%.
Under this condition, Ecobank Transnational Incorporated, ETI is the only Tier-1 bank restricted to a maximum payout ratio of 30.0% on the basis of the fact that its NPL ratio stood at 9.6% in 9M:2016. Similarly, Diamond Bank, Fidelity Bank, Stanbic IBTC, Sterling Bank, and Union Bank are also restricted to a maximum of 30.0% maximum payout ratio with respective NPL ratio above 5.0% but below 10.0%.
“Banks that have capital adequacy ratios of at least 3% above the minimum requirement, CRR of “Low” and NPL ratio of more than 5.0% but less than 10.0%, shall save dividend pay-out ratio of not more than 75%of profit after tax.
Under this Condition, ETI is the only Tier-1 bank that is restricted to 75.0% maximum dividend payout ratio, while STANBIC is the only Tier-2 bank eligible to pay up to 75.0% as dividend payout.
“There shall be no regulatory restriction on dividend pay-out for banks 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.
Only six banks – Access Bank, First City Monument Bank , FCMB Holdings, Guaranty Trust Bank , GTBank, UBA, Wema Bank and Zenith Bank- simultaneously meet the CBN’s minimum requirement for CAR and Non-Performing Loans. Hence these banks are excluded from the stated restrictions on dividend payment.
“In light of these new guidelines and based on our analysis of the banks using their 9M:2017 results, most of the banks, especially the Tier-1 banks (Access Bank, GTBank, UBA and Zenith Bank) save for FBNH, are not likely to be significantly impacted and are expected to sustain the historical dividend payment trend. ETI meets the regulatory requirement for CAR, but has NPL above recommended maximum by the CBN; hence a maximum payout ratio of 30.0% is placed on the bank.”
www.vanguardngr.com/2018/02/new-dividend-policy-shocks-banks-investors-lose-n100bn-2-days/

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