The Central Bank of Kenya (CBK) has loosened restrictions on dividend payments by commercial lenders as the country recovers from the Covid-19 economic fallout.
Multiple bank executives reckon that the banking regulator has dropped its tough stance on dividends, freeing lenders to resume payouts to shareholders.
The CBK last August asked commercial banks to seek its approval ahead of paying dividends for the year ended December, which saw top lenders freeze payments.
The dividend caution came as bank earnings plunged in the first half of last year, hit by higher provisions for bad loans on the back of the Covid-19 pandemic that triggered layoffs and business closures.
But the lenders have turned the corner, and most have reported triple-digit profit growth and built surplus capital as costs for loan defaults fall and banks resume lending.
This outlook has made the CBK calm, bankers say, despite the banking regulator not having issued a formal notice of loosening the restrictions imposed at the peak of the Covid-19 crisis.
“CBK was concerned on dividends and the shape they took whether cash or non-cash because at that point they were worried of liquidity in the market,” said John Gachora, the managing director of NCBA Group, #ticker:NCBA which in October paid an interim dividend of Sh0.75 a share.
"Today, I don’t think they are worried and the banks have weathered Covid-19; there is enough liquidity in the market. So they are not concerned anymore," he added.
This is in tune with global trends where regulators in the US, Europe and Australia have lifted their curbs on dividends.
Kenyan banks’ attractive dividend yields are a big draw for investors, and the signal from the CBK looks set to boost the sector’s valuation. The Nairobi Securities Exchange #ticker:NSE listed banks nearly halved their dividend payouts last year to Sh17.1 billion from Sh31.7 billion a year earlier. The dividend declined over the two years from 2018’s peak of Sh40.5 billion.
The dividend cuts came as lenders sought to preserve cash amid rising defaults and increased provision for bad debt in the wake of the Covid-19 pandemic. All lenders were required to resubmit their internal capital adequacy assessments by the end of October last year to the central bank in what reflected the impact of the pandemic.They were also be expected to discuss their plans with the regulator, before deciding on dividends distribution."We are still in the environment of conserving cash but also where we see opportunities to […]