Tuesday 28 July 2020 9:01 am

Bank of England could extend bank dividends suspension

The Bank of England will weigh up whether its request that banks do not pay out dividends or buy back their own shares should be extended beyond the end of the year, it said today.

It came as the European Central Bank (ECB) extended its recommendation that banks do not pay dividends until January 2021.

Read more: RBS chairman calls on Bank of England to lift dividend curbs

The Eurozone’s central bank said its policy “is aimed at preserving banks’ capacity to absorb losses and support the economy in this environment of exceptional uncertainty”.

The BoE’s Prudential Regulation Authority (PRA) will take a look at the suspension in the final quarter of this year. An extension could hit bank shares again. The ECB also committed to a review in the fourth quarter of the year. 

“The assessment will be based on the current and projected capital positions of the banks,” the PRA said in a statement.

It added that the review “will take into account the level of uncertainty on the future path of the economy, market conditions, and capital trajectories prevailing at that time”.

Dividend suspension hit bank shares hard

The regulatory body leaned on banks to scrap roughly £8bn of dividends at the end of March. The PRA also said it expected banks not to pay any cash bonuses to top staff or buy back shares.

Banks reluctantly agreed to a year-long suspension. At the time, HSBC bemoaned “the impact this cancellation will have on our shareholders”. 

Lenders’ shares plunged at the end of March and could suffer again if the PRA extends its request.

Read more: Dividend recovery ‘could take six years’ after record-breaking fall

The Bank of England’s PRA said it “notes” the ECB’s move. It said: “The PRA regards distributions as an important and necessary part of the functioning of the banking system.”

“But these decisions were a sensible precautionary step,” it said. It cited “the unique role of banks in supporting the wider economy through the period of economic disruption”.

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