Capital Markets

Banks resume dividends as loan defaults fall

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The Central bank of Kenya, Nairobi on Tuesday, January 5, 2021. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • 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).
  • The Sh5.7 billion interim dividends represent a third of the Sh17.1 billion that all the Nairobi Securities Exchange-listed banks distributed for 2020 and which was a drop from Sh31.7 billion a year earlier.
  • The dividend declined over the two years from 2018’s peak of Sh40.5 billion, indicating that bank investors lost a cumulative Sh32.1 billion in the reduced payouts.

Bank investors are set for a significant increase in dividend income in the next five months as the listed lenders make cash distributions for the year ending December amid improved profitability and brighter economic prospects.

KCB Group #ticker:KCB, Standard Chartered Bank Kenya #ticker:SCBK and Stanbic Holdings #ticker:SBIC 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).

The Sh5.7 billion interim dividends represent a third of the Sh17.1 billion that all the Nairobi Securities Exchange-listed banks distributed for 2020 and which was a drop from Sh31.7 billion a year earlier.

The dividend declined over the two years from 2018’s peak of Sh40.5 billion, indicating that bank investors lost a cumulative Sh32.1 billion in the reduced payouts.

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 lenders have, however, 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.

"We see a very strong outlook for our businesses in terms of performance so the recovery is strong. We will be able to maintain our dividend momentum before the Covid-19 pandemic," KCB’s chief executive Joshua Oigara told Business Daily last week.

"I cannot commit on a dividend number at this stage but I think the momentum is that we are looking at our final dividend as full year results come out," he said when asked if the bank will get back to its previous peak payout of Sh3.5 per share.

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.

The bank’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.

KCB joined StanChart Kenya 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 making interim distributions for the half-year to June until they froze the payouts due to the Covid-19 pandemic.

It signals their increased confidence of 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 in a statement.