SOME financial experts have lauded the Central Bank of Nigeria’s (CBN) directive that banks with huge non-performing loans (NPLs) should not pay dividend to their shareholders.

They spoke with the News Agency of Nigeria (NAN) in Lagos while reacting to the CBN’s decision that banks with 10 per cent NPLs should not declare dividend.

CBN had observed that rather than the banks growing their capital with retaining earnings, some were paying greater proportion of their profits, irrespective of their risk profile.

The regulatory bank said that any commercial lenders or discount houses with NPLs above 10 per cent would not be allowed to declare dividends for their shareholders.

Prof. Sheriffdeen Tella of Economics Department, Olabisi Onabanjo University, Ago-Iwoye in Ogun, said the directive was in order.

Tella said that the capital base of some banks had become weak by the huge non-performing debts.

He said that the unpaid dividends, which form part of retained earnings, would strengthen the bank’s capital base.

The economist said that managers of the affected banks needed to double efforts to recover the loans because their jobs were on the line.

Tella said that the CBN policy would expose weakness of the banks and cautions their depositors and shareholders on the precarious situation for rectification.

According to him, it warns the public generally on the poor status of the financial system.

“This is because banks constitute the largest segment in terms of volume of transactions and funds as well as wealth concentration,” Tella said.

He called on stockholders and new investors to be very careful with the stocks held or to purchase.

Tella said that the apex bank’s pronouncement might not lead to massive sale of banks at the moment due to buy and hold attitude of Nigerian investors.

He said that investors might start divesting their shares in the medium term if actions taken by the concerned banks were not convincing.

Also, Mr Ambrose Omordion, the Chief Operating Officer, InvestData Ltd., said that the decision was good for the banks, depositors and investors for better tomorrow.

“This is good for the banks, depositors and investors, because in the first place, concern of any business is to give hope of better tomorrow.

“The banks need to be financially healthy before rewarding shareholders,” Omordion said.

He said that the affected banks would use the profit to sort out some things, while those with strong financial footing would reward their investors.

Omordion said that the apex bank’s directive would help investors to know where to build their tents as dividend season would soon kick off.

In his remarks, Mr Boniface Okezie, the National Coordinator, Progressive Shareholders Association of Nigeria (PSAN), expressed dissatisfaction to the apex bank’s pronouncement.

Okezie said that shareholders should not be made to pay for the sins of the bank managers.

He said that the directive would lead to dumping of banks’ shares on the Nigerian Stock Exchange

Okezie said that CBN should compel the affected banks to recover the loans from their customers instead of suffering the shareholders.

He said the apex bank had failed as a regulator, noting that directors and managers of the affected banks had not been punished for the huge NPLs.

Okezie wondered why shareholders, who invested their hard earned money, should now be the one to suffer for the failure of the banks’ directors and management.

He called on the apex bank to order the affected banks to recover those loans from their customers or leave the board.

Okezie said that some of the NPLs were insider-related borrowings by directors of the banks.

He said that management of the affected banks should embark on massive loan recovery of the bad debts, including the one borrowed by the banks’ board members. (NAN)

– Feb.  20, 2018 @ 15:29 GMT |