The UK banking regulator has given lenders the green light to resume their dividend payments, nine months after it asked them to suspend shareholder payouts and preserve capital at the height of the coronavirus pandemic.
In an announcement on Thursday, the Bank of England’s Prudential Regulation Authority said its latest test of banks’ capital positions had found they were resilient to “a wide range of economic outcomes, including economic scenarios that are materially more severe than current central expectations.”
As a result, it has concluded that there is now scope for banks to recommence distributions to shareholders if they wish “within an appropriately prudent framework.”
However, the PRA did put in place guidelines for how much the banks should be paying out.
“The PRA will expect to be satisfied that any distributions would not create excess vulnerabilities to stress for a given bank or impede its ability or willingness to support households and businesses,” it said.
In late March, the PRA had requested that banks suspend dividends and share buybacks until the end of 2020, and cancel any unpaid 2019 distributions, to prevent depletion of their capital at time when lending was needed to support the economy. They were also asked to restrict cash bonus payments to senior staff.
The UK’s five largest banks initially resisted pressure from the BoE to halt their dividends voluntarily, but eventually announced they were cancelling dividends worth £7.5bn so they could “serve the needs of businesses and households”.
UK bank share prices have been hit hard this year. Barclays is down 22 per cent, while HSBC has fallen 32 per cent, Lloyds is down 44 per cent, Standard Chartered has dropped 34 per cent and NatWest has fallen 34 per cent.