February 20, 2018 / 1:46 PM / a year ago

UPDATE 1-Nigerian lenders fall for second day on dividend restriction worries

(Adds details, share prices, analyst comment)

By Chijioke Ohuocha

LAGOS, Feb 20 (Reuters) - Nigerian mid-sized lenders fell for a second day on Tuesday, reflecting investor concern about the central bank’s policy to restrict dividends for banks that breach its non-performing loan limit.

Commercial banks with NPL ratios above 10 percent will not be allowed to pay dividends, the central bank said in a circular seen by Reuters. The regulatory minimum for NPLs is 5 percent.

The earnings season starts next month and investors are worried that some lenders may not be able to pay out dividends despite reporting profits, due to higher provisions against loan loss and inadequate capital buffers.

Two central bank officials have said that four lenders are operating with too many non-performing loans on their books and with liquidity ratios below the minimum requirement.

Unity Bank and Sterling Bank fell the most, with both tumbling over 9 percent, adding to more than 4 percent losses on Monday.

Diamond Bank, which announced plans to sell its West African operations last year to focus on Nigeria, fell 8.5 percent while FBN Holdings shed 6.8 percent.

FCMB, Union Bank, Skye Bank and Wema Bank each shed more than 4 percent to lead the banking index down by 1.26 percent.

Nigeria’s main share index fell to a six-week low after lenders sank but later recovered in late trades thanks to gains in heavy weight Dangote Cement, which accounts for around a third of the market’s capitalisation.

Banking analysts at Renaissance Capital said top-tier lenders GT Bank and Zenith Bank pay out around 50 percent of their earnings as dividends, which is the highest in their coverage. However, lenders could take a more conservative view this year due to stricter rules on capital.

Several Nigerian banks expanded rapidly a decade ago, encouraged by rising commodity prices. But prospects dimmed with a sharp fall in commodity prices since mid-2014 that triggered currency crises and many loans turned sour.

NPLs stood at 15.07 percent last June, well above the 5 percent regulatory limit, while capital adequacy ratios for the industry worsened to 11.51 percent last June, against a regulatory minimum of 15 percent for banks with an international license. (Reporting by Chijioke Ohuocha; Editing by Robin Pomeroy and Susan Fenton)

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