Lloyds Bank shareholders could be set for higher dividends and another share buyback programme after the UK regulator loosened its risk buffer.
The Bank of England’s Prudential Regulation Authority (PRA) reduced the rate for the “systemic risk buffer” of extra capital the bank needs to hold.
The bank said it had reduced its capital ratio target, a measure of capital strength, from around 13 per cent to 12.5 per cent.
Analysts said the regulator’s boost could free up as much as £1bn in extra capital and increase the likelihood of further share buybacks for the bank’s investors.
Shore Capital analyst Gary Greenwood said: “This is the first example we can think of where one of the large quoted UK banks has actually reduced its capital requirement, after a number of years of upward revisions.”
He added: “This is clearly positive news for investors and reflects management’s good work over recent years to simplify and reduce the risk profile of the group.”
Lloyds Bank started a £1.75bn share buyback earlier this year and Shore Capital said the capital requirement reduction gave the bank “comfortably enough” to fund a further share buyback of £1.5bn in 2020.
The bank added weight to that theory in a statement along with the capital guidance changes.
It said: “The group has a progressive and sustainable ordinary dividend policy and the board will continue to give consideration to the distribution of surplus capital at the end of the year.”
Goodbody analyst John Cronin said: “It is unusual to see a bank reduce its CET1 capital ratio target guidance but Lloyds’ move is absolutely justified, and arguably not entirely unexpected.”
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He added that it could also be positive for Barclays and RBS, whose capital ratios have raised concerns.
Shares in Lloyds Bank rose 1.1 per cent following the announcement.