A local newspaper
reported today that CBN released a circular barring banks with significant NPL ratios from paying
While a circular was indeed released recently, unlike what the news article suggests, this ban is not a new development.
implemented on 8 October, 2014 in a circular which stipulated that a bank’s
ability to pay dividend is based on;
1. NPL ratio ; where
banks with NPL ratios above 10% shall not be allowed to pay dividend.
2. Capital position ; where banks which do not meet the minimum capital adequacy ratio shall not be
allowed to pay dividend.
3. Credit risk ratings (CRR) ; which are
not typically disclosed by the banks.
The revised circular, however, includes an additional provision; banks that have capital
adequacy ratios (CAR) of at least 3% above the minimum requirement, CRR of
“Low” and NPL ratio of more than 5% but less than 10%, shall have a dividend
pay-out ratio of not more than 75% of profit after tax. These restrictions only apply to
the banking entity, and not the group ; FBNH for instance paid out ₦0.20k per share (51% dividend
pay-out) in FY16, despite an NPL ratio of 24.4%. This was paid out of the other non-banking subsidiaries within the group.
on our conversations with management, we think that a 75% pay -out ratio is
highly unlikely. We
note that the highest dividend pay-out ratio for the banks in our coverage universe in FY17E is c. 50% (GTBank and Zenith).
expect the banks to take a conservative stance on dividend pay-out in light of IFRS 9 capital
requirements, which could reduce CAR by as much as 150bpts in a worst case
scenario. Zenith, UBA and Fidelity offer attractive dividend yields of 7-8% based on our FY17 estimates while GTBank and
Access stand closer to 5-6%.
will be declared with the release of FY17 numbers, which we expect in about two weeks.