By Chinwendu Obienyi and Chukuma Umeorah


Shareholders in the Nigerian capital market have voiced their concerns about the potential negative consequences of the Central Bank of Nigeria (CBN)’s directive to banks disallowing them from including their profit calculations for dividend payments.

According to the shareholders, such a directive could erode shareholders’ value by limiting the returns they receive from their investments in banks and impact the attractiveness of investing in Nigerian banks.

The apex bank in a letter to the banks titled; Impact of recent policy reforms- Prudential Guidance to the banking sector, recently reiterated its position on how banks utilize their FX revaluation gains referencing a previous circular dated September 11, 2023. 

The CBN stated that FX revaluation gains should serve as a buffer to cushion significant movement in the FX rate and should not be used to pay dividends or operating expenses. 

It stated, “Further to our letter dated September 11, 2023, referenced BSD/DIR/CON/LAB/16/020 on the above subject, the Central Bank of Nigeria (CBN) wishes to reiterate that banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movement in the FX rate. In this regard, banks shall not utilize any such revaluation gains to pay dividends or meet operating expenses”.

Apparently, this directive did not sit well with investors who were relying on dividends for income especially as the country’s economy is facing soaring inflation, volatile exchange rate, insecurity and the rising energy costs.

Speaking to Daily Sun via a telephone chat, the National Coordinator, Progressive Association of Nigeria (PSAN), Boniface Okezie, criticized the lack of transparency surrounding the rationale behind the apex bank’s directive.

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Okezie argued that without clear explanations or justifications, it has become difficult for investors to understand the implications of such a directive on the financial health and performance of banks. Questioning the necessity of CBN’s directive, he said that banks, as businesses, should be allowed to pay dividends if they have gained from FX revaluation. “Why must the CBN give such directives? Are the banks not running a business? If they have gained through the FX revaluation, then they should be allowed to pay dividends. The bank carries out transactions in FX and local currency and so how can the CBN differentiate gains made from forex and that which is made from interest yields or interests from loans.

Some of these banks have put in a lot in their business including paying taxes to the government and so the CBN has no right to come up with such directive”, he said.

Explaining further, Okezie noted that the banks are registered under CAMA guidelines which states that when a company makes profit, it should pay a dividend. He maintained that the apex bank is overstepping its regulatory bounds by interfering in areas that should naturally be handled by commercial banks such as financing agriculture and making donations.

“The CBN is creating a lot of problems that they cannot solve. They are confused and are dabbling into many areas. Their primary aim is to regulate the industry; monetary aspect, but today, it has involved itself in what naturally the commercial banks should handle like financing agriculture, making donations and all sorts. It is as if they are in competition with the commercial banks. That is why they have not gotten concrete ideas on how to maintain the monetary policies that can stabilize the economy”, Okezie said.

For his part, Chairman, Ibadan Zone Shareholders Association, Eric Akinduro, acknowledges the existing over-regulation in the banking sector but sees some potential benefits in the CBN’s directive for sustainability and control, particularly regarding FX.

He however stated that the directive may lead to reduced dividends for shareholders, which could be concerning for investment risk.

“This directive is going to reduce the dividends that we are expecting from banks this year. If you remove the forex exchange gains from the balance sheet of these banks, you realize that they would have very little profit. In essence, if they are not allowed to pay dividends from the FX gains, then we should not expect bogus dividends as expected.

The shareholders not getting enough dividends means that our investments are at great risk. The manufacturing sector did not declare dividends as a result of the FX losses, now the banking sector will not declare dividends because of the FX gains, so it means that from whatever angle, the shareholders are the ones that will suffer. However, we expect that as the economy recovers, things will get better”, Akinduro said.