In more good news for investors, APRA has eased its dividend guidance for the banks and, from the start of 2021, will no longer be holding lenders to a minimum level of earnings retention.
Most banks either cut or deferred dividends earlier in the year and returned to payouts for the final six months of their financial years.
It is the second relaxation of the clamp on dividends since it was put in place in April which all but banned dividends because of the uncertainty caused by the pandemic and lockdowns.
Regulators wanted the banks and other financial groups to conserve as much cash and liquidity as possible while the pandemic raged and the impact of the lockdowns and government and RBA support programs remained uncertain.
In July, APRA relaxed that earlier guidance for the banks to retain at least half of their earnings and tighten their payouts amid the economic havoc wreaked by the pandemic.
In an update on Tuesday, APRA Chair Wayne Byers said an improving economic outlook meant bank capital and provisioning levels had strengthened, and the majority of loans that were previously granted repayment deferral have recommenced repayments.
“In the case of ADIs, APRA’s updated capital guidance has been informed by the results of extensive stress testing conducted by APRA since the onset of COVID-19.
“The tests indicated that Australia’s banking system could withstand a very severe economic downturn and continue to support the economy by supplying credit to households and businesses,” Mr. Byers said in the release.
However, he said a high degree of uncertainty remains in the outlook for the operating environment.
“In determining the appropriate level of dividends, APRA expects ADIs and insurers to remain vigilant, regularly assess their financial resilience through stress testing, and undertake a rigorous approach to recovery planning,” Byers said.
“The onus remains on boards to moderate dividend payout ratios to ensure they are sustainable, taking into account the outlook for profitability, capital and the broader environment.”
The move by APRA will help Westpac meet the promise made at last Friday’s AGM about an interim dividend next year and it should also help the ANZ at its AGM today and the NAB at its AGM on Friday to tell shareholders that payouts are on the way next year as well – subject of course to the path of the virus and vaccinations.
The news though fell on deaf ears in the market yesterday and the financial sector of the ASX fell 0.6% as the shares of all four big banks fell – the CBA lost 1%, Westpac shares lost half a percent, the NAB fell 9.7% and ANZ shares closed down 0.9%.
