The CBN’s directive to suspend dividend payments by banks has triggered concerns about its impact on bank stocks and the wider economy. The move has led to increased volatility and declining share prices in the banking sector, raising fears over recapitalisation efforts and investor confidence. Market players urge caution and call for a balanced approach to regulation that safeguards both the stability of banks and market confidence, thereby supporting economic growth, TEMITOPE AINA writes
The Central Bank of Nigeria’s sweeping directive suspending dividend payments, deferring management bonuses, and halting offshore investments has jolted investor confidence in Nigeria’s banking sector, with sharp reactions trailing the regulator’s move across the Nigerian Exchange and among industry watchers.
The new policy, issued on June 13, 2025, is designed to compel banks to boost provisions and strengthen capital buffers by addressing the burden of regulatory forbearance and ensuring full compliance with Single Obligor Limits.
The CBN’s recent circular outlined measures to strengthen the banking sector’s capital base amid ongoing regulatory reviews. It directed banks currently benefiting from forbearance, especially on credit exposures and Single Obligor Limits, to suspend dividend payments to shareholders, defer bonuses to directors and senior management staff, and halt investments in foreign subsidiaries or new offshore ventures.
According to analysts at Renaissance Capital Africa, the directive represents a decisive shift in the CBN’s regulatory stance, pushing banks to prioritise actual liquidity over accounting profits.
In its report titled ‘Nigerian Banks, Cash is King’, analysts at Renaissance Capital said in a sector update, “We support the CBN’s orthodox stance and believe that this more rigid position on enforcement should provide a new policy standard on new directives; too often the market has expected a flip-flop in policy or enforcement timing.”
The move, though aimed at long-term financial stability, has rattled capital markets. Share prices of banks with high forbearance exposure, such as Zenith Bank, First Holdco, Access Corporation, Fidelity Bank, and FCMB, have taken a hit, raising concerns over their ability to raise capital at attractive valuations ahead of the 2026 recapitalisation deadline.
Dividend freeze to remain in place until 2028
Under the new directive, banks are expected to pause both interim and final dividends until adequate provisioning for regulatory forbearance is made. Renaissance Capital estimates that Zenith Bank has the highest forbearance exposure, at 23 per cent of its gross loan book, amounting to $1.6bn. First Holdco follows with 14 per cent ($887m), and Access Corporation at 4 per cent ($304m).
Also, Fidelity Bank and FCMB carry exposures of 10 per cent ($296m) and eight per cent ($134m), respectively. In contrast, GTCO and Stanbic IBTC have zero per cent exposure and are thus unaffected.
According to the report, banks such as Access Corporation, First Holdco, and Zenith Bank may not be able to resume dividend payments until 2028, as their banking subsidiaries account for the bulk of group earnings.
The report stated, “We expect dividend payments henceforth to come from the non-banking subsidiaries of the above-mentioned groups. Given that the majority of these groups’ income is primarily from their banking business, we do not see any substantial dividend payments from their non-banking subsidiaries.”
GTCO remains the only bank expected to continue uninterrupted dividend payments, having fully provisioned and written off its forbearance exposure in 2024. UBA, with a manageable six per cent exposure, is expected to resume dividends by 2026.
However, FCMB Group Plc has assured its shareholders of dividend payouts in 2025 and the immediate years despite new regulatory measures from the Central Bank of Nigeria impacting banks with credit exposures under forbearance.
Cash profits take centre stage
Analysts at Renaissance Capital Africa noted that the directive has also highlighted a growing divergence between reported accounting profits and actual cash flow, with analysts calling for a greater focus on cash profits.
“We believe investors should focus on cash profits rather than the accounting profits reported by Nigerian banks,” Renaissance Capital noted.
The discrepancy arises from unrealised interest income on Stage 2 loans, which are often recognised in the profit-and-loss statements despite no corresponding cash inflows. For example, in 2024, Access Corporation reported N3.5 tn in interest income but received only N1.9 tn in cash, resulting in a N1.5 tn shortfall. Similarly, Zenith Bank reported N2.7 tn in interest income but received only N1.5 tn, with a shortfall of N1.3 tn.
“Regulatory forbearances do not reflect in accounting profit because forbearance loans are predominantly classified as Stage 2 loans,” the report explained.
“There is a negative correlation between banks’ forbearance exposures and their cash profits.”
These shortfalls, coupled with large unrealised FX gains such as Access Corporation’s N288.3bn and Zenith Bank’s N1.1tn in 2024, further distort the actual liquidity position, making accounting profits a less reliable measure for dividend capacity.