Nigerian lenders fall on worries over dividend restriction

LAGOS: Shares of Nigerian mid-tier lenders fell on Monday as worries set in over a restriction set by the central bank on dividend payments at banks with non-performing loan (NPL) ratios above the regulatory minimum, traders said.

Commercial banks with NPL ratios above 10 percent will not be allowed to pay dividends, the central bank said in a circular seen by Reuters. The regulatory minimum for NPLs is 5 percent.

The earnings season is due to start in 10 days and investors are worried that some lenders may not be able to pay out dividends despite reporting profits, due to higher provisions against loan loss and inadequate capital buffers.

Two central bank officials have said that four lenders are operating with too many non-performing loans on their books and with liquidity ratios below the minimum requirement.

FCMB, FBN Holdings, Sterling Bank and Unity Bank each shed more than 4 percent to lead the main stock index lower by 1.53 percent.

Wema Bank and Diamond Bank, which announced plans to sell its West African operations last year to focus on Nigeria, both fell more than 2.5 percent each.

The central bank said the NPL move was necessary to facilitate sufficient capital build-up for banks in line with their risk appetite. It bank added that lenders whose capital ratios are short by more than three percent would also not be allowed to distribute dividends.

It exempted banks with capital ratios and NPLs within the regulatory minimum and asked lenders to submit approved dividend payout policies before payment is made.

Several Nigerian banks expanded rapidly a decade ago, encouraged by rising commodity prices. But prospects dimmed with a sharp fall in commodity prices since mid-2014 that triggered currency crises and turned loans sour.

NPLs stood at 15.07 percent last June compared with the 5 percent regulatory limit while capital adequacy ratios for the industry worsened to 11.51 percent last June as against a regulatory minimum of 15 percent for banks with an international license.