Recapitalisation: Banks May Consider Huge Dividend Payment – Expert

Some analysts are projecting that banks may incentivise their shareholders with jumbo dividend payouts ahead of their capital-raising endeavours to meet the new requirements of the Central Bank of Nigeria.

In March, Nigeria’s apex bank issued a circular, announcing the review of the capital requirements for the operations of commercial, merchant and non-interest banks and promoters of new banks in the country.

In a statement signed by its Acting Director of Corporate Communications, Sidi Ali, the CBN said it had become necessary to raise the capital base of the banks due to both domestic and global shocks.

Thus, the CBN directed commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn while those with regional authorisation were expected to achieve a N50bn capital floor.

Non-interest banks with national and regional authorisations were required to raise their capital to N20bn and N10bn, respectively.

Speaking on ways that the banks may be looking at raising the required funds within the approved time frame expiring March 31, 2026, the former President of the Chartered Institute of Bankers of Nigeria, Okechukwu Unegbu, opined that the lenders may be looking to empower minority investors.

He said, “The CBN is asking the banks to recapitalise and telling them that retained earnings that are on the books of the banks will not be regarded as part of the capital and if that is the case, the best that the banks can do is use their retained earnings to pay jumbo dividends to their shareholders so that those shareholders can use that money and more of theirs to buy more of the shares of the bank.”

Unegbu further stated that while the CBN may want more foreign inflows of capital due to foreign exchange considerations, bank owners would be concerned about losing control of foreign interests.

“Most foreigners, if they want to invest, may want to have a controlling interest in the banks and that is something the bank owners may not want to allow.

“For that reason, most of the banks will want to be careful of the controlling interest of the foreign investors and if the interest is too high, they will probably not want to go that route.

“In addition, the central bank should allow these banks to use their retained earnings and to issue bonds and other forms of capital raising,” he elucidated.

According to the CBN, only the share capital and share premium items on the shareholder fund portion of the balance sheet will be recognised in this particular round of recapitalisation.

To meet the requirement, the CBN gave the sector three options including issuance of new common shares (by way of public offer, rights issues, or private placements), mergers and acquisitions and the upgrade /downgrade of their respective license category or authorisation.

Echoing similar sentiment, an economy and capital market analyst, Rotimi Fakayejo, said, “The CBN has said 2026, so there is still a way to go. A lot of things can still happen. They are talking about shareholders’ funds not being part of the capital, but what we are expecting now, at least for the banks that have not yet announced, is for them to pay out as much dividend as possible.

“That way, shareholders would be empowered to buy more shares through the right issues. It may not be within one financial year, but the more important thing is that the government expects them to get more foreign capital than local.

“For a bank like Zenith Bank that has a share issue of 31 billion units with a share price of about N40, that means they would need to do about eight to five billion additional shares to raise that quantum of funds. So, their shareholding would be diluted and if the shareholders do not have the money to buy, it is going to be a loss to them.

“I think they are going to find every means possible to mitigate against that. So, we expect that there should be more jumbo dividend payments from the banks. AccessCorp has declared N1.80; UBA should be able to do something like N2.50; GTCO and Zenith Bank should do as much as N4. So, shareholders can have something to hold on to and use to get more shares.”