The CBN’s directive to suspend dividend payments by banks has triggered concerns about its impact on bank stocks and the wider economy. The move has led to increased volatility and declining share prices in the banking sector, raising fears over recapitalisation efforts and investor confidence. Market players urge caution and call for a balanced approach to regulation that safeguards both the stability of banks and market confidence, thereby supporting economic growth, TEMITOPE AINA writes
The Central Bank of Nigeria’s sweeping directive suspending dividend payments, deferring management bonuses, and halting offshore investments has jolted investor confidence in Nigeria’s banking sector, with sharp reactions trailing the regulator’s move across the Nigerian Exchange and among industry watchers.
The new policy, issued on June 13, 2025, is designed to compel banks to boost provisions and strengthen capital buffers by addressing the burden of regulatory forbearance and ensuring full compliance with Single Obligor Limits.
The CBN’s recent circular outlined measures to strengthen the banking sector’s capital base amid ongoing regulatory reviews. It directed banks currently benefiting from forbearance, especially on credit exposures and Single Obligor Limits, to suspend dividend payments to shareholders, defer bonuses to directors and senior management staff, and halt investments in foreign subsidiaries or new offshore ventures.
According to analysts at Renaissance Capital Africa, the directive represents a decisive shift in the CBN’s regulatory stance, pushing banks to prioritise actual liquidity over accounting profits.
In its report titled ‘Nigerian Banks, Cash is King’, analysts at Renaissance Capital said in a sector update, “We support the CBN’s orthodox stance and believe that this more rigid position on enforcement should provide a new policy standard on new directives; too often the market has expected a flip-flop in policy or enforcement timing.”
The move, though aimed at long-term financial stability, has rattled capital markets. Share prices of banks with high forbearance exposure, such as Zenith Bank, First Holdco, Access Corporation, Fidelity Bank, and FCMB, have taken a hit, raising concerns over their ability to raise capital at attractive valuations ahead of the 2026 recapitalisation deadline.
Dividend freeze to remain in place until 2028
Under the new directive, banks are expected to pause both interim and final dividends until adequate provisioning for regulatory forbearance is made. Renaissance Capital estimates that Zenith Bank has the highest forbearance exposure, at 23 per cent of its gross loan book, amounting to $1.6bn. First Holdco follows with 14 per cent ($887m), and Access Corporation at 4 per cent ($304m).
Also, Fidelity Bank and FCMB carry exposures of 10 per cent ($296m) and eight per cent ($134m), respectively. In contrast, GTCO and Stanbic IBTC have zero per cent exposure and are thus unaffected.
According to the report, banks such as Access Corporation, First Holdco, and Zenith Bank may not be able to resume dividend payments until 2028, as their banking subsidiaries account for the bulk of group earnings.
The report stated, “We expect dividend payments henceforth to come from the non-banking subsidiaries of the above-mentioned groups. Given that the majority of these groups’ income is primarily from their banking business, we do not see any substantial dividend payments from their non-banking subsidiaries.”
GTCO remains the only bank expected to continue uninterrupted dividend payments, having fully provisioned and written off its forbearance exposure in 2024. UBA, with a manageable six per cent exposure, is expected to resume dividends by 2026.
However, FCMB Group Plc has assured its shareholders of dividend payouts in 2025 and the immediate years despite new regulatory measures from the Central Bank of Nigeria impacting banks with credit exposures under forbearance.
Cash profits take centre stage
Analysts at Renaissance Capital Africa noted that the directive has also highlighted a growing divergence between reported accounting profits and actual cash flow, with analysts calling for a greater focus on cash profits.
“We believe investors should focus on cash profits rather than the accounting profits reported by Nigerian banks,” Renaissance Capital noted.
The discrepancy arises from unrealised interest income on Stage 2 loans, which are often recognised in the profit-and-loss statements despite no corresponding cash inflows. For example, in 2024, Access Corporation reported N3.5 tn in interest income but received only N1.9 tn in cash, resulting in a N1.5 tn shortfall. Similarly, Zenith Bank reported N2.7 tn in interest income but received only N1.5 tn, with a shortfall of N1.3 tn.
“Regulatory forbearances do not reflect in accounting profit because forbearance loans are predominantly classified as Stage 2 loans,” the report explained.
“There is a negative correlation between banks’ forbearance exposures and their cash profits.”
These shortfalls, coupled with large unrealised FX gains such as Access Corporation’s N288.3bn and Zenith Bank’s N1.1tn in 2024, further distort the actual liquidity position, making accounting profits a less reliable measure for dividend capacity.
In Q1 2025, Access Corporation and First Holdco again reported negative cash profits, while Zenith Bank posted positive figures due to inflows from performing forbearance loans.
Recapitalisation fears intensify
The ban on dividends comes as banks brace for the 2026 recapitalisation deadline, requiring N500bn in minimum paid-in capital for international banking licences. Renaissance Capital warns that banks like Fidelity Bank, FCMB, and UBA, which still need to raise N194.4bn, N233.8bn, and N144.8bn, respectively, may face difficulty attracting investors due to the market’s adverse reaction to the dividend freeze.
“Given our expectation of an adverse market reaction, these institutions may be forced to issue additional shares at lower valuations to meet regulatory requirements,” the report stated.
Access Corporation and Zenith Bank, having completed their recapitalisation exercises, are not expected to be adversely affected, while GTCO and Stanbic IBTC remain insulated by virtue of their strong capital positions and continued dividend policies. However, Fidelity, FCMB, and UBA face the dual challenge of raising capital while managing market perception under constrained earnings visibility.
The CBN’s move signals a tough new era for Nigerian banks, where real cash flow will determine market trust and shareholder returns. While the long-term goal of stability may be achievable, the short-term toll on valuations and recapitalisation strategies remains a critical concern.
NGX continues bearish trend
On Monday, the Nigerian Exchange Limited began the new trading week on a bearish note as the market capitalisation declined by N108bn, driven largely by sell-offs in banking stocks following a directive from the Central Bank of Nigeria. The directive, which suspended dividend payments, bonuses, and new foreign investments by banks operating under regulatory forbearance, triggered panic selling among investors, leading to a sharp downturn in key market indicators.
At the close of trading on Monday, the All-Share Index depreciated by 170.77 points, representing a 0.15 per cent decline, to close at 115,258.77 points. This was down from 115,429.54 points recorded at the end of trading last Friday. Consequently, the overall market capitalisation dropped from N72.82 tn to N72.70 tn, marking a day-on-day loss of N121 bn.
The Nigerian Exchange recorded a loss of N183bn at the close of trading on Tuesday, as bearish sentiments continued to weigh on key market indicators, dragging several blue-chip stocks into negative territory.
Market data from the NGX revealed that the All-Share Index declined by 348.61 points, or 0.3 per cent, to close at 114,910.16, compared to the previous day’s close. The dip was also reflected in the market capitalisation, which dropped from N72.7 tn to N72.5 tn, representing an N183 bn loss in investor value.
Shareholders raise concerns over policy impact
In an interview with The PUNCH, the National Chairman of the Progressive Shareholders Association of Nigeria, Boniface Okezie, expressed reservations about the CBN’s approach, urging the regulator to consider the long-term impact of its pronouncements on the banking sector and the wider economy.
“The CBN must be careful not to jeopardise the tremendous efforts of commercial banks in Nigeria,” Okezie said in a statement. “Banks have been working hard to meet the recapitalisation requirement of N500 billion each, and investors have supported these efforts by providing capital. Shouldn’t they be rewarded with dividends at the end of the financial year?”
He warned that the CBN’s recent directive and statements were already causing bank stocks to free-fall on the exchange, risking a sell-off that would be detrimental to the economy at a time when Nigeria’s economy is struggling.
“The regulator should avoid worsening the already battered economy with reckless statements. Most banks listed on the NGX are not part of the so-called CBN forbearance list, yet the generalised pronouncements are negatively affecting their shares and shareholders,” Okezie added. “Banks have made provisions for non-performing oil and gas loans from their profits, and whatever remains should be allowed to fund dividends without penalising shareholders.”
Market operators fault CBN communication strategy
Echoing similar concerns, the Chairman of the Association of Securities Dealing Houses of Nigeria, Sam Onukwue, urged calm and caution but also criticised the timing and communication strategy of the CBN.
“While we understand the need for regulatory compliance, the directive to suspend dividend payments by banks was ill-timed and has sent shockwaves through the market. The announcement of such price-sensitive information publicly has created unnecessary panic among investors, potentially triggering a sell-off of bank shares on the NGX, where the banking sector dominates daily transactions.” Onukwue added,
He continued, “This directive could hinder banks’ efforts to raise capital, especially those that have yet to commence their capital raising before the June deadline. We urge the CBN to consider alternative ways to manage this situation discreetly to minimise speculation and volatility.”
Banks still strong, ASHON says
Despite the concerns, ASHON reassured investors of the underlying strength of Nigerian banks.
“Nigerian banks have strong fundamentals and potential for growth,” Onukwue said. “Investors should not panic but instead consult certified stockbrokers for informed guidance during this period.”
Market reacts with sell-offs amid uncertainty
Market data confirms the effects of the directive. Since the announcement, bank stocks have seen increased volatility and declines in share prices, with some investors reportedly selling off shares amid fears over reduced returns.
The banking sector remains critical to Nigeria’s economic growth, facilitating credit and financial services across industries. Market analysts caution that any prolonged uncertainty could hamper these institutions’ ability to mobilise the capital needed to sustain and grow their operations.
Earlier, The PUNCH reported that Market analysts have attributed the sharp decline primarily to investor anxiety and panic selling triggered by the CBN circular.
In its daily report, Cowry Assets Management Limited identified the directive suspending dividend payouts, director bonuses, and new foreign investments as key drivers of the market downturn.
Similarly, Cardinalstone Capital Markets noted that the losses were “driven primarily by weakness in banking names, following the market reaction to the recent CBN circular.”
