Equity Group has withdrawn its proposed dividend payout of KSh2.50 per share or a total of KSh9.4 billion according to its Board of Directors citing due to market uncertainty.
“The Equity Group Holdings Board took a conservative approach that recognizes the emerging unquantified risk of the pandemic and opted to preserve capital in the face of the prevailing uncertainty,” said Dr. James Mwangi, the Group CEO, and Managing Director.
He added that “A strong capital and liquidity position gives us the strength and capacity to cushion our business and accommodate and walk with our customers during these challenging times”.
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“Accordingly, the board has passed a resolution withdrawing the proposed dividend recommendation and instead will be recommending to the shareholders that no dividend is paid for the financial year ended 31st December 2019,” Equity said in a statement.
“Therefore, the shareholders of the company and other investors are advised to exercise caution when dealing in the company’s ordinary shares on the Nairobi Securities Exchange, the Uganda Securities Exchange, and the Rwanda Stock Exchange.”
The bank was scheduled to pay the dividend on July 24 to shareholders on record as of June 12.
Jimnah Mbaru, Chairman Dyer & Blair Investment Bank in a Tweet said, “Equity Bank should have issued a scrip dividend in order to preserve cash instead of skipping the cash dividend previously announced. Shareholders would get the same dividend by selling the script shares on the stock exchange.”
A scrip dividend is a process of providing shareholders with the choice of receiving a cash dividend, a dividend at a future point in time, or common stock.
Equity Bank should have issued a script dividend in order to preserve cash instead of skipping the cash dividend previously announced. Shareholders would get the same dividend by selling the script shares on the stock exchange.
— Jimnah Mbaru (@JimnahMbaru) May 26, 2020
In addition, analysts from Standard Investment Bank said the development is a bit perplexing given that the Capital Markets Authority (CMA) already issued guidelines that a company’s Board of Directors can declare and issue dividends in the current environment.
“The decision was driven by the need to preserve capital given the current tough macros and the fluid situation being experienced in the economy due to the pandemic. We believe the need to preserve capital is driven by the expected expansion in cost of risk especially given the lender’s loan portfolio mix.”
According to SIB, at the end of FY19, Equity Group’s loan portfolio was skewed towards SME’s at 60 percent of the total loan book – a sector they expect to be the hardest hit in the current environment.
“While the decision is not favorable to shareholders, we believe it was necessitated by the need to remain robust in the current environment.”