CBN directs banks to stop the payment of dividends, bonuses, foreign investments

The central bank of Nigeria (CBN) has issued a new directive that instructs banks operating under regulatory tolerance to suspend the payments of dividends, defer bonuses for managers and stop investments in foreign branches or offshore initiatives.

This temporary suspension, according to CBN, is part of a strategy to strengthen capital buffers, improve the resilience of the budget and guarantee the conservation of prudent capital in the banking sector.

The directive applies specifically to banks that currently benefit from tolerance in relation to credit exposures and at the limit to a single obligation (Sol) violate the conditions that suggest potential stress in the institutions concerned.

The central bank directive has declared that the suspension will remain until it is able to independently verify the adequacy of the capital of the banks.

“This temporary suspension is until the time in which regulatory tolerance has completely released and the adequacy of the capital of banks and provisioning levels are independently verified to be fully compliant with the prevailing standards. This supervision measure has the purpose of ensuring that internal resources are maintained to satisfy existing and future obligations and to support the ordered restoration of the prudential positions.

The directive states that the banks affected by regulatory tolerance must:

Suspend all payments of dividends to shareholders, defer the bonuses to high administrators and staff; Abstain from new investments in foreign branches or offshore initiatives. “

These restrictions remain in force until the banks concerned come out completely to the tolerance regime and only after their levels of adequacy and provision of the capital provision will be verified independently to meet the prevailing regulatory standards.

This is the last of a series of increasingly close checks by the Apex bank aimed at reincaring in excessive assumption of risks and bad capital management by the banks.

In April 2022, the CBN extended the tolerance of the interest rate on the loans of an additional year, a move designed to relieve the pressure on the borrowers during the recovery of Covid-19, but also left the banks exposed to credit risks increased without immediately recognizing potential losses.

By September 2023, the CBN issued a circular that prohibited banks to use the earnings of the FX revaluation for dividends or other capital account expenses, directing that these revaluation profits should be deposited in a “special regulatory reserve” up to further notice.

In a follow-up in March 2024, the CBN doubled on this position, warning the banks against the payment of dividends using the FX earnings, in particular given the temporary and volatile nature of these sleeves. He recommended banks to keep funds to increase their capital positions and better absorb shocks from the unification of Nigeria multiple exchange rates.

The latter directive now expands the restriction, not only on how profits are used, but who can receive them and where they can be invested.