The five Tier-1 banks were responsible for the huge dividend pay-out, accounting for 87.4 percent of the total dividend declared by the 13 banks captured in the review period while the CBN’ dividend policy affected most of the Tier-2 banks. Furthermore, directors of the nine banks went home with N17.9 billion in the year 2018 as against N15.8 billion in 2017, representing a growth of 13.2 percent The CBN last year came up with a policy on dividend which had intended to discourage high dividend pay-outs by banks on the heels of worsening Non-Performing Loans, NPLs, which was eroding banks’ capital adequacy. The policy was meant to force the banks to plough back their profits to beef up their capital.
The CBN guideline stated: “In order to facilitate sufficient and adequate capital build up for banks in tandem with their risk appetite, the following directives will now apply: “Any Deposit Money Bank (DMB) or Discount House (DH) that does not meet the minimum capital adequacy ratio shall not be allowed to pay dividend; DMBs and DHs that have a Composite Risk Rating (CRR) of “High” or a NPL ratio of above 10 percent shall not be allowed to pay dividend; DMBs and DHs that meet the minimum capital adequacy ratio but have a CRR of “Above Average” or an NPL ratio of more than five percent but less than 10 percent shall have dividend payout ratio of not more than 30 percent; DMBs and DHs that have capital adequacy ratios of at least three percent above the minimum requirement, CRR of “Low” and NPL ratio of more than five percent but less than 10 percent, shall have dividend pay-out ratio of not more than 75 percent of profit after tax.
“There shall be no regulatory restriction on dividend pay-out for DMBs and DHs that meet the minimum capital adequacy ratio, have a CRR of “low” or “moderate” and an NPL ratio of not more than five percent. However, it is expected that the Board of such institutions will recommend payouts based on effective risk assessment and economic realities; No DMB or DH shall be allowed to pay dividend out of reserves.” Prior to this guideline, most banks adopted aggressive dividend policy, partly to shore up their share prices and also to satisfy top directors’ need for cash.
However, Financial Vanguard analysis on the dividend pay-outs in the financial year 2018 revealed that four banks were caught in the CBN net forcing their shareholders and directors to go home empty-handed. The banks are Union Bank Plc, Unity Bank Plc, Sterling Bank Plc and Jaiz Bank Plc. Meanwhile, during the seventh annual general meeting, AGM of Jaiz Bank in Abuja, the chairman, Jaiz Bank, Dr. Umaru Mutallab had said: “While the board had tried to recommend the payment of dividend for the 2018 financial period, the regulators felt otherwise.” Mutallab told the shareholders that the regulators of the bank were of the view that there was a need for Jaiz Bank to improve on some specific performance benchmarks.
He said some of the performance benchmarks included improvement in capital buffers and reduction in non-performing loans. The nine banks that met the CBN’s requirements for dividend pay-outs include Zenith Bank Plc, Guaranty Trust Bank Plc, United Bank for Africa, UBA Plc, FBN Holdings Plc, Stanbic IBTC Holdings Plc, Access Bank Plc, Fidelity Bank Plc, FCMB Group Plc and Wema Bank Plc. Tier-1 banks’ pay-outs A cursory review of Tier-1 banks dividend shows that Zenith Bank paid the highest dividend in absolute term recording N87.9 billion, up by 3.7 percent from N84.7 billion in 2017.
GTBank followed recording N80.8 billion, rising by 1.7 percent from N79.5 billion in 2017. UBA occupied the third position posting N29.9 billion, but which translated to highest rise in pay-out Year-on-Year, YoY, amongst the tier-1 banks as it represents 34.5 percent rise from N22.2 billion in 2017. Access Bank Plc recorded N18.8 billion, the same amount in 2017, while First Bank followed posting N9.3 billion representing four percent rise.
Tier-2 banks’ pay-outs Stanbic IBTC led the Tier-2 dividend pay-outs in absolute term with N25.5 billion, representing 131 percent rise from N11.03 billion in 2017. It was followed by Fidelity Bank paying N3.2 billion, the same amount in 2017. FCMB occupied the third position with N2.8 billion, representing an increase by 39.9 percent from N1.9 billion in 2017. Wema Bank came fourth position recording N1.2 billion as against none in 2017. Tier-1 Directors’ dividend The Tier-1 directors’ dividend stood at N17.8 billion in 2018 as against N15.749 billion in 2017.
The Tier-1 bank directors’ dividend accounted for 98.8 percent of the total banks directors’ dividend pay-outs. Leading the Tier-1 chart in absolute term is Zenith Bank directors recording N14.6 billion, representing a 17.5 percent rise from N12.4 billion in 2017. UBA trailed behind Zenith Bank, recording N2.01 billion, up by 71.9 percent from N1.17 billion in 2017. Access Bank’s directors occupied third position recording N772 million dividend, dropping by 57 percent from N1.8 billion in 2017.
Tier-2 directors’ dividend Tier-2 bank directors’ dividend stood at N0.22 billion representing an increase by 73.0 percent from N 0.126 billion in 2017. The Tier-2 bank directors’ dividend accounted for 1.2 percent of the total bank directors’ dividend for the year under review. Leading the Tier-2 bank directors’ dividend chart is Stanbic IBTC recording N25.5 billion as against N11.03 billion in 2017. FCMB occupied second position in the Tier-2 bank directors chart in 2018 recording N0.058 billion dividend, representing a growth of 38.1 percent from N0.042 billion in 2017.
Wema Bank occupied the third position in the chart in 2018 recording N 0.052 billion dividend, the same in 2017. Stakeholders’ reactions Reacting to the dividend pay-outs, managing director, APT Securities and Funds Limited, Mallam Kasimu Kurfi, said: “The reason why banks increased their dividend for the year ended December 2018 is that most of the Tier-1 banks met the CBN’s requirements and the ones that mostly increased their dividend include Zenith Bank, UBA and Access Bank and they always account for the bulk dividend. “Another reason is that most of the Tier-1 banks’ stock prices declined and they hope that by increasing the dividend it might support their market prices which eventually did not happen on the stock exchange. “Also, the banks aside meeting CBN’s requirements, they considered it necessary to compensate the shareholders and the directors who have provided the capital.
Also Tier-2 banks like FCMB have increased their dividend “The reason why Tier-1 banks pay more dividend than Tier-2 banks is because Tier-1 banks met Composite Risk Rating, CRR of low, Minimum Capital Adequacy Ratio and the NPL ratio of 5 percent which allowed them to pay 75 percent of their profit while those that did not meet all are allowed to pay only 30 percent or non.
“These guidelines affect banks such as First Bank Holding, Sterling, Ecobank, Fidelity Bank, among others. “Given the directives that banks should not be participating in buying Treasury Bills, TBs and giving more credits may affect their performance and thus they paid less dividend for the year ended December 2019.” Commenting also the spokesperson for Independent Shareholders Association of Nigeria, ISAN, Mr. Moses Igbrude, said: “The increase in dividend payment in the banking sector despite CBN’s restriction policy is because the banks outperformed the economy in the period under review.
“Also, the Tier-2 banks were mostly affected by the CBN’s policy because they have huge non performing loans as compared to the Tier-1 banks. The Tier-1 banks have huge shareholders funds when compared to the Tier -2 banks and don’t forget the reason why that policy was introduced is to protect the shareholder funds of these banks. The management of these banks should try their best to be skilful in giving out loans to their customers to avoid loans being bad.
” The Chairman, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie said: “Almost all the Tier-1 banks made a good profit last year that informed the huge accelerations of dividend paid this year but theTier-2 banks did not do so because of a lot of provisions made on non performing loans portfolios in their books. But the Tier-1 banks have muzzles to do so notwithstanding the provisions they made from their books which can not affect them as such considering their strong financial balance sheets.
Dividend policy “Next year will be tougher for all of them going by the CBN’s pronouncement on banks recapitalization which is beckoning on the banks plus the full implementation of IFRS 9 Acts which is in full force.” The National Chairman, New Dimension Shareholders Association of Nigeria, Mr. Patrick Ajudua said: “CBN circular to banks on dividend payment serves as a guide with particular reference to implementation of IFRS 9 which dwelt on treatment and disclosure of loans & advances. So, most banks are guided to align their dividend policy in this regard. Despite this we are not surprise that dividend pay-outs in the year under consideration outweighs the proceeding year as a result of better performance.
“The Tier-2 banks are mostly affected by this directive because of low cash liquidity requirements, shareholders fund & non performing loans regulatory benchmark. For them to pay a better dividend is to improve on liquidity and cash reserve ratio, improve on non performing loans and address their asset quality. As shareholders we are very optimistic that going by half year report coming out and implementation of the budget, banks will declare a better dividend despite slow economic recovery.”