EUR 3.48 For Business Accounts Only

CBN Amended Policy: Storm in a teacup?

In a recently published circular (dated 31st January 2018), the CBN released an update on Internal capital generation and dividend payout for banks. Central to the update is the expanded leeway for banks with Capital Adequacy Ratio (CAR) of at least 300bps above regulatory minimum and non-performing loans (NPL) ratio of 5% - 10%, to pay a maximum of 75% of earnings as dividend. The policy, which was indorsed on October 2014 states that;

• Banks who do not meet the minimum CAR shall not be allowed to pay dividend.
• Banks with NPL ratio above 10% and Composite Risk Rating (CRR) of ‘High’ shall not be entitled to pay dividend.
• Banks that meet the minimum regulatory CAR but have CRR of ‘Above Average’ and NPL ratio between 5% - 10% shall have a maximum dividend payout ratio of 30%
• No regulatory restriction on dividend payout of banks that meet the minimum regulatory CAR, have NPL ratio below 5%, and CRR of ‘Low’ or ‘Moderate’.
• Banks shall submit their board approved dividend payout policy to the CBN before the payment of dividend shall be permitted.

What’s New

• In the updated circular date 31st January 2018, the new amendment states that;
• Banks with CAR of at least 300bps above minimum regulatory requirement and ‘Low’ CRR but have NPL ratio of 5% - 10% shall have a maximum dividend payout ratio of 75%.
• Consequently, banks whom have been constrained to limit dividend payout ratio to a maximum of 30% due to NPL ratio of 5% - 10% but have CAR above the regulatory minimum by at least 300bps can increase their dividend payout ratio to 75%.

Possible Implications.

• We delineate the impact of the foregoing for banks in our coverage universe in table 1 below. Banks in Class A satisfy all the requirements and are liable to pay out dividend without restriction, Class B & C comprises of banks that meet the minimum regulatory CAR +3% and NPL ratio between 5% - 10%, while group D includes banks who do not meet the minimum CAR and cannot to pay dividend.
• Looking through the table, while Access, GTB, UBA and Zenith stands out with no restriction on their dividend payment, the focus is on ETI, and Stanbic who can now pay out dividend up to 75% of their profit based on 9M 17 earnings as against 30% in the previous provision. Furthermore, while on the surface FBNH appears to be the worst hit, it’s holding structure which allows it pay dividend from its subsidiaries provides some cheer. Hence, we remain optimistic on FBNH dividend payout and now forecast a 50kobo dividend for FY 2017.

  Table 1: Outline of dividend payout across our coverage names

  		NPL		CAR		EPS		PAYOUT		DPS		Current Price	FVE	Return	Rating
  		9M 17	FY 17E	9M 17	FY 17E	FY 16	FY 17E	FY 16	FY 17E	FY 16	FY 17E
  A	Access	2.5%	2.8%	20.5%	21.7%	2.47	2.7	26.3%	26.0%	0.7	0.7	12.5	13.4	7.2%	NEUTRAL
  	Guaranty	3.9%	3.9%	22.9%	22.9%	4.49	5.5	44.0%	44.0%	2.0	2.4	47.25	55.2	16.8%	OVERWEIGHT
  	UBA	4.2%	4.0%	19.0%	25.9%	1.99	2.2	38.0%	41.0%	0.8	0.9	12.20	13.4	9.8%	NEUTRAL
  	Zenith	4.2%	4.2%	22.2%	24.0%	4.13	5.66	49.0%	45.0%	2.0	2.6	31.05	36.3	16.9%	OVERWEIGHT
  B & C	ETI	9.6%	10.0%	23.7%	24.0%	0.44	0.63	NA	NA	NA	NA	19.6	14.0	-28.6%	SELL
  	FCMB	4.7%	5.0%	17.9%	18.0%	0.71	0.6	14.0%	17.0%	0.1	0.1	2.4	2.9	20.8%	BUY
  	Fidelity	5.9%	6.0%	17.3%	18.0%	0.34	0.6	43.0%	40.0%	0.1	0.2	3.2	3.6	12.5%	NEUTRAL
  	Stanbic	7.8%	7.8%	22.9%	23.0%	2.85	4.8	2.0%	21.0%	0.1	1.0	46.0	54.6	18.7%	OVERWEIGHT
  D	Diamond	9.5%	10.0%	15.8%	16.7%	0.15	0.41	NA	NA	NA	NA	2.5	2.2	-10.9%	SELL
  	FBNH	20.1%	20.0%	17.2%	17.0%	0.48	1.72	46.5%	29.0%	0.2	0.5	10.9	16.7	53.2%	STRONG BUY