The chances of banks resuming paying dividends have risen sharply after the key regulator, the Australian Prudential Regulation Authority (APRA) indicated a change of mind.
APRA head, Wayne Byres revealed the change of heart in a speech yesterday. But he also made it clear the regulator was not expecting to see banks boost dividends.
He indicated that new guidance would go out to banks and other financial groups regarding dividends next week that would update the early guidance in April that told financial groups to seriously consider the need for capital conservation instead of dividends.
That advice was issued at the height of the pandemic and lockdowns. Yesterday Mr. Byres said the economic outlook had brightened on the back of extended government support.
In weeks following APRA’s April advice, Westpac and ANZ Bank took the historic decision to suspend their dividends, with both lenders to revisit the issue later this year. the National Australia Bank cut its dividend by two thirds. Smaller banks deferred their payouts.
Mr. Byres said yesterday the previous guidance on dividends had now reached its use-by date, as there was less uncertainty about the economy, and APRA had conducted stress tests on banks and insurers.
The updated guidance would seek to combine “prudence with flexibility,” he said. It will apply to the end of the year, meaning it would also apply to the NAB, ANZ and Westpac which all balance their 2019-20 financial years on September 30.
“We will modify the guidance, and extend it for the remainder of this calendar year, shifting from the immediate, short-term emergency response in April to a setting with a somewhat longer-term outlook,” Mr Byres said.
Even though his speech was issued just before 1pm, the easing of the restrictions on dividends had little impact on the wider market which still closed down heavily with a loss of 81 points or 1.3%. That was roughly half the 2.58% gain on Monday.
All four of the big banks saw their shares fall yesterday.
Mr Byres still made it clear that the boards would need to be cautious and emphasised that the economic backdrop was still uncertain, despite some improvement since April, and that financial institutions needed to retain the strength to support the economy during the downturn.
“Financial institutions are still the beneficiaries of substantial – and in some cases quite direct – public sector support. Capital management, including dividend distribution, needs to be determined with all of this in mind,” he said.
Commonwealth Bank is the next major lender to report its 2019-20 results on August 12.
Analysts are expecting it to pay a final dividend of about $1, compared with $2 last year. But the bank has a lot of excess capital because of asset sales and can therefore decide to make a solid payment to its 800,000 plus shareholders.