Wednesday, February 21,
2018/ 06.45 PM / ARM Research
In a recent published circular (dated 31st January
2018), the CBN released an update on Internal capital generation and
dividend payout for banks. Central to the update is the expanded leeway for
banks with Capital Adequacy Ratio (CAR) of at least 300bps above regulatory
minimum and non-performing loans (NPL) ratio of 5% - 10%, to pay a maximum of
75% of earnings as dividend. The policy, which was indorsed on October 2014 states that;
· Banks who do
not meet the minimum CAR shall not be allowed to pay dividend.
· Banks with NPL
ratio above 10% and Composite Risk Rating (CRR) of ‘High’ shall not be entitled
to pay dividend.
· Banks that
meet the minimum regulatory CAR but have CRR of ‘Above Average ‘and NPL ratio
between 5% - 10% shall have a maximum dividend payout ratio of 30%
· No regulatory
restriction on dividend payout of banks that meet the minimum regulatory CAR,
have NPL ratio below 5%, and CRR of ‘Low’ or ‘Moderate’.
· Banks shall
submit their board approved dividend payout policy to the CBN before the
payment of dividend shall be permitted.
In the updated circular date 31st January 2018, the
new amendment states that;
Banks with CAR of at least 300bps above minimum
regulatory requirement and ‘Low’ CRR but have NPL ratio of 5% - 10% shall have
a maximum dividend payout ratio of 75%.
Consequently, banks whom have been constrained to
limit dividend payout ratio to a maximum of 30% due to NPL ratio of 5% - 10%
but have CAR above the regulatory minimum by at least 300bps can increase their
dividend payout ratio to 75%.
We delineate the impact of the foregoing for banks in
our coverage universe in table 1 below. Banks in Class A satisfy all the requirements
and are liable to pay out dividend without restriction; Class B & C
comprises of banks that meet the minimum regulatory CAR +3% and NPL ratio between 5% -
10%, while group D includes banks that do not meet the minimum CAR and
cannot pay dividend.
Looking through the table, while Access, GTB, UBA and
Zenith stands out with no restriction on their dividend payment, the focus is
on ETI and Stanbic who can now pay out dividend up to 75% of their profit based
on 9M 17 earnings as against 30% in the previous provision. Furthermore, while
on the surface FBNH appears to be the worst hit, its holding structure which
allows it pay dividend from its subsidiaries provides some cheer. Hence, we
remain optimistic on FBNH dividend payout and now forecast a 50kobo dividend
for FY 2017.
Take-Away from CBN’s ICG and Dividend Payout Policy
2. CBN: The
Two Notions of Capital
3. CBN Includes Additional Provision For Dividend Pay-Outs For Nigerian
4. The New CBN Regulation on Dividend on Bank Shares – Likely Impact
5. DMB That
Does Not Meet the Minimum Capital Adequacy Ratio Shall Not Be Allowed to
Pay Dividend - CBN
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