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.”

However, when reached out to members of the minority shareholder community, they expressed scepticism as to how that would work out.

The National Coordinator of the Progressive Shareholders Association, Boniface Okezie, stated, “That analysis doesn’t hold water. You can only pay what you earn.  Most companies do not pay out all that they earn, they pay a ratio of it and move the rest to retained earnings for rainy days.

“I do not see banks paying a significant portion of their earnings to encourage investors to buy their shares when they come to the market. The rights issue may be successful or not, so they need to have something to fall back on.”

Okezie also faulted the two-year timeframe for the capital raise as announced by the CBN, saying the required fund was huge and that the Nigerian economy may not be able to support it.

“For me, the money that CBN is asking them to raise is not small. So, they ought to have been spread over many years. Where is the money going to come from? Within Nigeria? They can’t raise such funds here. Unless, of course, they can have foreign equity participation, then some banks can raise money.

“Give the banks a longer time frame to shore up their capital base. Don’t stampede them; give them a longer time frame. Let the banks work it out and not force all of them into the market to court the same set of shareholders,” he stated.

The Chairman of the Ibadan Zone Shareholders Association, Eric Akinduro, told that he didn’t see the possibility of that happening.

“I’m not so sure of that considering the CBN’s ban on the payment of dividends from foreign exchange gains. One thing I’m sure of is that banks would pay dividends, but how jumbo it would be is what I don’t know.

“The banking sector is overregulated already; payment of dividends this year may be even lower because of the numerous regulations.”

Akinduro expressed confidence in the ability of the banks to raise the new capital base.

He declared, “They have done it before and they are performing now. So, investors would have interest. The banks pay the highest dividends and when they come to the market, people will want to invest in them.”

In 2023, the CBN barred banks from using their foreign exchange revaluation gains to pay dividends or as operating expenses.

It reiterated that stance in February.

The February circular from the apex bank, signed by the acting Director of the Banking Supervision Department, Adetona Adedeji, said, “Further to our letter dated September 1, 2023, referenced BSD/DIR/CON/LAB/16/020 on the above subject, the Central Bank of Nigeria wishes to reiterate that banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movements in the FX rate.  In this regard, banks shall not utilise such FX revaluation gains to pay dividends or meet operating expenses.”