The SBG Securities (Pty) Limited of South Africa, a wholly owned subsidiary of the Standard Bank Group, has projected that about nine commercial banks in Nigeria would be able to pay dividends this year, despite the adjustment to the dividend payout policy issued by the Central Bank of Nigeria (CBN) recently.
The banks, according to a report by the research and investment firm, 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 of Nigeria and Ecobank.
The CBN recently 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, non-performing loans (NPLs) ratio, as well as Capital Adequacy Ratio (CAR).
While banks do not publicly disclose their Composite Risk Rating, the minimum CAR for international banks in the country is 15 per cent, 10 per cent for national banks and 16 per cent for systemically important banks.
However, the report stated that based on the analysis of the firm from a CAR perspective, shareholders of the aforementioned banks would not be affected by the policy, which restricted payment of dividends by some financial institutions based on their results as at the end of September 2017.
It explained: “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 reiterated that banks, which belong to a holding company (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 firm, “Dividend pay-out estimates are in line with the regulation as they had previously emphasized 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.”
It reiterated its positive dividend payout outlook for 2017 earnings, estimating 21 per cent average growth in dividend per share for the listed banks in their 2017 results, driven primarily by strong earnings growth.
The new CBN circular had among others, stated on 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 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 pay-out 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.”