Financial experts in the country have hinted that Union, Wema, Sterling and Unity banks will not reward their owners in 2018 following the recent directive by the Central Bank of Nigeria (CBN) prohibiting firms from paying dividend from negative retained earning even if they made profit in a given year.
It would be recalled that the CBN had tightened its rules regarding payment of dividend by banks and discount houses when it issued a circular on October 8, 2014, referenced BSD/DIR/GEN/LAB/07/033.
In another letter to the banks dated January 31, 2018, with slight amendments and posted on its website last week, the CBN said the move was aimed at facilitating “sufficient and adequate capital build-up for banks in tandem with their risk appetite.”
Specifically, the CBN stated that henceforth, “Any Deposit Money Bank (DMB) or Discount House (DH) that does not meet the minimum Capital Adequacy Ratio (CAR) shall not be allowed to pay dividend.
DMBs and DHs that have Composite Risk Rating (CRR) of ‘High’ or Non-Performing Loan (NPL) ratio of above 10 per cent shall not be allowed to pay dividend.”
Globally, retained earnings have been identified as an important source of growing an institution’s capital. Advantages of retained earnings include: being a source of long term finance, being easier and cheaper to raise than external finance, curtailment of financial risks and improving liquidity and profitability.
The CBN noted that it had been observed that rather than take advantage of this beneficial means of capital generation, some institutions paid out a greater proportion of their profit irrespective of their risk profile and the need to build resilience through adequate capital buffers.
The new circular, which was signed by Ahmad Abdullahi, Director Banking Supervision Department of the CBN, stipulates that no bank shall pay dividend on its shares until all its preliminary expenses, organisational expenses, share selling commission, brokerage, amount of losses incurred and other capitalised expenses not represented by tangible assets have been completely written off and adequate provisions made to the satisfaction of the bank for actual and contingency losses on the risk assets, liabilities, off balance sheet commitments and such unearned incomes as are derivable therefrom.
Head of Research at Chapel Hill Denham limited, Tajudeen Ibrahim, said some companies among the NSE 30 firms might not reward shareholders as they had been recording losses.
Specifically, he mentioned that “Union Bank Plc, Wema Bank and Sterling Bank will not reward their owners as they have negative retained earnings of N254.40bn, N273.64bn, and N36.14bn respectively.
He also mentioned that Oando Nigeria Plc, an upstream oil and gas giant, would not pay dividend due to an accumulated loss of N254.40bn as at September 2017.
Similarly, the Managing Director of Afrinvest Securties Limited, Mr. Ayodeji Ebo, stressed that the recent statistics showed that Nigerian banks would have to shore up their capital in 2018.
