AfricaPress-Tanzania: NMB Bank is the only listed lender which met all conditions warranting the issuance of dividends, following a new circular issued by the Bank of Tanzania (BoT) last week.
The bank, according to recent financial statements, posted cost to income ratio (CIR) of 50 per cent and non-performing loans (NPLs) of 5.0 per cent to qualify for the issuance of dividends and bonuses for last year.
BoT, last week, issued a new circular with immediate effect that banks are allowed to offer bonuses and dividends after maintaining CIR below 55 per cent and NPLs not exceeding 5.0 per cent.
Thus, Tanzania Securities said on its weekly market blast that NMB was likely to be the most active counter in the banking sector after meeting the conditions stated by BoT regarding NPL and CIR.
“NMB is the only bank that has met all conditions, meaning the bank can pay dividends [for 2020],” Tanzania Securities said on Monday.
After banks released their financials, analysts said, NMB Bank saw income rise faster than expenses, hence a drop in its CIR from 56 per cent to 50 per cent, but right at the gate of 5.0 per cent for NPLs.
However, Orbit Securities, the largest stock brokerage firms in the country, said CRDB Bank maintained an NPL of 4.2 per cent, but its CIR was well above the threshold at 61.6 per cent.
“Performance of both banks was still impressive as profits grew by 39 per cent for NMB, maintaining its position as the most profitable bank in the economy and by 37 per cent for CRDB. With the release of annual numbers, NMB Bank has met both thresholds while CRDB Bank still has CIR 61.6 per cent,” Orbit said in its weekly market synopsis.
CIR for CRDB Bank dropped from 63.6 per cent to 61.6 per cent, as a result of increased total incomes and despite an increase in non-interest expenses.
Orbit projected that both banks, the two largest ones, which control almost 40 per cent of the total market share in terms of assets will issue hefty dividends, but subjected to BoT approval.
“Subject to eligibility and approval from the central bank projected dividends for CRDB and NMB hovers around 23/- and 137/- per share respectively,” Orbit said.
The BoT circular despite its central goal of promoting the banking sector and ensure that the sector is sound, safe and stable, create a new dividend dilemma for shareholders for listed banks at Dar es Salaam Stock Exchange (DSE).
DSE has eight listed banks and out of them only one NMB is eligible for dividend issuance. Most banks have CIRs higher than the acceptable level of 55per cent while some have NPLs higher than the threshold of 5.0 per cent.
“In the absence of the circular,” Orbit said, “seven out of the eight listed banks were profitable up to September 2020 and would likely be eligible to disburse dividends with the discretion of the managements of the respective banks.”
Other listed banks are Maendeleo owned by Lutheran Church, Mkombozi by Roman Catholic Church, Mwalimu, Yetu Microfinance, MuCoBa and DCB.
“Constraints in dividend payments may have dire effects on the prices of these counters as well as the market flow of transactions,” Orbit said.
Analysts have it that compliance of both requirements may lead to job layouts and have an effect on the national credit growth. More than 50 per cent of the non-interest expenses in most banks originate from salaries and benefit costs.
“The outcome is likely to be redundancies and retrenchments. To meet the threshold ratios, even thriving businesses may need to undercut expenses,” Orbit warned.
The last reported national NPL ratio by BoT was 11 per cent last June. Lowering that ratio to lower than 5.0 per cent in two years shall require a lot of work and at times may lead to reluctance by some institutions to issue credit.
