Nigeria’s Central Bank prohibits dividends and bonuses for banks that have not recapitalized

The Central Bank of Nigeria (CBN) has implemented a temporary measure compelling banks that have not met new capital requirements to refrain from paying dividends and bonuses. This directive was unveiled on June 17 with the intention of urging affected banks to bolster their financial standing by retaining earnings.The recent circular issued by the CBN instructed banks under regulatory forbearance to cease providing dividends, postpone bonuses for executives, and refrain from investing in foreign subsidiaries or offshore entities. The primary aim, as per the regulator, is to enhance available capital and endorse long-term financial stability within the banking industry.The initiative has received varying responses from experts in the field. Adetilewa Adebajo, CEO of CFG Advisory, emphasized that the focus has shifted towards the capital positions and provisioning adequacy to mitigate issues regarding banks’ loan portfolios. He highlighted the significance of full provisions for NPLs for banks intending to continue dividend payments, which would inevitably impact their profitability. As part of the recapitalization process, Adebajo stressed that the infusion of new funds should be utilized to cleanse and fortify risk asset portfolios, hinting that the suspension of dividends, bonuses, and offshore ventures will facilitate capital retention and drive up share value.However, concerns have been raised by some market participants. Sam Onukwue, president of the Association of Stockbroking Houses of Nigeria (ASHON), expressed apprehension regarding the indefinite suspension potentially causing a decline in investor trust within the banking sector. This could lead to the selling off of bank stocks on the Nigerian Exchange (NGX). Onukwue advocated for a more discreet approach to manage the situation effectively and prevent unnecessary speculation and market fluctuations. He also highlighted the possible adverse impact on banks’ fundraising efforts, particularly those yet to initiate capital raise ahead of the deadline provided by the CBN.The CBN reassured the public that the majority of Nigerian banks have either complied with the stipulated recapitalization requirements or are on track to meet these obligations by the March 2026 deadline. The reassurance came with a pledge to maintain dialogue with banks to ensure the seamless implementation of these regulations.According to the Nigeria Securities and Exchange Commission (SEC) report from late May, publicly listed companies in Nigeria, including banks, disbursed dividends totaling NGN1.1 trillion ($712 million) in 2024, with almost NGN1 trillion already distributed to shareholders.