CBN prohibits banks with bad loans from paying dividends

Deposit Money Banks and discount houses with bad loans and low capital base had been stopped by the Central Bank of Nigeria from paying dividends to shareholders.
The apex bank took the stance because of the increasing non-performing loans.
This comes barely a week to the release of the 2017 financial year’s annual reports by commercial banks in Nigeria.
The CBN handed down this directive in a letter dated January 31, 2018.
The CBN’s minimum NPL threshold for banks is five per cent, meaning lenders’ bad loans should not exceed five per cent of their loan books.
It sets different minimum CARs for banks in the country: 16 per cent for those it considers to be systemically important; 15 per cent for those with international banking licences; and 10 per cent for the rest.
“Globally, retained earnings have been identified as an important source of growing an institution’s capital. Advantages of retained earnings include being a source of long-term finance; being easier and cheaper to raise than external finance; curtailment of financial risks; and improving liquidity and profitability,” the letter read in part.

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