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42—Vanguard, WEDNESDAY, FEBRUARY 21, 2018
:Vanguard :@vanguardnews :@vanguardnewsNEWS HOTLINES:
New dividend policy shocks
banks as investors lose
N100bn in 2 days
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
*Mr. Godwin Emefiele,
CBN Governor
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 Banksimultaneously
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.”