Nigerian banks face asset quality, further devaluation threats – CSL
The current economic realities mean that Nigerian banks face asset quality and further devaluation threats, which may impact capital in some cases and lower profits, CSL Stockbrokers Limited has said.
The firm, in a note on Wednesday, cited an article published by the International Monetary Fund in which its Managing Director, Kristalina Georgieva, advised banks to halt dividend payment amid the economic fallout from the COVID-19 pandemic.
CSL Stockbrokers, a member of the FCMB Group, said lower profitability would affect the quantum of capital retained by the banks.
It said, “Ideally, these should reflect in NPL ratio and CAR ratio and should immediately restrict banks’ ability to pay dividend but there is usually a time lag before these ratios begin to reflect the new economic realities; so, IMF’s advice may come in handy for many banks.
“That said, halting dividend payments may not go down well for many retail and institutional investors, who rely on bank dividends for regular income.”
According to analysts at CSL Stockbrokers, banks like Zenith Bank Plc and Guaranty Trust Bank Plc have a good history of consistent dividend payment with attractive yields which is a major attraction for many shareholders.
They noted that the Central Bank of Nigeria, in a circular dated January 31, 2018, had stipulated new conditions for eligibility of Nigerian banks to pay dividend and the quantum of dividend to be paid out by them.
The firm said prior to the release of the circular, dividend payout policy for Nigerian banks had been spelt out in Section 16(1) of the Banks and Other Financial Institutions Act 2004 (as amended) and Prudential Guidelines for Deposit Money Banks of 2010.
The analysts noted that the circular provided guidelines and restrictions around dividend payout for banks based on non-performing loans ratio, cash reserve requirement levels and capital adequacy ratio.
They said, “However, there were no regulatory restriction on dividend pay-out for banks 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. Indeed current economic realities demand caution.”
