IF you are a shareholder of Zenith Bank, Access Bank or Access Bank, your dividends may not get to you for 3 years, according to a new report released by Rennaisance Capital.
This is because these tier-1 banks are facing pressure from the Central Bank of Nigeria (CBN) to rebuild capital buffers to make provisions for legacy forbearance exposure. Forbearance means “a temporary reduction or postponement of loan or mortgage payments.”
Central banks worldover sometimes allow the restructuring of non-performing loans to give banks and borrowers time. Forbearance “gives the debtor extra time to repay what they owe. This helps struggling borrowers and benefits the lender, who frequently loses money on foreclosures and defaults after paying the fees,” Investopedia says.
Rennaisance Capital said on its report dated June 16 that the CBN instructed banks to temporarily stop dividend payment, defer executive bonuses and halt offshore expansion until they have adequately provisioned for forbearance loans and resolved breaches of single obligor limits.
“Our base case is that the banking arms of AccessCorp, ZenithBank, and FirstHoldco will not resume dividend payments before 2028. Most of their near-term cash flows will be directed towards absorbing provisioning costs and recapitalisation,” Rennaisance Capital said.
The investment banker noted that there are regulatory forbearance exposures of $304 million (Access), $887 million (FirstHoldco), $134 million (FCMB), $296 million (Fidelity Bank), $282 million (UBA), and $1.6 billion (Zenith Bank).
Banks are facing pressure to raise enough capital that can enable them to buffer against shocks. But they are also hit by the CBN’s 50 percent Cash Reserve Ratio (CRR) for banks, which Rennaisance Capital said is squeezing them. The cash reserve ratio (CRR) is the percentage of a bank’s deposits that it is required to hold as reserves with the CBN. High CRR lowers money available for credit and the vice versa.
“The 50% CRR regime is proving more detrimental to banks’ profitability and liquidity,” the analysts said in the report.
”From an operational perspective, a CRR reduction would enhance banking sector liquidity, reduce reliance on commercial paper issuance for liquidity management, and improve overall financial system efficiency.”
The report equally noted that GTCO and Stanbic IBTC have zero forbearance, noting that forbearance-related exposures are now being pushed straight to the profit-and-loss account and equity.
Shareholders could dump stocks
Bank shareholders say they may consider sell-offs. They told Economy Post that they now consider the banks’ stocks, which used to be investors’ delight, as risky.
“For me, I started selling off my bank stocks on Monday to re-invest the money in consumer goods and industrial stocks,” said a Lagos-based stock market trader, Mr Ogie Thomas.
“My portfolio used to be heavy on bank stocks but I am now selling off due to an imminent price crash,” he noted.
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Another shareholder of two of the tier-1 banks, Ms Uzo Nnakwe, said she no longer buys bank stocks since and has moved her money to mutual funds and other securities.
“I sold 500,00 shares of a bank out of the 1 million I had and moved the money to mutual funds and the industrial segment of the market where I can get my dividends. I cannot afford to stay for 3 years without getting any reward for my investment. The CBN announcement, for me, has brought uncertainty in the market,” she said.
One investor, Mr Kehinde Tunde-Brown, said the risk of investing in banks is high. “There is always an opportunity cost for every economic decision. If you keep your money in bank stocks, you won’t invest it in other assets. So, I have sold some stocks of key banks involved and I am now looking forward to re-investing the money this week elsewhere,” he said.
The stock market fell by 0.15 percent at the close of trading on Monday, with NGX Banking Index decreasing by 3.98 percent. The NGX Consumer Goods Index rose by 1.98 percent.
A financial analyst, Dr Israel Oketola, said this is the best time to invest in bank stocks. “This is the best time to invest part of your money in bank stocks. The prices will be low and there could be more sell-offs, but price appreciation will be seen by 2028. By end of 2028, a stock price of a bank stock can move from N20 to N70,” he said.
