An international research firm, SBG Securities (Pty) Limited of South Africa has said that about nine Nigerian commercial banks have met the CBN new requirement for dividend payment and would be able to pay dividends this year despite the new policy adjustment issued by the Central Bank of Nigeria (CBN) recently. The banks are Zenith Bank Plc, Guaranty Trust Bank Plc (GTBank), United Bank for Africa Plc (UBA), Access Bank Plc, Stanbic IBTC Plc, Fidelity Bank Plc, First City Monument Bank Plc, First Bank and Ecobank.
It will be recalled that the apex bank had released a circular making an amendment to a previous circular dated October 8, 2014 on internal capital generation and dividend payout ratio. The new circular introduced some conditions for banks to be allowed to pay dividend, which are the Composite Risk Rating of the bank, NPL Ratio and Capital Adequacy Ratio While banks do not publicly disclose their Composite Risk Rating the minimum capital adequacy ratio for international banks is 15 percent, 10 percent for national banks and 16 percent for systemically important banks.
The circular specifically states the following regarding dividend payment; no bank shall be allowed to pay dividend out of reserves; banks that do not meet the minimum capital adequacy ratio shall not be allowed to pay dividend; banks that have a Composite Risk Rating (CRR) of “High” or a Non Performing Loan (NPL) ratio of above 10% shall not be allowed to pay dividend; banks that meet the minimum capital adequacy ratio but have a CRR of “Above Average” or an NPL ratio of more than 5% but less than 10% shall have dividend payout ratio of not more than 30 per cent; Banks that have capital adequacy ratios of at least 3% above the minimum requirement, CRR of “Low” and NPL ratio of more than 5% but less than 10%, shall have dividend pay-out ratio of not more than 75% of profit after tax; 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%.
Based on the foregoing analysis from a CAR perspective, analysts from SBG Securities have held that Zenith, GTB, UBA, Access, Stanbic IBTC, Fidelity and FCMB were not affected by the policy based on their nine months 2017 unaudited results. Going by the results released in September 2017, most of the banks not restricted from paying dividend have either exceeded or are close to their 2016 full year profit level. Fidelity Bank with a profit before tax of N16.2 billion in September 2017 has done 147 percent of its 2016 full year profit, Sterling Bank with its N6.6 billion profit before tax as at September 2017 has done 131 percent of its 2016 full year profit while Stanbic IBTC has already recorded 123 percent of its 2016 full year profit before tax as at September 2017. Other banks close to their 2016 full year gross profit include Zenith, GTB, Access and UBA. These banks will most likely pay at least the same dividend paid in the previous financial year.
The analysts also held that banks which belong to a HoldCo structure such as FBN Holdings Limited could typically still pay dividend which would be derived from their non-bank subsidiaries while the policy did not apply to ETI group (parent company for Ecobank Nigeria) because it is not regulated by the CBN. According to the analysts dividend payout estimates are in line with the regulation as they had previously emphasised the need for a reduction in dividend pay out to build buffers, remarking that for 2017 earnings, the highest dividend pay-outs will come from Zenith at 50 percent and GTB at 49 percent. They reiterated their positive dividend payout outlook for 2017 earnings, estimating 21 percent average growth in dividend per share for the listed banks in their 2017 estimates, driven primarily by strong earnings growth.
