British banks are likely to want to review their dividend plans for this year given the impact of the coronavirus pandemic on the economy, an industry body said today, as lenders come under increasing pressure to scrap dividends.
“Given current uncertainties and the importance of finance providers being able to play their vital role in supporting the economy… finance providers are likely to want to discuss their dividend policy with their boards, shareholders and supervisors and review their 2020 distribution policy carefully,” UK Finance said.
It added: “Any distributions, whether dividends or share buybacks, also need to reflect a prudent assessment of the current economic environment and prospects.”
The statement comes as officials from the Financial Conduct Authority (FCA) prepare to meet the heads of several banks today. Discussions over cutting or scrapping bonuses and dividends during the coronavirus crisis are one item on the agenda.
The FCA will virtually meet with the chief executives of around eight high street banks to talk about ways lenders can improve service and support for customers during the pandemic.
British banks have come under increasing pressure to review their dividends and to instead focus on maximising lending and shoring up reserves as coronavirus pummels the UK economy.
“It is hard to believe that the UK banks will not be requested to suspend dividends and buybacks,” said John Cronin, an analyst at Goodbody.
UK lenders are expected to pay out dividends totalling £7.5bn in the coming weeks, with Barclays set to pay out just over £1bn on Friday.
Spanish lender Santander, one of the UK’s so-called big five banks, said last week that it was reviewing its dividend in light of the outbreak. Santander also slashed executive pay, with its chief executive and chairman taking 50 per cent pay cuts.
The head of the Bank of International Settlements (BIS), an umbrella group for global central banks, said yesterday that governments and banks need to urgently step up efforts to support their economies in the face of the crisis.
General manager Agustin Carstens said more “urgent” solutions were needed than those used during the 2008 financial crisis.
His comments came after the European Central Bank (ECB) last week called on eurozone lenders to skip dividends and share buybacks until at least October.
The ECB estimates that such measures could save €30bn (£26.7bn), which could instead be directed towards supporting eurozone economies.
European lenders including Dutch bank ING, Italy’s Unicredit and the Bank of Ireland have already ditched planned dividends.
Cronin said pressure on lenders to cut dividends was unsurprising “as it is difficult to see how large distributions (dividends/buybacks) can be affected to shareholders when banks are tapping government liquidity and other support measures”.
He added that the “fact that we don’t really have any idea yet how long this crisis will persist for, and the associated resulting capital damage”, was also a key factor.