Recent dividend announcements from major Nigerian banks have shed light on the delicate balancing act between shareholder returns and the Central Bank of Nigeria’s (CBN) stringent capitalization requirements.
Despite the CBN’s push for substantial capital raises, banks are forging ahead with plans to reward their shareholders.
Data compiled by Nairametrics reveals that six leading banks, having recently unveiled their 2023 audited accounts, are poised to distribute a total of N379 billion in dividends in the coming months. This represents a significant 31.3% increase from the N289.1 billion declared as final dividends in the preceding year.
When interim dividends are factored in for 2024, the projected total climbs to N465.3 billion.
As the deadline for the CBN’s recapitalization mandate looms, these banks are estimated to require a staggering N4.2 trillion in fresh capital over the next two years. However, rather than scaling back dividends to conserve capital, these institutions are proceeding with generous payouts to shareholders.
This strategy includes plans for substantial capital raises through rights issues subsequent to the dividend disbursements.
A closer examination reveals that Access Bank, Nigeria’s largest bank by total assets, is set to pay out a final dividend of N63.9 billion, despite facing a requirement to raise approximately N248 billion in fresh capital.
Similarly, Zenith Bank, known for its profitability, intends to distribute N109.8 billion in dividends before addressing its capital need of N229 billion.
UBA, with plans to raise an estimated N384 billion, will first distribute N78.6 billion in dividends based on its recently audited accounts.
Notably, Tier 2 banks like Fidelity Bank and Stanbic IBTC Holdings are allocating a significant portion of their profits, with dividend payout ratios of 19% and 20% respectively, the highest among the banks under review.
The rationale behind banks continuing to pay dividends despite looming capital requirements partly stems from the CBN’s exclusion of retained earnings from its calculation of share capital. This exclusion means that retained earnings, representing profits not distributed as dividends but reinvested in the business, are unaffected, giving banks little incentive to accumulate them.
Moreover, some banking sector analysts argue for a relaxation of the CBN’s stringent oversight on dividend payouts from profits, suggesting that these restrictions are less critical under the current regulatory framework.
Paying dividends under these circumstances serves a strategic purpose, allowing banks to return capital to shareholders, who may then reinvest it back into the banks as fresh equity.
As banks navigate this complex landscape, the challenges of meeting stringent capital requirements while maintaining robust shareholder relations through dividends remain at the forefront.
The banking sector’s trajectory will be closely watched by investors and regulators alike as these financial institutions strive to strike a balance between compliance and profitability in the ever-evolving regulatory environment.
Credit: Nairametrics (Text Excluding Headline)
