First National Bank Botswana (FNBB), arguably the biggest bank in the country has been denying its shareholders attractive dividends pay-out, over uncertainties regarding the Basel III requirements, its Chief Executive has revealed.
Some FNBB shareholders and stakeholders had expressed concern recently that despite the growing profitability and value of the lender, its executive management has been conservative on dividends allocated to shareholders. Lorato Boakgomo-Ntakhwana, who was appointed in 2009, said the bank has decided to be more preservative with its cash, until the full implementation of Basel III, a new regulatory framework to be announced by the Basel Committee on Banking Supervision (BCBS).
She was speaking at press conference meant to reveal the company’s half year results recently. FNBB profits for six-month period ending 31st December 2013 having soared 5 percent to P363 million, boosted by strong growth in net interest income and advances. The bank, which has a market capitalisation of P10, 3 billion has decided to allocate only 5 thebe each share to its investors, sparking discussion as to why it avoids paying unit holders ‘satisfactorily’. Boakgomo-Ntakhwana and her executive team(which recommend dividend to the board) also gave a 5 thebe per unit dividend for the previous reporting period despite expectations and hopes for an increased dividend pay-out this time around.
“We need to know first what the requirements of the Basel III would be like, before paying huge dividends,” she said, adding that they need to keep the bank as capitalised as possible, ready for any possible regulatory requirement that may need extra funds. BoB has adopted a phased approach for the implementation of Basel III in consultation with the banking industry and preparatory work is reported to have commenced well in 2012 while the Consultative Paper on Basel III was finalised by mid-2013. Parallel running of Basel II and Basel III is scheduled for 2014, while it full running is expected to be due in December this year or early next year.
The BCBS agreed upon the Basel III Accord in 2010 in a move aimed at increasing the quantity and quality of capital among banking institutions. Another aim of the accord was to provide a macro-prudential strategy for the banking sector and also introduce internationally harmonized standards of regulation to govern the levels of liquidity in banks. Basel III was adopted as an improvement to several facets of its earlier predecessor, Basel II agreement that many an analyst consider to have played a fundamental role contributing to the credit Bubble.
As such, several analysts argue that some changes relating to capital requirements, risk coverage, and measures on the leverage ratios were proposed on the new Basel III agreement to cushion the banking sector against credit risks.