ZENITH, Access, and First banks are likely to suspend dividend payments to shareholders until 2028, arising from their loan exposure.

A new report titled ‘Nigerian Banks, Cash is King’, released by Renaissance Capital on Monday, June 16, indicated this.

It showed that most banks would likely suspend dividend payments for multiple years to meet stricter prudential standards imposed by the Central Bank of Nigeria (CBN).

The banks ranking highest in this loan exposure are Zenith Bank, First Bank, and Access Bank.

“Specifically, we anticipate that the banking arms of AccessCorp, FirstHoldco, and ZenithBank to potentially resume dividend payments in 2028.

“As such, we expect dividend payments henceforth to come from the non-banking subsidiaries of the above-mentioned Groups. Given that the majority of these groups’ income is primarily from their banking business, we do not see any substantial dividend payments from their non-banking subsidiaries,” the report explained.

In a notice on June 13, CBN had instructed all the banks with unresolved forbearance exposures to halt dividend payments, defer executive bonuses, and suspend all new investments in offshore subsidiaries.

It said the directive is aimed at strengthening capital buffers and ensuring adequate provisioning against impaired loans, especially those that risk breaching the regulatory Single Obligor Limit (SOL).

It expects the suspension to remain in place until affected banks have fully provisioned for their forbearance exposures and phased them out entirely.

According to analysts, a breach of the SOL means a bank had lent money to a single borrower, a group of related borrowers, or a sector above the required threshold.

Most banks have been in this state of non-compliance with the rule and have tended to favour the oil and gas sector over others.

In December 2023, The ICIR reported that First Bank’s total loans to the agriculture sector in five years were less than three per cent of the bank’s loans and advances to customers, relative to other banks.

In a recent interview in March this year, a former top banker hinted particularly at the challenges small and medium-sized enterprises (SMEs) face in accessing loans, despite accounting for 96.9 per cent of businesses, and 87.9 per cent of employment, which adds to the reasons many SMEs fail a few years after startup.

For most banks under its coverage, Renaissance Capital analysts expect both interim and final dividends to be paused indefinitely.

The report shows that among the tier-1 banks, Zenith Bank, First Bank, and Access Bank have significant loan exposures of 23 per cent, 14 per cent, and four per cent, respectively, of their gross loan books to rank highest among other banks.

Among the tier-2 banks, Fidelity Bank and FCMB have loan exposures of 10 per cent and 8 per cent of their gross loan books, respectively.

On the positive side, Stanbic and GTB have zero per cent loan exposure in their gross loans.

Forbearance amounts estimate

A breakdown of the loan exposure in absolute terms according to the Renaissance Capital report showed Zenith Bank has a significant $1.6 billion loan exposure, followed by First Bank, $887 million, and Access Bank, $304 million.

The figure presented in US dollars also showed Fidelity Bank’s loan exposure at $296 million, United Bank for Africa (UBA) at $282 million, and FCMB at $134 million.

“Of note, our estimates for Fidelity, FCMB, Access, GTCO, and UBA are based on recent engagements with management. However, our Zenith Bank estimates are based on our last engagement with management in December 2024.

“We support the CBN’s orthodox stance, and believe that this more rigid position on enforcement should provide a new policy standard on new directives; too often the market has expected a flip-flop in policy or enforcement timing,” the report stated.

It, however, noted that the cash reserve ratio (CRR), which the CBN has currently set at 50 per cent, is too high and should be cut to ease pressure on banks.

Immediate effect on the bank

Following the expected pause in dividend payments for most of the banks, this event will weigh on bank share prices as investors react negatively to the dividend suspension.

The analysts at Renaissance Capital believe that the shares of most banks may not be affected because of the steps they have taken in achieving the CBN recapitalisation requirements.

They, however, see a potential adverse impact for UBA, Fidelity Bank, and FCMB, as the banks still need to raise additional capital to meet the CBN’s N500 billion minimum paid-in capital requirement for internationally licensed banks.

Shareholders lament the CBN policy measure

President of the New Dimension Shareholders Association, Patrick Ajudua, told The ICIR that shareholders are very concerned about the CBN directive as it will no doubt hinder investors from getting their dividends from the bank.

It will also affect the capital appreciation of banks’ market price, he lamented.

“At this moment of economic difficulties and poor purchasing power, its effect will be catastrophic and unbearable,” he said.

According to Ajudua, investors in the capital market believe in the long-term benefits of this temporary suspension, which will ensure a stronger capital base and attract genuine capital for the affected banks.

“We take solace that this measure will affect only a few banks and believe that at the end of the period it will strengthen the resilience and stability of the banking sector, enhance transparent provisioning, and promote prudent internal capital retention within this transitioning period.

“Thus, we call on the CBN and the affected banks to work out a detailed plan that will make them exit the forbearance expeditiously and in the interest of shareholders, so that they can commence dividend payment in the shortest possible time,” Ajudua added.

On his part, the national chairman Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, urged the CBN not to jeopardise the efforts of the commercial banks.

He said, CBN, having asked the banks to recapitalise to N500 billion, investors have continued to help the banks to actualise it.

He called on the apex regulator to borrow a leaf from its foreign counterparts, asserting that it is not the way to regulate the financial sector.

“The CBN is putting the bank in danger. Their pronouncement is already putting the banks’ stocks into a free fall now, and if not checked, it is going to affect investors to dump the shares of the banks, which is not good for the economy at this point,” Okezie said.

He noted the economy is not doing well at the moment, further urging the regulator not to worsen the already battered situation with its policy statements.

“They know banks that have forebearance. Not every bank on that radar, most banks that quoted on NGX (Nigerian Exchange Limited) are not there in CBN so-called forbearance, even the common man knows the one CBN have control of, but they are not on stock exchange lists.

“They must be careful and refrain from general statement that will affects the banks and its shareholders, whatever is left among banks non-performing oil gas loans in the banks they have providing for it on their profits whatsoever is lefts must be allowed to make provisions as they have been making without affecting their obligations to their shareholders from the profits they make,” Okezie said.

He further urged regulatory caution in technically dealing with issues in the financial sector in order not to affect the general well-being of the economy.