Why financial institutions will not pay out dividends in 2020

The Central Bank of Rwanda head office in Kigali. Sam Ngendahimana

Shareholders of local financial institutions will not be receiving dividend payout for 2019 profits in the course of this year as is usually the case.

Dividends for profits of a given are usually paid out in the course of the following year, 2020 will be an exception.

 

This is in compliance with directives by the National Bank of Rwanda (BNR) to local financial institutions; banks and insurers.

 

While shareholders are entitled to dividend payout for 2019 profits, the Central Bank required financial institutions to hold the funds to ensure liquidity.

 

Funds will, however, be paid out at a later date.

According to Peace Uwase the Director-General for Financial Stability at the BNR, the decision was made based on the fact that the sector cannot fully project the impact of the pandemic on solvency and liquidity of financial institutions.

Consequently, instructions were issued in the interest of safeguarding capital and liquidity to enable the said institutions respond to shock from the pandemic.

“So the instruction was issued in the interest of safeguarding capital and liquidity so that the institutions are better prepared to absorb any shocks associated with the pandemic and the measures take to curb its spread,” she said.

Some listed firms that have held Annual General Meetings have approved dividend payout but indicated that payments will not be made in the course of the year.

For instance, Bank of Kigali (BK) Group in May approved shareholders' dividends at Rwf14.4 per share in dividend payout for the year 2019. However the group indicated that the payout would not be made in the course of this year in compliance with the guidelines.

I&M Bank Rwanda Plc Annual General Meeting in June approved a final dividend disbursing Rwf1.515bn at Rwf3 per share for 2019.

Due to the pandemic’s shocks and impact on the performance of firms, some firms are requesting to withhold the dividends to protect cash flow to preserve liquidity. Local brewer Bralirwa has opted for withholding liquidity.

By not paying out dividends, financial institutions will be able to serve better their customers and markets, maintain regulatory capital requirements as well as manage to extend leniency to their clientele.

cmwai@newtimesrwanda.com

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