BoU asks banks to continue holding dividend payments

Bank of Uganda (BoU) has asked commercial banks to continue holding discretionary payments, among which include dividends and bonuses to shareholders. 
The directive, which does not indicate when the suspension will be lifted, seeks to allow banks stock up enough capital for operational needs until when the economy has fully recovered from the impact of Covid-19. 
 
Speaking during the presentation of the Stanbic Bank financial results in Kampala yesterday, Mr Hannington Wasswa, the Bank of Uganda director commercial banking, said the Central Bank was still instituting the Basel II framework for commercial banks, which requires them to hold capital for different risks that are being experienced or are threatening to reoccur.
“Some of these risks are credit, market, and operational, consistency risks. You need to hold adequate capital,” he said, noting Covid-19 risks in the economy still pose wider economic challenges to the larger economy but particularly to financial institutions. 

“The best alternative for now, we are requesting Stanbic Bank and the other banks to hold on paying dividends. So [investors] give us some little time on this issue,” he said. 
On March 24, 2020, the Central Bank in a circular sent to all supervised financial institutions directed that commercial banks should take priority to reserve capital over discretionary payments such as dividends and bonuses. 
“Capital reservation to support the real economy and absorbed losses should take priority over discretionary distributions like dividend [and] bonus payments. Therefore, all payments of discretionary distributions are deferred until further notices or until explicit authorisation is given,” the Central Bank said.  

Yesterday Stanbic Bank noted that it was waiting on a review by the Central Bank on a request in which it has sought guidance on the payment of dividends for the year ended 2020, before it could make a decision for similar payments for the period ended December 2021. 
“Bank of Uganda put in place enhanced guidelines for all supervised financial institutions, in relation to discretionary payments, including dividends, for purposes of capital preservation. The proposed dividends for 2020 remain under review by Bank of Uganda, the results of which will inform the 2021 dividend recommendation of the directors,” Stanbic said in notes published together with its financial results.

It was not immediately clear how much commercial banks and other supervised financial institutions will be holding back in dividend and bonus payments. 
Ms Anne Juuko, the Stanbic Bank chief executive officer, told market analysts, journalists and investors that they were still waiting for the approval of payment of the Shs110b dividend that the bank had recommended for the financial year 2020. 
Stanbic has not indicated how much it will payout in dividends for the period ended December 2021. 

Investing in oil       
Ms Anne Juuko, the Stanbic chief executive officer also noted that the bank had decided to retain some capital it has been generated to invest in oil following the recent signing of the Final Investment Decision, an avenue that is expected to create a lot of investment and demand for capital.