The total dividend that FNBB will be paying to shareholders for the year ended 30 June 2021 amounts to P1,246,413,000, The Business Weekly & Review has established.
The bank’s Chief Financial Officer (CFO) Luke Woodford said this dividend amount will be paid from distributable earnings. The early Christmas gift will be paid on or about 8 October 2021 to shareholders registered at the close of business on 28 September 2021. The exdividend date is 24 September 2021.
The 49 thebe dividend per share is made up of the 9 thebe final dividend per share and the special dividend of 40 thebe per share. Woodford said FNBB’s dividend payout decisions are informed by the bank’s capital management strategy which aims to ensure an optimal level and composition of capital and effective allocation of financial resources including capital and risk capacity, so as to achieve a sound return on equity and ensure a sustainable dividend distribution to shareholders.
He explained that this is concluded through a rigorous capital planning process that is conducted on a forward-looking basis and considers, among others, the organic growth requirements, the assessment of the capital mix versus its cost effectiveness, and a safety margin to cater for unexpected fluctuations in business plans and earnings volatility.
Through this approach, it is the bank’s view that compliance with both the internal and regulatory capital adequacy requirements can be achieved, shareholders’ returns can be safeguarded, and the bank can maintain the ability to continue to operate well in excess of regulatory minimum requirements.
FNBB balance sheet declined by 6 percent year-on-year due to the decline in gross advances to customers. Woodford said the bank aims to continue building a resilient balance sheet tilted towards the macroeconomic conditions with direct focus on good asset quality in order to deliver sustainable earnings profile well within risk appetite measures.
As an outcome of this approach, for the year ended 30 June 2021, the bank attained positive shifts in the non-performing loans and the credit losses. Non Performing Loans (NPL) declined by 11 percent year-on-year from P1.2 billion to P1.09 billion, resulting in a NPL/gross advances ratio of 7.3 percent as at 30 June 2021 (7.6 percent as at 30 June 2020).
This reduction in NPLs was primarily due to a recoverability assessment of longoutstanding NPL loans resulting in the write-off of irrecoverable loans. Credit loss ratio reported was 1.6 percent returning back to 2018 levels.
Additionally, in building its balance sheet resilience, the bank’s focus has been directed towards effective allocation of scarce financial sources taking into consideration the tradeoffs between growth targets, sustainable returns achievable and the risk-taking capacity. Woodford said this balance sheet management solution is buttressed by the deliberate willingness to achieve long term sustainability by delivering on commitments made to all stakeholders, including the bank’s shared value initiatives.
While some might argue that special dividends may mean that a business is seeing no growth opportunities, Woodford said this is not the case at the instance of FNBB. “The dividend decisions are part of the bank’s strategic capital management process, he said, adding that the bank’s capital focus has consistently been directed to the composition of the capital structure and efficiency of the risk-weighted assets.
Through this approach, Woodford said FNBB has been consistently assessing its portfolio of businesses and associated risks to ensure delivery of sustainable returns to its stakeholders by targeting and testing a defined earnings profile range that allows it to generate sustainable returns within appropriate levels of earnings volatility.
The outcomes of this assessment has resulted in a surplus capital position materially above both the internal targets and regulatory capital minimum ratios, said the CFO. Given these excesses that have been accumulating over time, it is FNBB’s capital philosophy that all funds held in reserve in excess of the expected need, after catering for uncertainty, represent idle capacity that can be redeployed and leveraged. FNBB said cash and cash equivalents have grown year-on-year with the redeployment of surplus funding into high yielding opportunities.
Woodford said the post-dividend Capital Adequacy Ratio of 18 percent presents significant Risk Weighted Asset growth capacity. “What we have done in taking our capital adequacy ratio with a special dividend down to 18 percent is we have ensured a few things,” Woodford said. Capital is obviously used to protect depositors and to ensure that deposits are kept safe.
Woodford said what the capital buffers that the bank has in place allow them to do is to protect against any unforeseen volatility in the numbers. “We’ve also looked at the market range and seen what the broad market view is with regards to capital adequacy where we’ve seen a range of 17 percent to 18 percent,” he said, noting that the bank also looked at an optimisation method to say if they hold surplus capital they certainly would then be diluting shareholder returns.
As the bank was balancing capital and assessing the capital levels, it assessed the need to calculate to keep capital levels for potential volatility and ensure that there is sufficient capital to accommodate its growth stance. The bank still holds the view that there is opportunity for growth. “Certainly our doors are open for good credit and what we will always do is ensure that we maintain ratios above the regulatory minimum as well as a stressed minimum that we have as an internal target,” Woodford said. He added that what is seen now is a more sustainable view on its capital adequacy ratio and the marker can expect these kinds of levels moving forward.