Equity Analysis /

Emerging Market banks: Assessing dividend vulnerabilities

  • Central banks in Vietnam, Bangladesh, Pakistan, Morocco and Ghana have restricted the dividend payouts of their banks

  • We think banks in Sri Lanka, Russia and the GCC could also prove vulnerable to dividend cuts

  • Places to hide? We highlight ten high-yielding banks in our coverage with more defendable dividends

Emerging Market banks: Assessing dividend vulnerabilities
Rahul Shah
Rahul Shah

Head of Corporate & Thematic Research

Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Tellimer Research
12 May 2020
Published byTellimer Research

Bangladesh Bank, the country’s central bank, announced some restrictions today on dividends that can be paid by the country’s commercial banks. This follows an edict by Morocco’s Bank al-Maghrib yesterday, with the regulator asking commercial banks to halt dividend payments. We note that similar announcements were made by the State Bank of Vietnam and State Bank of Pakistan previously.

Table 1: New central bank-imposed dividend restrictions in selected EM, FM 



CAR-based dividend restrictions (capped at BDT1.5/share)


Banks mandated not to pay dividends for 2019 and 2020


Banks urged to withhold dividends for 2020


Dividends temporarily suspended for Q1 and Q2


Central bank encourages banks not to pay 2019 dividends


Dividends payments deferred for 90 days (from Mar 2020)


Cash dividend payments suspended

Source: Central banks, IMF, Tellimer Research

Why dividends are under threat

The main rationale for all these regulatory announcements is the likelihood of higher provisioning needs as the global recession drives an increase in borrower defaults. In addition, many banks in the aforementioned markets are typically thinly capitalised. In Figure 1 below (taken from our report: The EM and FM banks best able to cope with weaker loan quality), we highlight the capacity of banks to absorb higher provisions before breaching a 12% tier 1 capital ratio threshold. Banks in Vietnam and Bangladesh fare most poorly.

Figure 1: Percentage point increase in NPLs ratio to cut tier 1 ratio to 12%

Source: Bloomberg, Tellimer Research. Note: Assumes 100% provisioning of existing and new NPLs. Calculations based on 2019 data

Where are dividends most vulnerable?

As Figure 1 highlights, in addition to banks in Vietnam, Bangladesh and Pakistan, where dividend restrictions have already been introduced, those in Sri Lanka also seem to have limited capacity to absorb higher loan defaults and could suspend quarterly dividends even if this is not a regulatory requirement.

Other at-risk sectors include Russia (the central bank has already advised banks not to pay dividends) and the GCC banks, not least given the collapse in oil prices, which poses an additional threat to loan quality in these markets (such as forcing Saudi Arabia to introduce austerity measures and hike VAT). However, ownership considerations may also play a role; for example, Bank Muscat recently paid a healthy dividend for FY 19; its core shareholder is the Royal Diwan, for whom this income is likely welcome during these tough times.

Figure 2 replicates Figure 1, but at the stock level – outside the markets already discussed, it also highlights the vulnerability of Al Baraka Bank Egypt, for example (local peer Suez Canal Bank does not pay dividends, while ADIB Egypt is in the process of raising capital).

Figure 2: Percentage point increase in NPLs to cut tier 1 ratio to 12%

Source: Bloomberg, Tellimer Research. Note: Assumes 100% provisioning of existing and new NPLs. Calculations based on 2019 data

Are there any places to hide?

The charts above highlight that our coverage banks in certain SSA markets, notably Uganda, Ghana, Nigeria, Rwanda, have significant capacity to absorb new NPL formation. It is of course possible that they will experience higher new NPL formation than other markets (such as Vietnam, which has so far had a relatively mild coronavirus experience) due to, for example, a less disciplined approach to tackling the Covid-19 threat. But overall, we would argue that the risk of dividend restrictions is more remote in these markets.

A key exception is Ghana, (which incidentally has already relaxed lockdown rules, even as the Covid-19 infection rate accelerates). Here, the central bank has decreed that no dividends should be paid from FY 19 and FY20 earnings – while the names in our coverage are well-capitalised, this is not a universal trait – the regulator may prefer to keep this excess capital in the sector (eg to help rescue weaker names) than see it exit as dividends.

High yielding banks with more defendable dividends

We highlight below ten names in our coverage which have high dividend yields, manageable payout ratios and strong capital ratios, drawing on work in our report FM and EM banks: Opportunities in adversity. As such, they may be of interest to yield-seeking investors, particularly those looking to reduce the volatility of their portfolios. Note that dividends from names marked with * will be subject to the new dividend restrictions noted in Table 1.

Table 2: 10 banks with more defendable dividend yields

NameDYPayout ratioCAR ratio
UBA NL13.7%46%27.9%
GUARANTY NL14.3%46%26.2%
GCB GN*16.7%45%24.2%
STANBIC NL12.3%49%27.0%
SBU UG *12.4%50%26.3%
HDBK EY7.8%16%22.0%
ACCESS NL7.8%18%23.0%
ZENITHBA NL18.6%51%25.8%
DTKL KN5.8%14%25.0%
FAIT EY9.9%20%20.0%

Source: Bloomberg, Tellimer Research

Implications also for bond investors

While dividends are clearly in the firing line, the tough operating environment also carries implications for bond investors. Our credit research colleague, Tolu Alamutu, recently highlighted the risk that perpetual bond call dates might not be honoured – efforts to protect capital ratios would likely play a role in management thinking, as would the issuance environment.


We thank the following for their assistance with this report:

Nkemdilim Nwadialor (Tellimer), Faith Mwangi (Tellimer), Kavinda Perera (Asia Securities), Dalia Bona (Pharos Holding), Evgeniy Kipnis (Alfa)