CBN Includes Additional Provision For Dividend Pay-Outs For Nigerian Banks

Proshare

Tuesday, February 20, 2018 12:52 PMRenaissance Capital 


A local newspaper reported today that CBN released a circular barring banks with significant NPL ratios from paying dividends. 

While a circular was indeed released recently, unlike what the news article suggests, this ban is not a new development. 

It was originally 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. 

Based 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). 

We 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%. 

Dividends will be declared with the release of FY17 numbers, which we expect in about two weeks. 

Figure 1: Nigeria Banks - dividend pay-out ratio


FY16

FY17E

Access

26%

30%

Diamond

0%

0%

ETI

0%

10%

FCMB

14%

10%

Fidelity

42%

40%

FBNH

51%

20%

GTB

45%

50%

UBA

37%

35%

Zenith

49%

50%

 Source: Company data, Renaissance Capital estimates

Proshare Nigeria Pvt. Ltd.


Figure 2: Nigerian Banks - dividend yield

FY17E

FY18E

Access

6%

7%

Diamond

0%

0%

Fidelity

8%

9%

ETI

2%

3%

FCMB

2%

2%

FBNH

3%

3%

GTBank

6%

6%

Zenith

8%

7%

Source: Renaissance Capital estimates

Proshare Nigeria Pvt. Ltd.

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