Bad Loans: CBN Bars Erring Banks From Dividend Payment
BY EDMOND ODOK, ABUJA – The Central Bank of Nigeria (CBN) has slammed no dividend payment order on Deposit Money Banks (DMB) and financial institutions with huge Non-Performing Loans (NPLs) and low capital base.
In a move to further sanitise and strengthen nation’s banking sector, the apex bank directed that stakeholders in banks struggling with debilitating bad loans will no longer enjoy the luxury of annual dividends.
The CBN’s order is against the backdrop of growing NPLs in the sector as well as the urgent need to check likely slide in the capital base of affected banks and discount houses.
Coming about a week to the release of year 2017 annual financial reports by DMBs and discount houses in the country, industry watchers said the hopes of many shareholders have been dashed because banks will not be able to pay dividends for last year.
The apex bank’s move, contained in a letter dated January 31, 2018, is meant to stem the tide of mounting NPLs and the resultant weakening and erosion of capital base in the industry.
According to the letter signed by CBN’s Director, Banking Supervision Department, Ahmad Abdullahi, the apex bank berated some DMBs for always paying out a greater percentage of their profits as dividends despite their disturbing risk profile.
It therefore stressed the need for banks to build buoyancy through adequate capital buffers and consistent growing of their capital with retained earnings for greater efficiency and quality service delivery to their customers.
