No dividends, as banks struggle to raise GH¢400m

Despite impressive performances in 2017, banks are not likely to deal out dividends this year; at least not so generously, as they struggle to meet the new GHC 400 million stated capital set by the central bank.

With annual general meetings coming up in a matter of weeks, banks will be requesting shareholders, through special resolutions, to authorise the transfer of funds from various income surplus accounts to shore-up stated capital.

Even though direct cash dividends may be out of the question for some shareholders, their banks may reward them with bonus shares as compensation.

The central bank provides banks with three options to increase the stated capital: fresh injection of capital, capitalisation of income surplus, and a combination of fresh capital injection and capitalisation of income surplus.

Societe Generale, CalBank, Ecobank, Fidelity Bank, Access Bank, Energy Commercial Bank and several others will be leveraging several opportunities – including bonus shares, rights issues, private placements, Initial Public Offerings – to raise the needed funds.

In its 2017 annual report, Societe Generale – which currently has a stated capital of GH¢138million but an income surplus of GH¢142.8million – will be asking shareholders to authorise the transfer GH¢97million from income surplus to stated capital.

Looking to increase the number of authorised shares from 500,000,000 to 1,000,000,000, it will also seek to undertake a bonus issue by issuing one ordinary share to each existing shareholder for every six ordinary shares held.

It will also embark on a renounceable rights issue to raise up to GH¢170,000,000, subject to applicable regulatory approvals.

“The Board of Directors has recommended that no dividend be paid for the year ended 31st December 2017, to enable compliance with Bank of Ghana’s Directive with the minimum stated capital of GH¢400million,” Kofi Ampim, Board Chair of Societe Generale, will tell shareholders at its upcoming AGM.

CalBank, with a stated capital of GH¢100million but an income surplus of GH¢275.9million, will also seek to increase its authorised shares from 1,000,000,000 to 2,000,000,000 ordinary shares by amending and adopting Regulation 7 of the Bank’s Regulations.

It will ask shareholders to authorise an increase in stated capital through the transfer of GH¢171.68million from income surplus to stated capital, to approve a transfer of GH¢78.32million from income surplus to stated capital, and to undertake a capitalisation issue by issuing 1 ordinary share to each existing shareholder for every 7 ordinary shares held.

Chairman of CalBank’s board, Paarock Asuman VanPercy, will tell shareholders next month that the board will not be recommending payment of dividends, as this would have the consequence of reducing funds available for capitalisation.

“In lieu of the dividend payment, the Board is recommending a bonus issue of one share for every seven shares held. This should compensate shareholders for not receiving a direct cash dividend, at the same time providing value to the bank for the income surplus transfer.”

Access Bank, with a stated capital of GH¢145million and an income surplus of GH¢44.3million, last year got approval from shareholders to raise GH¢450million via a Rights Issue and a bond programme.

Fidelity Bank, with a stated capital of GH¢265million and income surplus of GH¢38.6million, will be requesting shareholders to authorise the transfer of GH¢20million from profit and loss reserves to stated capital; and the issue of non-redeemable preference shares up to a value of GH¢70million through a private placement.

In its latest sectoral report, the Bank of Ghana said the banking industry remained “liquid, sound and profitable” in 2017, as reflected by the performance of key Financial Soundness Indicators (FSIs).

The report added that the industry’s income statement recorded an improved performance in December 2017, arising mainly from increased growth in banks’ net operating income and income before tax.

Despite the growth, headwinds remain. Asset quality, which is a key risk is the industry’s Non-Performing Loans (NPL) ratio, edged up in December 2017.

The industry’s stock of NPLs increased from GH¢6.14billion as at end-December 2016, to GH¢8.58billion in December 2017 – representing 39.8 percent year-on-year growth.

The current stock of NPLs translated into an NPL ratio of 22.7 percent in December 2017 from 17.3 percent in December 2016.

The report notes, however, that the NPL ratios are expected to improve as banks repair their balance sheets and tighten credit risk management practices.