Recent dividend announcements by major Nigerian banks have recently declared dividends for shareholders, bringing attention to the complex relationship between shareholder returns and the Central Bank of Nigeria’s (CBN) recapitalisation directives.
Despite the CBN’s push for substantial capital raises, banks are actively returning capital to their shareholders.
Data tracked by Nairametrics reveals that six major banks, following the release of their 2023 audited accounts, are poised to distribute a combined N379 billion in dividends in the coming months. This represents a significant increase from the N289.1 billion declared as final dividends a year earlier, marking a 31.3% rise.
When interim dividends are factored in, the total payout for 2024 is expected to reach N465.3 billion.
With the deadline for the CBN’s recapitalization mandate looming, “these banks are projected to require a staggering N4.2 trillion in fresh capital over the next two years. However, instead of conserving capital by reducing dividends, these institutions are proceeding to reward their shareholders.”
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This strategy includes plans for substantial capital raises through rights issues following the significant dividend payouts.
Among the major banks, Access Bank, Nigeria’s largest bank by total assets, has announced “a final dividend of N63.9 billion, despite facing a requirement to raise approximately N248 billion in fresh capital.”
Similarly, Zenith Bank, leading in profitability, “intends to distribute N109.8 billion in dividends before addressing its capital need of N229 billion.”
UBA, “aiming for an estimated N384 billion capital raise, will first distribute N78.6 billion in dividends according to its recently audited accounts.”
Tier 2 banks like Fidelity Bank and Stanbic IBTC Holdings are also distributing a significant portion of their profits, “with dividend payouts accounting for 19% and 20% of their profits, respectively, the highest among the banks under review.”
One primary reason behind banks’ decision to continue paying dividends despite impending capital requirements is the CBN’s exclusion of retained earnings from its calculation are capital. Retained earnings, representing profits reinvested in the business, are not factored into the CBN’s capital calculation.
Moreover, some banking sector analysts argue that “the CBN’s strict oversight on dividend payouts should be relaxed, as these restrictions hold less significance under the current regulatory framework.”
Paying dividends under these circumstances serves a strategic purpose, enabling banks to return capital to shareholders, potentially reinvesting it back into the banks as fresh equity.
As banks adjust their dividend policies to comply with the CBN’s regulatory framework, higher dividend payout ratios could become more prevalent. This dynamic underscores Nigerian banks’ adeptness in navigating regulatory requirements while maintaining shareholder relationships through dividends.