Economy

CBK relaxes Covid curbs on banks’ dividend pay

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CBK Governor Patrick Njoroge. PHOTO | SALATON NJAU | NMG

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Summary

  • Multiple bank executives reckon that the banking regulator has dropped its tough stance on dividends, freeing lenders to resume payouts to shareholders.
  • This is in tune with global trends where regulators in the US, Europe and Australia have lifted their curbs on dividends.
  • The dividend cuts came as lenders sought to preserve cash amid rising defaults and increased provision for bad debt in the wake of the Covid-19 pandemic.

The Central Bank of Kenya (CBK) has loosened restrictions on dividend payments by commercial lenders as the country recovers from the Covid-19 economic fallout.

Multiple bank executives reckon that the banking regulator has dropped its tough stance on dividends, freeing lenders to resume payouts to shareholders.

The CBK last August asked commercial banks to seek its approval ahead of paying dividends for the year ended December, which saw top lenders freeze payments.

The dividend caution came as bank earnings plunged in the first half of last year, hit by higher provisions for bad loans on the back of the Covid-19 pandemic that triggered layoffs and business closures.

But the lenders have turned the corner, and most have reported triple-digit profit growth and built surplus capital as costs for loan defaults fall and banks resume lending.

This outlook has made the CBK calm, bankers say, despite the banking regulator not having issued a formal notice of loosening the restrictions imposed at the peak of the Covid-19 crisis.

“CBK was concerned on dividends and the shape they took whether cash or non-cash because at that point they were worried of liquidity in the market,” said John Gachora, the managing director of NCBA Group, #ticker:NCBA which in October paid an interim dividend of Sh0.75 a share.

"Today, I don’t think they are worried and the banks have weathered Covid-19; there is enough liquidity in the market. So they are not concerned anymore," he added.

This is in tune with global trends where regulators in the US, Europe and Australia have lifted their curbs on dividends.

Kenyan banks' attractive dividend yields are a big draw for investors, and the signal from the CBK looks set to boost the sector's valuation. The Nairobi Securities Exchange #ticker:NSE listed banks nearly halved their dividend payouts last year to Sh17.1 billion from Sh31.7 billion a year earlier. The dividend declined over the two years from 2018’s peak of Sh40.5 billion.

The dividend cuts came as lenders sought to preserve cash amid rising defaults and increased provision for bad debt in the wake of the Covid-19 pandemic. All lenders were required to resubmit their internal capital adequacy assessments by the end of October last year to the central bank in what reflected the impact of the pandemic.

They were also be expected to discuss their plans with the regulator, before deciding on dividends distribution.

"We are still in the environment of conserving cash but also where we see opportunities to also give dividend to our shareholders we do both, which I think is a win-win," KCB #ticker:KCB Group chief executive Joshua Oigara said in an interview.

"What CBK said was that you needed to share with them your plan for your dividend and your business focus. It was actually more of ‘give us your proposal’".

Bankers say that the CBK is reviewing the dividends while approving the quarterly financial results. "I have not seen them have a lot of questions on dividends but they have the usual questions on financials. Within financials, we disclose dividends," said Mr Gachora.

The lenders have signalled they will raise their dividends for this financial year, buoyed by higher earnings, increased loan repayments and reduced economic uncertainty following the removal of coronavirus-related restrictions. KCB Group, Standard Chartered Bank Kenya and Stanbic Holdings have paid or declared interim dividends totalling Sh5.7 billion.

Equity Group #ticker:EQTY previously the second-largest dividend payer among banks, is also set to resume cash distributions of at least Sh9.4 billion in a move that will lift the payouts.

Equity suspended dividends in 2019 and 2020 as it sought multiple regional acquisitions that ended with the purchase of a 66.53 percent stake in Banque Commerciale Du Congo (BCDC).

KCB declared a surprise interim dividend of Sh1 per share or an aggregate of Sh3.2 billion after its net profit more than doubled in the nine months ended September. The mid-year payout indicates that its total distribution for the year ending December will surpass 2020’s distribution of Sh1 per share or a total of Sh3.2 billion.

KCB’s net income in the nine-month period jumped 131.1 percent to Sh25.1 billion compared to Sh10.8 billion a year earlier, driven by higher interest income and reduced provisions for bad debt. It joined StanChart Kenya #ticker:SCBK in making a surprise interim dividend announcement for the third quarter.

StanChart proposed a payout of Sh5 per share or a total of Sh1.8 billion after its net income surged 46.6 percent to Sh6.3 billion on the back of lower costs and higher non-interest income.

This is nearly half of the Sh10.5 per share or an aggregate dividend of Sh4.1 billion that the bank distributed for 2020, indicating that its total payout for the current financial year will be higher.

This is the first time the lenders are declaring dividends for the period to September, having previously maintained a tradition of half-year to June payouts until they froze due to Covid-19.

It signals their increased confidence in better performance going into the new year.

"The economic recovery from the Covid-19 pandemic continues, albeit unevenly across industries and punctuated by supply-chain disruption," StanChart’s chief executive Kariuki Ngari said.

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