21, 2018 / 10:55 AM / Investment One Financial Services
On the 31st of January 2018, CBN released its amended internal capital generation and dividend payout policy. Below we summarize key take away from the policy into four categories.
There shall be no regulatory restriction on dividend pay-out for Deposit Money Bank (DMBs) and Discount House (DHs) that meet the minimum capital adequacy ratio (CAR), have a Composite Risk Rating (CRR) of “low” or “moderate” and an Non-Performing loan (NPL) ratio of not more than 5%. However, it is expected that the Board of such institutions will recommend pay-outs based on effective risk assessment and economic realities.
DMBs and DHs that have CARs 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.
DMB and DH that meet the minimum CAR but have a CRR of “Above average” or NPL ratio more than 5% but less than 10% shall have dividend pay-out ratio of not more than 30%.
That any DMB or DH that does not meet the minimum CAR of 15% applicable to banks with international authorisation and Systemically Important Banks (SIBs) and CAR of 10% applicable to other banks shall not be allowed to pay dividend. That DMB and DH that have CRR of “High” or NPL ratio of above 10% shall not be allowed to pay dividend.
Currently, the non-performing loans ratio threshold for all banks is 5% while the capital adequacy ratio threshold for systematically important banks and banks with international subsidiaries stands at 15% and 10% for . While CAR limit for systemically important bank was to be increased to 16% in July 2016, plans appear to have been deferred due to significant pressures the Banking sector was facing at the time.
Implication for banks
under our coverage:
Also, we highlight the implementation of IFRS 9 in 2018, which is estimated to pressure CAR by 100-200bps, could be a further hindrance to an increase in the dividend payout of most banks.
With this said, we believe these restrictions may likely be more on Tier 2 banks given that most Tier 1 names have stronger capital positions and net long foreign currency positions.
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