From UDO ONYEKA, Lagos
In a bid to continually protect the banking sector, the Central Bank of Nigeria, CBN, may have barred three Nigerian banks from paying dividend to its shareholders, DAILY ASSET to reduce outflows from banks with huge non performing loans, (NPL).
The three banks (names withheld), investigations revealed have very high non performing loans, which has put the lenders’ operations in jeopardy.
Apart from the restriction on dividend pay-out the banks were also advised to scale down on the issuing of more credits to corporate organizations and individuals, until their books were thoroughly scrutinized by the banking sector regulatory.
According to a source close to the apex bank, this directive was borne out of the CBN’s mandate to protect the concerned financial institutions and safeguard the banking industry from any form of distress.
DAILY ASSET investigations revealed that the three banks which are all in Tier- 2 category share over 50 per cent of the entire banking sector
NPLs. All the three money deposit banks have been kept under special watch by the CBN, it was further learnt.
Apart from the three banks, there also two of the old generation banks that are in precarious position, having made several bad loans to oil tycoons and corporate entities in the oil and gas sector, DAILYASSET was further told.
According to the source, the affected banks were said to have neglected to maintain healthy capital liquidity levels, a situation which put the financial institutions in delicate positions.
One of the banks was said to have issued a whopping N120 billion credit facility without collateral to a corporate customer, the amount has remained unpaid thus contributing to the bank’s share of NPLs, investigations revealed.
Acting Director, Corporate Communications, CBN, Isaac Okoroafor, said there was no directive banning any bank from paying dividends to shareholders because of high non – performing loans.
Okoroafor who spoke with DAILY ASSET on phone however, said in case any lender had high NPLs, such a bank must make provisioning for such loans.
Which will be taken from the bank’s capital.
In compliance with this extant regulatory requirement, he said it would be logical that such a bank may decide not to pay dividends to its shareholders.
“Now, if a bank decides to do this, since the capital and the bank itself are owned by shareholders, I do not see anything wrong with that”, he explained.
In its latest Financial System Stability(FSS)Report, CBN stated that the ratio of NPLs to gross loans increased from 11.7 per cent in June to 14 per cent in December 2016, representing an increase from
“Commercial banks in the country experienced deterioration in assets quality at end-December 2016. The deterioration in asset quality was largely attributed to the rising inflationary trend, negative GDP growth, and the depreciation of the naira.
“The ratio of regulatory capital to risk weighted assets decreased by 0.8 percentage points to 13.9 per cent at end-December 2016, compared to 14.7 per cent at end -June 2016 “Similarly, the ratio of Tier-1 capital to risk weighted assets declined by 0.9 percentage points to 12.9 per cent at end-December 2016 from 13.8 per cent at end-June 2016,” the report said.
Despite the marginal decrease, the ratios remained above the Basel minimum threshold.”
It added, “The return on assets declined by 1.0 percentage points to 1.3 per cent at end-December 2016 from 2.3 per cent recorded at end-June 2016, while the ratio of non interest expenses to gross income increased to 63.8 per cent at end-December 2016 from 54.6 per cent recorded in the preceding half of the year.”
Banking sector operators kept sealed lips over the matter regarded as one of the most contentious issues in banking circles at the moment. All entreaties to some bankers to speak on the matter yielded no results as those contacted out rightly declined comments.
However, President, Progressives Shareholders Association of Nigeria(PSAN), Boniface Okezie, told DAILY ASSET that he was not aware of the directive to some banks not to pay dividend. He, however, observed “it
was unfortunate that some of the banks were not doing well so as to pay dividend,” he said.
The CBN should examine the challenged banks thoroughly and render adequate support before it will be too late. He advocated for those who have been found to be incapable of managing financial institutions to be removed and replaced those who can do the job.
Former President, Chartered Institute of Bankers of Nigeria(CIBN), Mazi Okechukwu Unegbu said it was not proper if the CBN sent out such directive because that could create panic in customers of such banks.
According to him the CBN guidelines had sufficient provisions on such issues adding when there is capital impairment or when a bank has exceeded some risk range, such bank should not pay dividend to its shareholders.
“Every bank CEO knows about that and should adhere to it and not wait until CBN directs him to do so”.
“In fact CBN should sanction CEOs that do not obey the guidelines, instead of sending directive,” he stated.