Economic analysts have said that the decision of the Central Bank of Nigeria to temporarily suspend banks with forbearance loans from dividend payments and investment in foreign subsidiaries would ensure that the affected banks operate on a stronger capital base and attract genuine capital.
Financial experts made this observation in separate exclusive interviews with The PUNCH over the weekend.
In a circular signed by its Director of Banking Supervision, Olubukola Akinwunmi, the CBN directed banks operating under regulatory forbearance to suspend dividend payments, defer bonuses for executives, and halt investments in foreign subsidiaries or offshore ventures.
The CBN said the move, which was part of its ongoing efforts to strengthen the resilience and stability of the Nigerian banking sector, has reviewed the capital positions and provisioning adequacy of banks currently operating under approved regulatory forbearance regimes, specifically with credit exposures and Single Obligor Limits.
The statement read, “In view of the need to strengthen capital buffers, enhance balance resilience and promote prudent internal capital retention during this transitional period, the CBN hereby directs that all banks currently benefiting from credit or SOL forbearance shall suspend the payment of dividends to shareholders,defer the payment of bonuses to directors and senior management staff, and refrain from making investments in foreign subsidiaries or new offshore ventures.
“This temporary suspension is until such a time as the regulatory forbearance is fully exited and the banks’ capital adequacy and provisioning levels are independently verified to be fully compliant with prevailing standards.”
The regulator added that it would continue to monitor developments and engage with institutions as necessary and urged the affected banks to fully comply with the directive and maintain prudent capital management practices during this period.
Speaking on the development, the Managing Director of Arthur Steven Asset Management Limited, Tunde Amolegbe, said the move is aimed at keeping the ongoing recapitalisation exercise on track.
Amolegbe, who is a former president of the Chartered Institute of Stockbrokers, said, “I think it’s a move aimed in part at keeping the recapitalisation exercise on track to achieve its primary objective, which is to ensure actual injection of fresh capital into banks. Banks that are having to rely on borrowing from the CBN to operate to make a profit and then turn around to declare those profits as dividends, which are then brought back as fresh capital injections into the banks, are engaging in financial engineering at best or round-tripping at worst.”
He said that if left to go on as it is, the banks will not become as strong as intended to fuel the country’s economic ambition of a $1tn economy by the end of the decade.
“The shareholders of the banks will need to inject actual capital to strengthen the banks. As the CBN has said, it is a temporary measure,” he said and added, “From where I stand, only a few quoted banks might be affected by this regulatory measure.”
Head of Financial Institutions Ratings at Agusto & Co., Ayokunle Olubunmi, warned that some banks may struggle to pay the interim dividends on the back of this directive.
He said, “The affected bank will have to resolve these challenged loans that are under forbearance. Meanwhile, some of the banks affected might struggle to pay half-year dividends. However, I expect the resolution of a significant proportion of the exposures before December 2025.
“Meanwhile, this move is expected as the CBN hinted to the banks that the forbearance will expire in June 2025.”
The Chief Executive Officer of the CFG Advisory, Adetilewa Adebajo, said the move is designed to strengthen banks’ financial positions until they meet regulatory standards.
He said, “The bottom line is that all banks that want to continue to pay dividends must make full provisions for their Non-Performing Loans, which will invariably impact their profitability. As banks are recapitalising, it’s important that the fresh capital is used to clean up and improve the quality of their risk asset portfolio.
“Non-payment of dividends, bonuses and offshore investments obviously improves capital retention and should boost stock values.”
