Analysts Suggest Banks Could Opt for Jumbo Dividend Payments

The banking sector in Nigeria is facing new capital requirements set by the Central Bank of Nigeria (CBN), prompting analysts to speculate about potential strategies banks might employ to meet these demands. The CBN’s directive, issued in March, requires commercial, merchant, and non-interest banks to increase their capital bases to various specified levels by March 31, 2026.

To raise the necessary funds within the given timeframe, some analysts suggest that banks may opt to pay significant dividends to their shareholders. This approach could empower shareholders to reinvest their dividends by purchasing more shares through rights issues, thereby increasing the banks’ capital without relying solely on retained earnings.

Okechukwu Unegbu, former President of the Chartered Institute of Bankers of Nigeria, explained that while the CBN’s intention may be to attract more foreign capital, bank owners might be cautious about ceding control to foreign investors. Therefore, paying substantial dividends could be a preferred strategy for raising capital while maintaining control.

Another analyst, Rotimi Fakayejo, emphasized the importance of dividend payments in empowering shareholders to participate in rights issues and expand their holdings in the banks. He noted that jumbo dividend payments could help mitigate the dilution effect on existing shareholders caused by issuing new shares.

However, members of the minority shareholder community expressed skepticism about the feasibility of this approach. Boniface Okezie, National Coordinator of the Progressive Shareholders Association, argued that banks typically retain a portion of their earnings for future needs rather than distributing all profits as dividends. He also questioned the feasibility of raising such significant capital within the specified timeframe, suggesting that a longer timeline might be more practical.

Eric Akinduro, Chairman of the Ibadan Zone Shareholders Association, echoed similar sentiments, expressing doubts about the possibility of banks offering substantial dividends given existing regulations and market conditions. However, he expressed confidence in the banks’ ability to attract investor interest based on their track record of performance and dividend payouts.

In summary, while the prospect of banks paying jumbo dividends to facilitate capital-raising efforts is a topic of discussion among analysts, skepticism remains among some members of the shareholder community regarding the practicality and effectiveness of this approach within the specified timeframe and regulatory environment.