APRA tells banks to maintain dividends below 50% of earnings


The Australian Prudential Regulation Authority (APRA) has told banks to ‘maintain caution’ around 2020 dividends in the face of a turbulent market environment.
The regulator said it expected banks to retain at least half of their earnings.
In a letter to banks and authorised deposit-taking institutions (ADIs), the regulator said: “To maintain caution in the face of ongoing uncertainty and heightened economic risk, ADIs should continue to take a measured approach to capital distributions.
“For 2020, APRA expects ADIs will retain at least half of their earnings, and actively use dividend reinvestment plans (DRPs) and/or other capital management initiatives to at least partially offset the diminution in capital from distributions.
“ADIs should use stress testing to inform decisions on dividends and other capital actions, as well as to assess their lending capacity under a range of different scenarios.”
This followed a previous announcement in April when it told banks to ‘consider deferring dividend decisions’ until later in the year.
APRA chair Wayne Byres said: “Although the environment remains one of heightened risk, we now have a stronger sense of how Australia’s economy and financial institutions are being impacted by COVID-19. On that basis, APRA believes that banks and insurers do not need to continue to defer capital distributions, provided they moderate payments to sustainable levels based on robust stress testing, and continue to prioritise supporting their customers and the economy.
“In the current environment, banks face additional challenges to their capital resilience, including the material volume of loan repayment deferrals (which are subject at present to regulatory concessions), greater financial impact from COVID-19, and restrictions on dividends from their New Zealand operations. APRA has therefore set an expectation that dividend payout ratios for ADIs will be maintained below 50% for this year.”
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.