Nigeria: Banking Analysts Predict Potential Surge in Dividend Payouts Amid Recapitalization

As Nigerian banks brace for the task of meeting the Central Bank of Nigeria’s (CBN) new capital requirements, analysts foresee a possible surge in dividend payments to shareholders as part of the strategies to raise necessary funds.

The CBN had recently issued a circular mandating commercial, merchant, and non-interest banks, as well as promoters of new banks, to bolster their capital bases in response to both domestic and global economic challenges.

Under the new directive, banks with international authorization are required to raise their capital base to N500 billion, while national banks must reach N200 billion. Similarly, regional banks are expected to achieve a capital floor of N50 billion, with non-interest banks needing to raise their capital to N20 billion for national authorization and N10 billion for regional authorization.

Okechukwu Unegbu, former President of the Chartered Institute of Bankers of Nigeria, suggested that banks might opt to distribute significant dividends to shareholders, leveraging retained earnings. This move could empower minority investors to reinvest in the banks, thereby bolstering their capital positions.

Unegbu explained, “The banks can 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.”

However, he cautioned against an overreliance on foreign investment, noting that excessive foreign ownership could lead to loss of control for bank owners. To balance this concern, Unegbu proposed that banks explore alternative capital-raising avenues, such as issuing bonds or other financial instruments.

The CBN specified that only specific items on the shareholder fund portion of the balance sheet, namely share capital and share premium, would be recognized for this round of recapitalization. To meet the requirements, banks have been given three options: issuance of new common shares through public offers, rights issues, or private placements; mergers and acquisitions; and license category upgrades or downgrades.

Rotimi Fakayejo, an economy and capital market analyst, echoed Unegbu’s sentiments, emphasizing the importance of dividend payouts to empower shareholders for further investment. He suggested that banks might adopt this approach to mitigate potential dilution of existing shares resulting from additional share issuance.

Fakayejo elaborated, “Shareholders would be empowered to buy more shares through the rights issues. So, we expect that there should be more jumbo dividend payments from the banks.”

As banks navigate the path toward meeting the CBN’s capital requirements by 2026, dividend payments could emerge as a key component of their capital-raising strategies, providing shareholders with tangible incentives for continued investment.