Nigeria’s central bank has introduced new rules to prevent banks that do not meet minimum capital requirements from paying dividends in a bid to shore up the sector.
The central bank said in a circular dated Oct. 8 sent to lenders and discount houses that the amount banks can pay in dividends would depend on their capital levels, statutory reserve requirements and the proportion of non-performing loans.
In the past, lenders paid out a high proportion of net profit as dividends, despite their risk profiles and capital levels. The regulator said it wanted to correct this situation with the new rules.
“There shall be no regulatory restriction on dividend payout for banks that meet the minimum capital adequacy ratio, have a cash reserve requirement of ‘low’ or ‘moderate’ and a non-performing loan ratio of not more than 5 percent,” the regulator said in the circular.
The central bank has vowed to prevent a repeat of the circumstances that led to a bailout in 2009 and has moved towards strenghtening rules and tightening capital requirements.
Since last year, Nigerian lenders have also been facing a profit squeeze as a result of regulatory measures put in place partly designed to get banks to lend more to domestic businesses and consumers.
The banking sector had been making bumper profits by mopping up government deposits and using the cash to buy high-yielding treasury bonds and declaring huge dividends. As a result, banks had little incentive to lend to the real economy.
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