Banks holding Sh47 billion dividend pay as regulators differ

The Central Bank of Kenya (CBK) and Capital Markets Authority (CMA) have issued conflicting directives on how companies should pay dividends following the freeze on Annual General Meetings (AGMs), causing confusion over how bank shareholders will share profits in the wake of the coronavirus restrictions.

Both regulators agree that AGMs must be postponed in the wake of calls to shun large gatherings for fear of spreading infections which have claimed 14 lives and infected 270 people in Kenya.

However, the two regulators have differed on how firms should treat considerations like dividend payments, changes in directorship and external auditors as well as approval of accounts.

CMA has allowed firms listed at the Nairobi Securities Exchange #ticker:NSE to pay dividends without holding AGMs and directed boards to seek approval from investors when the shareholder meetings are held at a later date.

On the other hand, CBK has directed banks to adopt electronic voting on critical issues linked to AGMs like dividend payment in the quest to have majority of owners approve board decisions that affect shareholders.

This directive affects listed banks such as Equity Group #ticker:EQTY, KCB Group#ticker:KCB, I&M Bank #ticker:IMH, Absa Bank Kenya #ticker:ABSA, Standard Chartered Bank of Kenya #ticker:SCBK, NCBA #ticker:NCBA, Co-operative Bank #ticker:COOP, and Diamond Trust Bank #ticker:DTB.

All listed banks have large numbers of shareholders due to the high number of retail investors.

When Safaricom #ticker:SCOM is excluded, listed banks account for nearly 90 percent of dividends paid by the 62 firms listed at the NSE.

Kenya’s top nine banks are set to pay a combined dividend of Sh47.31 billion from last year’s performance, reflecting the impact a possible delayed payout will have on shareholders.

“Institutions are advised to either defer AGMs to a time when the pandemic is brought under control or where their Articles of Associations allow, consider holding virtual AGM meeting,” CBK said in a circular seen by the Business Daily.

“In addition, and where technology permits, institutions should make appropriate arrangements for their shareholders to conduct online voting for critical AGM resolutions including dividends payments, changes in external auditors and directorships, approval of audited accounts and bonus issues.”

The conflicting messages from the two regulators have triggered confusion among bankers, especially from the 10 listed lenders and Kenya’s top banks who are regulated by both CMA and CBK.

“CMA is the regulator that deals with issues such as dividends and even if bankers were to follow what CBK has directed, how will they be able to hold virtual meetings with shareholders across the country who have limited access to the internet?” asked a bank CEO who requested not to be named for fear of CBK reprisals.

“Even for Safaricom, the biggest player with the entire infrastructure, it would be challenging for them. It may not be practical; it will be a logistical nightmare”.

Paying dividends will put money in the pockets of small shareholders who require cash to meet personal expenses that ultimately boost demand in an economy hit with reduced cash flows following movement restrictions imposed to curb the spread of coronavirus.

Last week, Co-operative Bank of Kenya became the first listed lender to announce that it will on Thursday pay Sh5.86 billion as dividends ahead of its AGM. The lender said in a notice that the payout is in line with advice from CMA, which on April 3 allowed firms to pay dividends without approval from shareholders.

“With the current Covid-19 challenges, the need to re- lease the much-needed funds to the grassroots in the over 15-million-member co-operative movement and in line with CMA guidelines, the bank is progressing to make the dividend payment for ratification at the next AGM,” said the notice.

In the West, online voting at AGMs has taken root since the coronavirus outbreak as investors shun large gatherings because of travel restrictions or fear of infection, Swiss tech firm Sherpany said.

The company, which counts Swiss giants Novartis, Nestle and Zurich Insurance among its 300 clients worldwide, provides a secure Internet platform, which allows shareholders to vote on motions until the day before AGMs.

Technology giant Samsung Electronics last month also adopted electronic voting for the first time ever for this year’s AGM held March 18.

Acting CMA chief executive Wycliffe Shamiah in April 4 said dividends can be paid subject to the NSE-listed firms’ internal policies and approvals.

The regulator directed the firms paying dividends ahead of AGMs to share their audited accounts with CMA and NSE and have the information publicised in the press and on their own websites. Section 310 of the Companies Act 2015 provides that a public company is statutorily compelled to hold an AGM within six months from its financial year-end.

This means that firms whose financial year ends in December have until the end of June to hold the shareholder meetings, but the regulation has been put on ice amid the coronavirus pandemic, which has killed 160,952 people and infected another 2.33 million globally.