Despite the challenging economic and regulatory environment, potential distributions in the coming quarter from the largest Nigerian banks to shareholders in form of dividends could rise by as much as 5 percent or N14 billion for the 2020 financial period, according to MoneyCentral calculations.
The largest banks paid out some N287.13 billion to shareholders in the 2019 financial year.
Despite the myriad regulatory and covid-19 induced challenges, the bottom line of Nigeria’s biggest banks has not deteriorated markedly.
They posted net income of N662.51 billion as at September 2020, representing a 5.36 percent increase from 2019’s N628.76 billion, according to data compiled by MoneyCentral.
Analysts tell MoneyCentral that banks will likely sustain 2019’s payout levels as they seek to preserve capital and avoid the crisis of 2009 that weakened their solvency and liquidity position, a precarious situation that prompted the regulator to set up the Asset Management Corporation of Nigeria (AMCON) to buy up bad debts of beleaguered operators.
“We expect Zenith and Guaranty maintain dividend per share (DPS) of 2.80 like they did in 2019; they have the capacity to reward owners from distributable profit based on nine months’ earnings per share (EPS),” said Gbolahan Ologunro, equity research analysts at Cordros Securities.
Investors are allured to a company that makes distributions to them even amid an economic downturn as it signals financial stability and strength.
Zenith Bank, the largest lender by profit and total asset may pay shareholders N91.48 billion in 2020 equivalent to a payout ratio of 50.10 percent.
Guaranty Trust Bank, the largest lender in Africa’s largest economy, may return N86.1 billion to its owners at a payout ratio of 55.77 percent and Dividend Yield of 8.47 percent. Access bank may pay dividend of N24.28 billion at a payout ratio of 22.41 percent and yield of 7.03 percent. Owners of United Bank for Africa may get N35.9 billion and its shares have yielded 7.03 percent so far.
Stanbic IBTC Holdings may pay N34.99 billion to its owners out of distributable profit as it has attractive shares with a yield of 7.81 percent.
The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company.
Banks may however choose to be conservative in their payout ratios and not match 2019 levels to preserve capital amid uncertainty.
The precipitous drop in the price of oil brought on by the pandemic that slowed demand for petroleum products resulted in the accumulation of impairment cost for lenders as customers were unable to honor their obligations due to low business activities. Analysts added that possible operational fair-value losses may result in capital depletion.
Lenders are also under pressure from the regulator, which expects lenders to extend 65 percent of their deposit as credit. And the decision by the regulator to ban companies and individuals from its Open Market Operations (OMO) a dovish stance sent bond yields crashing.
Last year, the central bank took N926.40 billion from the cash reserves of lenders for failing to meet that goal and a requirement to park 27.5 percent of their capital with it.
The regulatory and macro pressures which have continued to eat into asset yields and asset quality is expected to continue to pressure bank earnings amid deteriorating macroeconomic conditions as there are indications of slow recovery.
“We expect NPLs to increase significantly due to substantial exposure to some of the hardest hit sectors, especially oil & gas, manufacturing, and trade & general commerce,” said analysts at United Capital Limited.
“Also, in the consumer lending space, we expect a significant level of defaults as unemployment levels rise and salary cuts have become the order of the day,” said the analysts.
Banking sector stocks performed well during 2020, using the NSE’s Banking-10 index as a proxy which rose 10.14 percent, although they underperformed the broader market index which rose by 50 percent.
MoneyCentral’s analysis shows lenders have the financial reserves to bear losses and a strong balance sheet to survive the coronavirus pandemic that disrupted economic activities across the globe and tipped the country into its second recession in five years.