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Britain’s largest banks will be allowed to restart limited dividend payments and banker bonuses in the new year, after regulators determined that lenders were strong enough to weather the remainder of the Covid pandemic.
The Bank of England said on Thursday it was lifting a temporary ban on shareholder payouts, but warned that dividends distributed for full-year 2020 should be capped, and that cash bonuses for bankers would be closely scrutinised in light of continued uncertainty.
“Notwithstanding the impact of the Covid-19 pandemic on the global economy, banks remain well capitalised and are expected to be able to continue to support the real economy through this period of disruption,” the central bank’s Prudential Regulation Authority (PRA) said.
It comes more than eight months after the central bank ordered lenders to scrap nearly £8bn worth of dividends payouts due for the 2019 financial year in light of the Covid crisis. It also ordered banks to pause dividend payments throughout 2020, and put a temporary halt on share buybacks and cash bonuses for executives.
The Bank of England said it was easing the dividend ban on Thursday, after putting the banks through two separate stress tests that proved the sector was “resilient,” even in severe economic scenarios.
Lenders are now been urged to limit payouts to either 25% of profits over 2019 and 2020 combined, excluding previous dividend payments, or 0.2% of the value of their riskiest assets, whichever is highest.
“Expect a high bar for justifying any exceptions,” the PRA said.
Banks were also warned that the regulator would be paying close attention to bonus payouts in the new year. The PRA said it expected firms to “exercise a high degree of caution and prudence in determining the size of any cash bonuses granted to senior staff given the uncertain outlook and the need for banks to deploy capital to support the wider economy.
“The PRA will scrutinise proposed payouts closely to ensure large banks have applied the PRA’s rigorous remuneration regime in an appropriate fashion,” it said.
The regulator explained it was otherwise up to bank boardrooms to determine the size of dividend payments covering the 2020 financial year onwards.
The announcement will be welcome news for bank shareholders, who expect regular income from dividend payments. Major lenders including NatWest and HSBC previously said they would restart payouts as soon as possible after regulators lifted the ban.
Bank share prices have plunged this year in light of the Covid crisis and dividend ban. NatWest shares have tumbled 34% since the start of 2020, while Barclays lost 23%, Lloyds has dropped 44% and has HSBC shares have fallen 32%.
Eurozone banks are still waiting for a decision on dividend payouts from the European Central Bank, which has urged lenders to halt dividend payments and share buybacks until at least 1 January 2021.
Source: The Guardian
Keyword: UK banks get go-ahead to restart limited dividends and bonuses | Banking