BoG tightens noose around dividend payments for banks

The Bank of Ghana (BoG) has announced stringent conditions that banks must meet to be able to share their 2020 and 2021 profits with shareholders.

The central bank said in a statement that banks wishing to pay dividend for the 2020 and 2021 financial years must show proof of capital adequacy ratio (CAR) of 13 per cent, cash reserve ratio of 10 per cent and non-performing loans (NPL) ratio of below industry average at all times.

It said BoG’s stress test results on the specific bank must also show that “it will maintain sufficient capital buffers after payment of dividends.”

In the notice issued to banks on April 14, the regulator directed that a prospective dividend paying bank must also comply with the relevant provisions of the Banks and Specialised Deposit-Taking Institutions (BSDI) Act, 2016 (Act 930) on dividend payments, submit its audited financial statements to BoG as well as have no restrictions imposed on its operations by the central bank by way of Prompt Corrective Actions (PCAs) as per Act 930.

Seek approval

It further directed interested banks to seek approval in writing from the central bank before proceeding to announce and pay dividends or “making any irrevocable commitments regarding the declaration or payment of dividends to shareholders.”

BoG said banks must comply with the provisions of the notice “immediately.”

The bank said the measures were part of efforts to boost resilience in the banking sector in the face of the COVID-19 pandemic.

The bank said last year that its interventions in the wake of the COVID-19 pandemic has resulted in the release of about GH¢4 billion in extra liquidity into the economy to help boost economic activities.

Earlier directive

The notice was a follow-up to an earlier one issued last year by the central bank to help protect the banking sector against the fallouts of the COVID-19 pandemic.

It was also meant to give guidance on the utilisation of capital and liquidity released to banks and specialised deposit-taking institutions (SDIs) by BoG to contain the impact of the COVID-19 pandemic on the banking sector.

It directed all banks and SDIs to desist entirely 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, until further notice.

“In view of the uncertainties surrounding the pandemic and its potential impact on the banking sector, BoG 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,” it said.

It added that that directive was subject to the satisfaction of conditions that included compliance with Sections 34 and 35 and all other relevant provisions of Act 930, compliance with the CAR, CRR and NPL ratio of below industry average at all times.

Resilience of sector

The statement said measures taken by BoG during the pandemic had ensured that the banking sector remained robust and resilient.

“However, BoG shall continue to monitor developments in the industry to identify emerging risk and potential threats to the safety and soundness of the banking sector and shall issue further notices as may be required,” it said.

Bankers’ position

When contacted, the Chief Executive Officer of the Ghana Association of Bankers, Mr John Awuah, said the directive by the regulator was aimed at ensuring that banks maintained the needed prudential buffers against uncertainties and particularly during the pendency of the COVID-19 pandemic.

He said the directive did not mean that banks were barred from declaring and paying dividends but that the regulator would review dividend declaration and payments on a case by case basis before such payments could be made for the referenced period.

According to Mr Awuah, the directive was meant to ensure that the players “meet all prudential requirements and maintain adequate prudential buffers.”

He said the association found the directive as an effort to enhance the buffers that banks must develop and maintain against emerging risks.