CBN Dividend Freeze Triggers Market Panic, Threatens Banks’ Recapitalisation Plans

The Central Bank of Nigeria’s sweeping directive suspending dividend payments by commercial banks has triggered market-wide anxiety, causing sharp sell-offs and dampening investor confidence across the Nigerian Exchange.

The policy—issued on June 13, 2025—also bars banks operating under regulatory forbearance from paying management bonuses and making new offshore investments. The apex bank says the move is aimed at strengthening the financial system’s resilience by forcing banks to prioritise actual liquidity over paper profits.

According to the CBN, banks benefiting from regulatory forbearance—especially those exceeding Single Obligor Limits or carrying restructured loan portfolios—must first build sufficient provisioning buffers before returning cash to shareholders.

Market Turmoil and Share Price Declines

Investors reacted swiftly. Banking stocks with high forbearance exposure such as Zenith Bank, Access Corporation, First Bank Holdco, Fidelity Bank, and FCMB have witnessed significant declines in share value. Analysts fear the directive may undermine these institutions’ ability to raise capital at favourable valuations ahead of the 2026 recapitalisation deadline.

The Nigerian Exchange began the trading week on a bearish note, shedding N108bn in market value on Monday and another N183bn on Tuesday. Key market indicators, including the All-Share Index, have taken a hit—falling from 115,429.54 points on Friday to 114,910.16 points on Tuesday.

Long-Term Impact on Dividends

Investment firm Renaissance Capital Africa described the CBN’s move as a “decisive shift” in regulatory tone, urging stakeholders to focus on actual cash profits rather than accounting gains.

In a report titled Nigerian Banks: Cash is King, the firm warned that some banks may be unable to resume dividend payments until at least 2028. It estimates that Zenith Bank has the highest forbearance exposure—23% of its gross loan book, worth about $1.6 billion—followed by First Holdco (14%), Access Corporation (4%), Fidelity Bank (10%), and FCMB (8%).

By contrast, GTCO and Stanbic IBTC have zero forbearance exposure and are expected to continue regular dividend payouts. GTCO had fully provisioned and written off its exposures as of 2024, while UBA—with a relatively low exposure of 6%—may resume dividends by 2026.

However, banks like Access, Zenith, and First Holdco may only issue limited dividends from their non-banking subsidiaries, which generate a small fraction of group income.

Real Cash vs Reported Profits

A key concern flagged by analysts is the growing divergence between reported profits and actual cash flow. The Renaissance Capital report revealed that Access Corporation posted N3.5tn in interest income in 2024 but only received N1.9tn in cash. Similarly, Zenith Bank reported N2.7tn in interest income but received N1.5tn.

Unrealised foreign exchange gains have also inflated reported earnings. For instance, Access Corporation and Zenith Bank reported FX gains of N288.3bn and N1.1tn, respectively—contributing to a distorted picture of profitability.

“These accounting profits are not backed by cash, making them unreliable for dividend planning,” the report stated.

Recapitalisation Worries

The dividend freeze complicates recapitalisation efforts for banks still short of the CBN’s N500bn minimum capital requirement for international licences. Fidelity Bank, FCMB, and UBA need to raise an estimated N194.4bn, N233.8bn, and N144.8bn respectively.

Renaissance Capital warns that the directive could force these banks to issue more shares at discounted valuations, weakening shareholder value in the process.

Access Corporation and Zenith Bank, having already completed their capital raise, are not expected to be significantly affected, while GTCO and Stanbic IBTC appear well-capitalised and shielded from the fallout.

Shareholder and Market Reactions

The National Chairman of the Progressive Shareholders Association of Nigeria, Boniface Okezie, criticised the CBN’s approach, describing it as harmful to market stability and investor trust.

“Investors have supported banks’ recapitalisation efforts and deserve to be rewarded with dividends,” he said. “The CBN must not punish shareholders for banks’ regulatory obligations.”

Sam Onukwue, Chairman of the Association of Securities Dealing Houses of Nigeria (ASHON), echoed this sentiment, noting that the timing and communication of the directive triggered unnecessary panic.

“While regulatory compliance is crucial, announcements of this magnitude should be handled with greater discretion to avoid shocking the market,” Onukwue advised.

He added that the broad-stroke communication failed to differentiate between banks with and without forbearance exposure, resulting in blanket sell-offs.

Call for Balanced Regulation

Despite the chaos, ASHON reaffirmed confidence in the fundamentals of Nigerian banks, urging investors to consult certified brokers and avoid knee-jerk reactions.

“Nigerian banks remain fundamentally sound,” said Onukwue. “We advise investors not to panic but to make informed decisions.”

Still, the episode highlights the delicate balance regulators must strike between enforcing prudential standards and preserving market stability. Analysts and stakeholders now call on the CBN to adopt a more calibrated approach to ensure long-term sector health without undermining investor confidence or disrupting capital-raising efforts.