Skipping Dividends Saves Banks Ksh50bn

Commercial banks retained profits increased by Ksh.49.6 billion in three months to June as most lenders skipped paying interim dividends to shareholders.

According to data from the Central Bank of Kenya (CBK), retained profits for the banking industry closed the quarter at Ksh.91.3 billion.

Lifting the industry’s total capital by 1.3 per cent to Ksh.906.7 billion at the end of June from Ksh.894.7 billion in the quarter ended March.

Core capital increased by nearly one per cent to Ksh.770.4 billion from Ksh.763.9 billion previously, firming up the sector’s capital adequacy.

“Kenya’s banking sector is well capitalized and meets the minimum capital requirements,” the CBK stated in its second quarter economic review report.

Of the top banks, only NCBA and Absa Bank Kenya have announced the payment of an interim dividend, with most lenders choosing to retain capital with the view of building buffers to shocks.

Dennis Musau, Stanbic Bank Kenya Chief Finance Officer, whose bank omitted the interim dividend in the period in contrast to last year, says the capital preservation would serve to cushion against uncertainty in the operating environment.

“It’s important that we don’t compromise on the future growth of the business having looked at the pipeline of deals going into the second half of the year and the environment we are operating in. We think it is prudent at this point not to pay an interim dividend at the behest of ensuring that we can finance future growth,” he said.

KCB meanwhile intends to declare an interim dividend in the third quarter subject to the review of its financial performance in the first nine months.

“We have no plans to deviate from the tradition. This is something we will look at in the third quarter subject to the need to retain capital,” said Paul Russo, KCB Group Managing Director.

Equity Group meanwhile stated it opts to offer a lump sum payment to shareholders at the end of each fiscal year cycle.

“The tradition and practice of Equity is to try and make a significant payment like we did last year so that our shareholders can get a meaningful pay out instead of splitting our dividend into two,” said Dr. James Mwangi. Equity Group Managing Director.

Banks have continued with their capital preservation stance into 2022 amidst renewed global and domestic growth uncertainties even as economies in the region re-emerge from the COVID-19 crisis.

Lenders such as Equity have previously skipped dividends to finance regional growth through mergers and acquisitions.