Zenith, GTB, UBA, Access 5 other banks scale CBN’s dividend hurdle, 4 fail

 

BY PETER EGWUATU

Dividend pay-out in banks rose 12.6 percent for the financial year ended December 2018 despite the dividend restriction policy introduced by the Central Bank of Nigeria, CBN.

Nine banks scaled the CBN hurdle while four were caught napping.

Leading banks quoted on the Nigerian Stock Exchange, NSE, paid N259.4 billion to their shareholders, as against N230.4 billion in the financial year 2017.

The five Tier-1 banks were responsible for the huge dividend pay-out, accounting for 87.4 percent of the total dividend declared by the 13 banks captured in the review period while the CBN’ dividend policy affected most of the Tier-2 banks.

Furthermore, directors of the nine banks went home with N17.9 billion in the year 2018 as against N15.8 billion in 2017, representing a growth of 13.2 percent.

The nine banks that met the CBN’s requirements for dividend pay-outs include Zenith Bank Plc, Guaranty Trust Bank Plc, United Bank for Africa, UBA Plc, FBN Holdings Plc, Stanbic IBTC Holdings Plc, Access Bank Plc, Fidelity Bank Plc, FCMB Group Plc and Wema Bank Plc.

A cursory review of Tier-1 banks dividend shows that Zenith Bank paid the highest dividend in absolute term recording N87.9 billion, up by 3.7 percent from N84.7 billion in 2017. GTBank followed recording N80.8 billion, rising by 1.7 percent from N79.5 billion in 2017.

UBA occupied the third position posting N29.9 billion, but which translated to highest rise in pay-out Year-on-Year, amongst the tier-1 banks as it represents 34.5 percent rise from N22.2 billion in 2017. Access Bank Plc recorded N18.8 billion, the same amount in 2017, while First Bank followed posting N9.3 billion representing four percent rise.

Stanbic IBTC led the Tier-2 dividend pay-outs in absolute term with N25.5 billion, representing 131 percent rise from N11.03 billion in 2017. It was followed by Fidelity Bank paying N3.2 billion, the same amount in 2017.

FCMB occupied the third position with N2.8 billion, representing an increase by 39.9 percent from N1.9 billion in 2017. Wema Bank came fourth position recording N1.2 billion as against none in 2017.

The CBN last year came up with a policy on dividend which had intended to discourage high dividend pay-outs by banks on the heels of worsening Non-Performing Loans (NPLs), which was eroding banks’ capital adequacy.

The policy was meant to force the banks to plough back their profits to beef up their capital. The CBN guideline stated: “In order to facilitate sufficient and adequate capital build up for banks in tandem with their risk appetite, the following directives will now apply:

“Any Deposit Money Bank (DMB) or Discount House (DH) that does not meet the minimum capital adequacy ratio shall not be allowed to pay dividend; DMBs and DHs that have a Composite Risk Rating (CRR) of “High” or a NPL ratio of above 10 percent shall not be allowed to pay dividend; DMBs and DHs that meet the minimum capital adequacy ratio but have a CRR of “Above Average” or an NPL ratio of more than five percent but less than 10 percent shall have dividend payout ratio of not more than 30 percent; DMBs and DHs that have capital adequacy ratios of at least three percent above the minimum requirement, CRR of “Low” and NPL ratio of more than five percent but less than 10 percent, shall have dividend pay-out ratio of not more than 75 percent of profit after tax.

“There shall be no regulatory restriction on dividend pay-out for DMBs and DHs that meet the minimum capital adequacy ratio, have a CRR of “low” or “moderate” and an NPL ratio of not more than five percent. However, it is expected that the Board of such institutions will recommend pay-outs based on effective risk assessment and economic realities; No DMB or DH shall be allowed to pay dividend out of reserves.”

Prior to this guideline, most banks adopted aggressive dividend policy, partly to shore up their share prices and also to satisfy top directors’ need for cash.

However, Financial Vanguard analysis on the dividend pay-outs in the financial year 2018 revealed that four banks were caught in the CBN net forcing their shareholders and directors to go home empty-handed. The banks are Union Bank Plc, Unity Bank Plc, Sterling Bank Plc and Jaiz Bank Plc. (VANGUARD)