Commercial banks have indicated that payment of dividends for the period ended December 2020 will have to be approved by Bank of Uganda.
This will be a shift away from the tradition in which the discretion to approve dividend pay-outs has been a reserve of board of directors and annual general meetings.
“The directors have resolved to recommend to shareholders at the forthcoming annual general meeting, a final dividend for the year [ended] 2020 of Shs1.95 per share. The final dividend payment will be made upon approval from the Central Bank,” notes published along the Stanbic Bank financial results, reads in part.
In a media briefing last week, Stanbic indicated it had already written to the Central Bank seeking its approval.
However, Stanbic, which is Uganda’s largest bank by assets, did not indicate whether it had already secured the approval or not.
Similarly, dfcu Limited, which indicated the board had proposed a dividend payout of Shs132.17 per share less of withholding tax, also tagged the pay out to an approval from the Central Bank.
“The payment will be subject to approval from Bank of Uganda,” dfcu said, highlighting a March 24, 2020 circular in which the Central Bank had asked commercial banks to hold back dividends and other discretionary payments as a measures to promote capital resilience in the wake of the Covid-19.
Yesterday, Ms Charity Mugumya, the Bank of Uganda director communications, said that whereas dividend payments had previously been a function of the board and annual general meetings, in the current circumstances, the Central Bank must approve the actual payout.
“Given the prevailing economic situation brought about by Covid-19, banks must seek and get the Central Bank’s approval [to pay] what is approved by the annual general meeting,” she said.
Dr Adam Mugume, the Bank of Uganda director for research, told Daily Monitor that for any bank to pay out dividends “should first ensure that its capital is soundly strong to cater for unforeseen shocks such as Covid-19” .
Details contained in the banks’ financial results indicate there will be a reduction in how much will be paid out due to a reduction in overall profits and market performance.
Stanbic Bank indicated that it will pay out Shs95b for the period ended December 2020, which is a reduction of close to Shs15b paid out last year. The bank had during the period paid out Shs110b.
The reduction has been blamed on Covid-19 that has impacted the entire banking sector, forcing a drop in profits by 4 per cent, according to Bank of Uganda.
In its quarterly financial stability review, Bank of Uganda indicated that banking sector profits for the year ended December 2020 had declined by Shs39.1b due to Covid-19 related disruptions, among which included a three month total lockdown that had disrupted customer’s capacity to repay loans.
For instance, during the period, the Central Bank indicated, sector profitability had declined from Shs883.4b for the year ended December 2019 to Shs844.3b in 2020.
However, other banks including Equity have already indicated that they will not pay out due to a knock on profits as well as large provisioning for the increase in non-performing loans.