It’s getting harder for Australian financial regulators to avoid joining their peers in New Zealand, the UK and EU in ordering banks to suspend their dividends and other capital management moves such as share buybacks.
The Reserve Bank of NZ on Thursday ordered banks operating across the Tasman to freeze dividends paid on ordinary shares – that means the big four Australian banks, the ANZ, Westpac, NAB, and Commonwealth will not receive dividends from their NZ offshoots.
The RBNZ made the announcement as part of a new funding scheme for business.
“To further support the stability of the financial system during this period of economic uncertainty, we have agreed with the banks that during this period there will be no payment of dividends on ordinary shares, and that they should not redeem non-CET1 capital instruments,” Deputy Governor and General Manager for Financial Stability Geoff Bascand said in the statement.
“The restrictions take effect from today under revised Conditions of Registration issued to all locally-incorporated banks. They will remain in place until further notice, with the aim of relaxing them when the economic outlook has sufficiently recovered.”
Dozens of Australian companies (Qantas, Super Retail for example) are suspending, postponing or abandoning their recently declared interim (and in a couple of cases final) payouts to shareholders as the COVID-19 pandemic wrecks revenues, cash flows, and earnings. This move, if not followed in Australia by APRA, see the Australian parents of the big four forced to slash dividends here.
The ECB on Monday directed major Eurozone banks to drop planned dividends for 2020 and share buybacks and early Wednesday, Sydney time, UK regulators followed suit. The Bank of England followed suit late on Tuesday.
The UK action was directed at the likes of Barclays, RBS, Lloyds, Standard Chartered, Santander and HSBC all of whom have agreed to not proceed with dividends. The ECB direction saw half a dozen big banks in the EU suspend or withdraw planned dividends and buybacks.
In Australia, three of the big four local banks ruled off their interim accounts on March 31 (Westpac, ANZ and NAB) while Macquarie ruled off its full-year figures. (The Commonwealth balances on June 30).
The CBA has already paid its interim and last year paid a final of $2.31 a share. That is in danger. Likewise, Westpac which paid an interim a year ago of 94 cents (and a final cut to 80 cents), ANZ paid a final of 80 cents a share and an interim of the same amount, but the final was 70% franked. The NAB paid two dividends in 2018-19 of 83 cents each.
The ANZ said this RBNZ request would prevent it from redeeming $NZ500 million in capital notes in May, although it still would make interest payments on those notes and has the option of turning them into ordinary shares. ANZ Bank owns the largest bank in NZ.
Commonwealth Bank said it was “well capitalised” and this meant it was “well placed to absorb the suspension” of dividends paid by its subsidiary.
ANZ shares fell 5.3% to $16.15, the CBA lost 3.8%to $61.25, NAB shares fell 5.6% to $16.00 and Westpac shares shed 4.3% to close at $15.98
Prime Minister Morrison says he isn’t convinced it is time to sell banks to suspend their dividends. It soon will be.
Ratings agency Moody’s turned negative on the outlook for Australian banks before the, RBNZ news became known yesterday morning.
Moody’s said it had lowered its outlook for Australia’s banking system to negative from stable due to the “broad and growing scope of economic and market disruption from the coronavirus outbreak”.
“While Australian banks’ current asset quality is very strong, it will deteriorate significantly if disruptions persist for a prolonged period and push up the unemployment rate, which will lead to more impairments of residential mortgages, which comprise approximately two-thirds of banking system loans,” Moody’s said in a statement.
It said increased loan-loss provisioning and record low-interest rates will push profitability levels lower, leading to the potential for capital ratios to deteriorate should a long economic downturn ensure.
Helping to alleviate those concerns in the near-term, Moody’s believes government support for the sector will continue to be strong.
“We view the current economic support packages, including fiscal stimulus, enhanced financial market liquidity and term funding to support credit intermediation, as measures that are temporarily increasing the level of indirect government support for the banking system,” it said.
This not unexpected and is one of those – ’so what’ statements from a ratings company covering its bases.