Nigerian banks declare huge dividends despite hike in capital base
TLDR
- Nigerian banks distribute N379 billion in dividends, marking a 31.3% increase from the previous year.
- Total dividends reach N465.3 billion for 2024 when interim dividends are considered.
- Banks expected to undergo substantial capital raises despite ongoing distributions to shareholders.
Despite the Central Bank of Nigeria's (CBN) push for substantial capital raises, Nigerian banks are not hesitating to distribute capital to their shareholders. Six major banks, following the publication of their 2023 audited accounts, are poised to distribute a combined N379 billion ($275 million) in dividends.
That marks a significant increase from the N289.1 billion declared as final dividends the previous year (+31.3%). When interim dividends are factored in, the total climbs to N465.3 billion for 2024. As the CBN's recapitalization deadline looms, these banks are projected to require around N4.2 trillion in fresh capital over the next two years.
But rather than conserving capital by reducing dividends, these institutions are moving forward with rewarding their shareholders. Plans for substantial capital raise through rights issues are anticipated following these substantial dividend payouts.
Points clés à retenir
One significant factor driving banks to continue paying dividends despite impending capital requirements is the CBN's decision to exclude retained earnings from its calculation of share capital. Retained earnings represent the portion of net profits that are not distributed as dividends but reinvested in the business. With this exclusion, banks have little motivation to accumulate retained earnings. Moreover, under these circumstances, paying dividends serves a strategic purpose. It allows banks to return capital to shareholders, who may then reinvest this capital back into the banks as fresh equity. Banks may have considered paying even higher dividends than the current average dividend payout ratio of 14.15% for the six banks reviewed, given these dynamics and the potential benefits of returning capital to shareholders.
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