The banking regulator has given lenders the go-ahead to restart dividend payments, saying it believes they are in a strong enough position to withstand a hit to the economy more severe than the current expectations.
The Prudential Regulation Authority (PRA) lent on banks to stop paying out dividends in the spring. It said they should reserve capital for lending instead, leading banks to cancel dividends worth £7.5bn.
Yet the PRA today said: “There is scope for banks to recommence some distributions should their boards choose to do so, within an appropriately prudent framework.”
It said that banks “remain well capitalised and able to support the economy”. It said they are “resilient to a wide range of economic outcomes, including economic scenarios that are materially more severe than current central expectations”.
However, the PRA said 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”.
The announcement will cheer banks and investors after a tough year. Lenders’ share prices have slumped amid the worst economic downturn in 300 years, and with interest rates at rock-bottom.
Banks have lent out more than £60bn through the various government-backed coronavirus loan schemes. The industry has warned that many of the loans will go bad, adding to the difficulties at lenders.
The PRA said: “Economic uncertainty as a result of the Covid-19 pandemic remains high, economic disruption continues and widespread government economic support is still in place.
“In addition, considerable uncertainty remains about the new relationship with the EU to which the UK will need to adapt in the coming months.”