Shareholders of Banks and Specialised Deposit-Taking Institutions (SDIs) may now have their fears allayed a little bit, as the Bank of Ghana (BoG) has now revised its earlier directive on the suspension of dividend pay-outs, yet not without banks meeting certain conditions.
The BoG in a notice to the said institutions directed that they desist from declaring or paying dividends to shareholders for the 2020/2021 financial year except banks and SDIs which meet a set of conditions outlined by the regulator. This directive does not reset the processes of banks’ dividend payments to periods before the pandemic, thus delaying normalization.
“… The Bank of Ghana by this Notice directs banks and SDIs to desist from declaring or paying dividends or distributing reserves to shareholders, and from making any irrevocable commitments regarding the declaration or payment of dividends to shareholders for 2020 and 2021 financial years, unless the… minimum criteria have been satisfied.”
Shareholders and Dividend non-payment
Dividend distributions were, in effect, suspended by the Bank of Ghana in March 2020 when the Covid-19 pandemic hit the economy. The BoG’s priority was to create an environment that allows for an unbroken flow of credit to households and businesses.
Ordinarily, this ‘reality’ did not sit well with shareholders, as their prize for owning bank shares had been short-circuited. Public sentiments were that the suspension of dividends was potentially going to affect investments in banks. And eventually, end up damaging the investment appeal of banks, making it difficult to raise capital later on when needed.
Since the last directive, shareholders have been squealing for a return of their ‘glory years’, considering the quicker-than-expected recovery of the economy due to vaccine rollouts.
The resilience of banks and SDIs have also been satisfactory, capital buffers are looking strong. The BoG indicated in its recent monetary policy press statement that the banking industry’s Capital Adequacy Ratio was 20.2 percent at end-February 2021. The typical question among shareholders therefore remains, why is now not the time for banks to begin paying dividends?
Indeed, it’s true that banks’ capital position is vastly improved. Particularly, in Ecobank’s case, its capital adequacy ratio saw an increase of 19.57%- a full six percentage points above its regulatory minimum.
BoG’s revised directive
This notwithstanding, the BoG hinges its current decision on the uncertainties surrounding the pandemic and its attendant impact on the banking sector. Albeit, this time around banks must meet certain requirements to be eligible for dividend payments to shareholders.
“In view of the uncertainties surrounding the pandemic and its potential impact on the banking sector, the Bank of Ghana by this notice directs banks and SDIs to desist from declaring or paying dividends… unless the following minimum criteria have been satisfied.”
Banks must comply with Sections 34 and 35 and other provisions in the Specialized Deposit-Taking Institutions Act, 2016 (Act 930).
More so, banks must comply with the CAR of 13%, Cash Reserve Ratio of 10% and NPL ratio of below industry average.
Furthermore, banks must comply with section 72 including all other relevant provisions on dividend payments as per the Companies Act, 2019 (Act 992). Also, all audited financial statements of Banks must be submitted to the Bank of Ghana.
Moreover, banks should have no restrictions imposed on their operations by the BoG in terms of Prompt Corrective Actions as per Act 930.
Lastly, qualified banks should have passed BoG’s stress test results indicating sustained capital buffer after payment of dividends.
Generally, the economy is in a better spot than last year, but uncertainties still remain. Comparing this revision with the previous indicates a good sign. Shareholders who still held on to their shares despite the ban can still hope to receive their dividends now.
Besides, ensuring the stability of the banking sector is a very important undertaking. The BoG assures that its outfit will continue monitoring risks that may destabilize the sector and issue further directives to that effect.
