KAMPALA: Following a directive from the Bank of Uganda requiring such financial institutions to continue withholding discretionary, dividend, and bonus payments, listed commercial banks will withhold billions of shillings in dividend payments for the period ending December 2021.
This is the second year that commercial banks have not paid dividends or discretionary payments as a result of a Central Bank directive issued on March 24, 2020, directing them to suspend such payments due to the need to stock up enough liquidity buffers to insulate them once more. Shocks associated with Covid-19.
It was hoped that the suspension would be lifted due to the banking sector’s relative stability; however, the Bank of Uganda last month directed that banks hold back on dividend payments due to a volatile economic environment characterized by high fuel prices, disruption in supply chains, and rising inflationary pressures.
According to an analysis of individual listed commercial bank financial results, banks are expected to continue holding close to Shs160 billion as they await a solution from the Central Bank.
This comes amid indications that the banking industry was more profitable in the fiscal year ended December 2021 than it was in the previous year.
For example, Stanbic Bank has kept the Shs110 billion it declared as dividend payout for the fiscal year ending December 2020.
Bank of Baroda will also continue to hold onto the Shs25b it had declared to payout in 2020 and another Shs25b it had intended to payout in 2021.
On March 30, during presentation of the Stanbic financial results, Mr Hannington Wasswa, the Bank of Uganda director commercial banking, said the Central Bank was still instituting the Basel II framework for commercial banks, which requires them to hold capital for different risks that are being experienced or are threatening to reoccur.
Some of these risks are credit, market, and operational, consistency risks. You need to hold adequate capital,” he said but did not indicate when the suspension will be lifted.
The suspension, seeks to allow banks stock up enough capital for operational needs until when the economy has fully recovered from the impact of Covid-19 and price shocks.
Therefore, during the period ended December 21, some banks, despite returning a large profit have not declared dividend pay outs.
For instance, Stanbic, which made an impressive profit of Shs269b, said in March that payment of dividends for 2021 would depend of guidance from the Central Bank in regard to its 2020 decision to payout Shs110b, which was still under review.
Bank of Baroda, whose profits after tax grew from Shs83.32b to Shs90.05b had declared a dividend payout of Shs25b in addition to Shs25b declared in 2020.
However, the bank pegged the two payments on guidance from the Central Bank, which remains pending.