NSE trade in session

By Festus Akanbi
As the prospect of a generous dividend payment by quoted money deposit banks ebbs, indications emerged at the weekend that the camps of the Nigerian shareholders may have been thrown into confusion and anxiety.

Economic analysts had warned that a cocktail of current developments and issues in the banking industry may affect banks’ full financial results in a way that may make payment of dividend less attractive by the time the banks start rolling out their full year financial results by December.

They pointed out that the compulsory adoption of the International Financial Reporting Standards (IFRS), which compels the affected institutions to make a full disclosure by the end of the year, may affect banks’ revenue profile. This, development, which is a clear departure from the old regime of Generally Accepted Accounting Principles (GAAP) may not allow banks to bow to the pressure of shareholders on dividend payment.

Another indication that it may no longer be a business as usual as far as dividend payment is concerned by banks was the recent Fitch reports on Nigerian banks. The rating agency had warned that recent rapid credit growth in the Nigerian banking sector may give rise to weakened asset quality and higher impairment charges if left unchecked.

The assessment is coming in the wake of a raft of bank’s earnings reports that reflect some measure of system stability and overall sector growth.

However, Chairman of the Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie said shareholders will resist any attempt by healthy banks to deny them the reward of their investment.
Speaking in an interview with THISDAY, Okezie said most of the banks are said to have returned to profitability after the Central Bank of Nigeria’s reform.

According to him, some of the directors of the quoted banks are living flamboyantly, wondering why the shareholders should not be given what is due to them.

“If you enter where some of these bank directors live, you will think they are selling cars as they live flamboyant lifestyles. We were told the banks are back to profitability,” Okezie said.

He said the recommendations of the Fitch Ratings should not be taken seriously, alleging that some of the banks that had crisis in 2009 were among those rated high by the agency.

However, warning the investing community to brace up for the era of low dividend payment, Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane, said the new regime of disclosure may make it difficult for banks to bend the rule for dividend payment.
Corroborating Rewane’s position, London-based Head of Macroeconomic, and Africa, Standard Chartered Bank, Razia Khan also pointed out that apart from the adoption of IFRS, recent input of Fitch Ratings, an international rating agency on Nigerian banks showed that the era of indiscriminate dividend payment is over.

According to her, “Normally, the move to IFRS, effectively a higher standard of reporting, would be welcomed by investors as providing a more accurate gauge of the performance of banks.  That the concerns appear instead to revolve around the results that will be reported may be symptomatic of one of the key hurdles that the Nigerian banking sector faces.

“It is noteworthy that in its latest assessment of the Nigerian banking sector, Fitch ratings  speaks of the ‘generous dividend policies demanded by investors ‘ as not being ‘conducive to sustainable loan book growth in the medium term’, as it poses some threat to capital generation.

“Perhaps it is time for a right-sizing of shareholder expectations relative to the ability of the economy and the banking sector to deliver?,” Khan said in a response to THISDAY’s enquiries at the weekend.

Managing director of a financial advisory firm, who spoke on condition of anonymity said time had come for the investing community to look beyond dividend payment as a measure of success of quoted firms.

“There is a fundamental problem on how we separate performance from dividend payment.
He maintained that some companies have continued to cook their books in order to pay dividend since such payment is usually seen as a measure of performance in Nigeria.

He said shareholders should look out for capital growth, bonus issues and a rise in shares.
According to him, banks should not be pushed to declare dividends, adding that shareholders expectations are usually exaggerated given the fact that retail shareholders have minimal ratio of shares in some of the banks.

GAAP refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing, and in the preparation of financial statements.

IFRS are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board (IASB).
Nigerian listed companies started reporting under IFRS as of 1Q12, with FY11 numbers being restated.

Renaissance Capital, an international financial advisory firm in its recent reports noted that some banks have been reporting a dual set of accounts for several years now, while for others this has been a first-time exercise.

Under GAAP general provisions were set at 1% of performing loans. Under IFRS, the book’s actual loss history and the portfolio credit grading are key drivers of general impairments. This implies general provisions could be higher under IFRS for some banks, which have had a challenging credit loss history.

Rencap said it is too early down the IFRS road for us to make a judgement call on the ability of banks to value collateral and potential recoveries correctly and conservatively.

“However, we do believe investors should not be too sanguine about changes in provisioning policies that have a material impact on reported net numbers and could have an impact on future profits. We think the magnitude of changes in numbers for some banks raises their risk profile vis-a-vis other banks.”