Analysts are divided over the Bank of England’s decision to allow lenders to resume dividend payments to their shareholders.
Yesterday, regulators gave the green light for banks to resume handouts after it was determined that banks were in a strong enough financial position to handle Covid and a possible no-deal Brexit. The announcement cheered banks and investors after a tough year.
However, Fran Boait, executive director of Positive Money, said this morning that “it is deeply concerning that the Bank of England is pandering to commercial banks and allowing them to prioritise shareholder pay-outs instead of supporting the Covid-19 recovery”.
In March, the Prudential Regulation Authority (PRA) lent on banks to stop paying out dividends in March. It said they should reserve capital for lending instead, leading banks to cancel dividends worth £7.5bn.
“The Bank rightly suspended dividend payouts in March to make sure lenders were preserving capital to support struggling households and businesses across the economy,” Boait said.
Private banks have been lobbying to overturn this intervention throughout the summer. “This proves once again that they cannot be trusted to work in the public interest, even during a global pandemic,” she added.
Bonus payouts monitored
The PRA did stress yesterday it expected distributions to be sensible. It said it “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”.
Banks have been told that regulators will be keeping a close eye on bonus payouts over the coming year.
“It was clear from the recent third quarter reporting season that the banks were adequately capitalised and capable of returning to dividend payments,” Richard Hunter, head of markets at Interactive Investor, said.
“It remains to be seen whether the banks will return to such payments with all guns blazing, depending on the economic situation at that time,” he added.
‘A curious decision‘
Michael Hewson, chief market analyst at CMC UK, was also unsure about the move.
He said: “The end of the ban on UK banks paying dividends yesterday [is] a curious decision if a no deal Brexit is just around the corner.
“If a no deal is as damaging as Andrew Bailey says it could be, surely the Bank of England would have delayed any decision on this until next month?”