Australia’s big four banks will be able to receive actual dividends from their New Zealand subsidiaries after the RBNZ eased dividend restrictions put in place a year ago at the height of the Covid lockdowns and pandemic.
The restriction on dividends was extended last November but on Wednesday the RBNZ softened its stance by allowing 50% distributions from earnings.
The remaining 50% limit will be lifted in July 2022, subject to no worsening in economic conditions, the RBNZ said in a statement on Wednesday.
As in Australia, the US, UK and other countries, the RBNZ decision to halt dividends was aimed at supporting financial stability and keeping capital within the banking system.
Australian restrictions were eased in December and a week ago the US Federal reserve kept its restrictions in bank capital management in place for another quarter, limiting dividends to being paid out of actual profits and no buybacks allowed.
The nation’s four biggest banks are all wholly owned by the big four Australian banks – CBA, Westpac, ANZ and NAB.
“Ongoing uncertainty is expected to constrain business investment and household spending growth,” Reserve Bank Deputy Governor Geoff Bascand said in a statement Wednesday. “Given the uncertainties ahead, it is appropriate to retain some restrictions on the dividends that banks can pay.”
The revised restrictions will continue to support financial stability, he said.
This means Westpac, NAB and ANZ’s Kiwi subsidiaries will be able to distribute 50% of their net profits as dividends for the March 31 half year.
It should not have any impact on the reported earnings of both the NZ and the Australian banks, but it will mean the dividends will actually cross the Tasman and into the parent balance sheets and bank accounts.
“While the restrictions on dividends have been eased, the RBNZ expects banks to exercise prudence in determining the appropriate size of dividends to pay to their shareholders,” Bascand said in a letter to bank chief executives. “The limit set in the revised restriction is an upper limit, and should be treated as such.”
Meanwhile the Fitch global credit rating group yesterday put Westpac New Zealand on “rating watch negative” after the bank’s Australian parent said last week it might sell it.
Fitch said its announcement was prompted by the possibility of Westpac New Zealand no longer having its parent bank’s financial muscle behind it.
Fitch described its credit ratings as “an opinion” on bank’s relative ability to meet their financial commitments, such as paying interest to its depositors.
“The rating watch negative indicates that a decision to divest Westpac New Zealand would mean the business is no longer considered a core part of the group, potentially reducing the reputational risk of a Westpac New Zealand default for the parent,” Fitch said in a statement.
“It may also weaken the strong system and management integration between Westpac and Westpac New Zealand,” it said.
Whether the negative rating watch would result in a downgrading of Westpac New Zealand’s credit rating would be resolved once a decision on the demerger was made, Fitch said. A decision is not expected for months – perhaps by the end of this year.
Westpac New Zealand’s rating from Fitch is A+, the same as the ratings for competitors ASB, BNZ and ANZ.
Westpac has engaged Macquarie to conduct an assessment of whether Westpac New Zealand should be spun off.
NZ stockmarket analysts reckon there are no local groups with the financial strength to buy Westpac NZ, so its sale to a foreign group or stockmarket float looks the two main options.
A major problem for any sale or spin-off is a deal to retain the Westpac name in NZ which has a long history across the Tasman. That would involve paying the former Australian parent a fee (much in the way Virgin companies pay Richard Branson’s Virgin Group for using the name).
A sale or spin-off without that agreement would involve significant rebranding costs, with all company documentation having to be recast to take account of new names, new corporate registrations, branch branding, stationery etc. Tens of millions of dollars a year for years.
