Afrinvest has said that Access, Guaranty Trust, UBA and Zenith Bank will not be affected by the recent CBN guideline stop banks with huge non performing loans and lower than stipulated capital from paying dividend from their reserves. The investor advisor in a note to investors said that based on the banks nine months results they are free from the restriction. It said “Only 6 banks, Access, FCMB, Guaranty, UBA, Wema and Zenith simultaneously meet the CBN’s minimum requirement for capital adequacy CAR and Non-Performing Loans. Hence these banks are excluded from the stated restrictions on dividend payment”.
According to Afrinvest “in light of these new guidelines and based on our analysis of the banks using their nine months 2017 results, most of the banks, especially the Tier-1 banks Access, Guaranty, UBA and Zenith 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”.
Continuing it said “For the banks affected by the restrictions, we opine more attention will be turned towards improving NPL and shoring up capital buffers in order to ensure dividend payment. Already, Diamond sold off its African operations for a consideration of N27.3 billion in order to improve its CAR buffers. Similarly, Union Bank concluded a N50.0 billion rights issue in order to improve its capital base. Furthermore, given the premium Nigerian investors place on dividend paying stocks, we believe banks will strive to improve on dividend payment. Nevertheless, we do not rule out the possibility of some knee jerk sell-off reactions by investors especially in stocks that are affected by the dividend payment restrictions. Hence, we advise that investors trade cautiously especially ahead of the release of full year earnings.
Afrinvest in the note to investors said “All the Nigerian banks under our coverage, save for Unity and Union, meet the minimum requirement stipulated by the CBN. For Unity, the current CAR as at 9 Month 2017 result is unavailable while Union had a CAR of 13.3 per cent below CBN requirement of 15.0 per cent in first half of 2017. We envisage Union’s capital adequacy ratio CAR, will improve by financial year 2017, adjusting for the capital raise of N50.0 billion via rights issue in 2017.
According to Afrinvest “Only FBNH has an non performing loan NPL ratio above 10.0 per cent 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. It said that under this condition, ETI is the only Tier-1 bank restricted to a maximum payout ratio of 30.0 per cent on the basis of the fact that its NPL ratio stood at 9.6 per cent in 9 months of 2016. Similarly, Diamond, Fidelity, Stanbic, Sterling and UBN are also restricted to a maximum of 30.0 per cent maximum payout ratio with respective NPL ratio above 5.0 per cent but below 10.0 per cent.
It said that “under this Condition, ETI is the only Tier-1 bank that is restricted to 75.0 per cent maximum dividend payout ratio, while Stanbic is the only Tier-2 bank eligible to pay up to 75.0 per cent as dividend payout.
