Australian banks can pay reduced dividends

Lower NIM: A file picture showing a man walking past a branch of the Commonwealth Bank of Australia in central Sydney. CBA says its NIM had fallen from the June quarter — Reuters

SYDNEY: Australia’s big banks will be allowed to pay shareholder dividends this year, albeit at a reduced level, the prudential regulator said yesterday.

Payouts will be permitted as long as banks continue to provide credit to the economy and conduct robust stress tests, the Australian Prudential Regulation Authority (Apra) said in a statement.

Payout ratios should be kept below 50%, it said.

Last year, the major lenders paid out an average of 85%.

The statement marks an easing of restrictions, after the regulator in April told banks to defer payouts.

Apra is seeking to balance the needs of investors who rely on dividend payments with prudence in the face of a looming recession.

Around half of bank shares in Australia are held by retail shareholders, many of them retired, who have grown reliant on the normal steady stream of dividends.

At the same time the banks are facing a near inevitable spike in bad debts, with almost one in five small business loans and 11% of mortgages currently on payment holidays. While Australia has done better than many other countries in managing the virus, the return to lockdown in the nation’s second-biggest city Melbourne has damped expectations about the strength of the economic rebound.

“Today’s announcement strikes a balance in recognising the strength of the financial system, while at the same time acknowledging the difficult path ahead, ” Apra chairman Wayne Byres said. “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.”

The country is still facing a “very sharp and severe economic contraction, ” the regulator said.

Commonwealth Bank of Australia, the nation’s biggest lender, reports its full-year results on Aug 12. The other three large banks, which report on a different financial calendar, will follow with third-quarter trading updates. — Bloomberg

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