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CBN Attacks Bank Stocks

The Central Bank of Nigeria (CBN) recently put a policy that banks with huge non-performing loans should stop paying dividends. In other words, the banks cannot pay dividend until it has written off the bad loans.

This is really strange: a central bank telling banks to choose depositors over their “owners”. Yes, the investors are the owners of the banks. If CBN does indeed have this power, to make this directive, and enforce compliance, investing in Nigeria is now a game of cards.

Bank stocks have appreciated over the last 18 months. This new directive would certainly cool that momentum. In such, some of the banks affected may see massive sell-offs.

Specifically, the President, Proactive Shareholders Association of Nigeria, Taiwo Oderinde, in an interview with The Guardian, said: “CBN is only interested in protecting the banks’ depositors at the expense of the shareholders. Every bank has its own board that has the prerogative to decide to pay dividend.

“It is not CBN’s responsibility to decide when or when not to pay dividend to their investors. It is an anti-investors policy and directive, and we will challenge it in court,” he said.

Largely, I would have preferred for CBN to set its ratios and allow banks to comply. If they are having poor loan performances, those should be disclosed.  Investors would build such into the pricing of the equities.

Notwithstanding, the real role CBN should play is to make sure banks have strong guidelines to reduce insider loans which are typically the key drivers of these bad loans.

 

admiral4eva has reacted to this post.
admiral4eva

Many decisions in the land are often taken via one dimensional thought process. Most times you  struggle to distinguish between politicians and technocrats here. Depositors' money are people's money, same goes for investors'; if you are losing money, you are losing money, no real 'superiority' when it comes to losing money.

But in all things, Nigeria remains a puzzle; that eminent domain thing...