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Invest in the big 4? Your dividends will be halved
The prudential regulator has given Australia’s large financial institutions the green light to pay dividends, but investors should expect a reduced rate.
Invest in the big 4? Your dividends will be halved
The prudential regulator has given Australia’s large financial institutions the green light to pay dividends, but investors should expect a reduced rate.
The Australian Prudential Regulation Authority (APRA) has updated its capital management guidance for banks and insurers, in particular easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19.
APRA chair Wayne Byres said the updated guidance balanced the need for banks and insurers to keep supporting households and businesses, while also maintaining a prudent approach in the face of a very sharp and severe economic contraction.
“Today’s announcement strikes a balance in recognising the strength of the financial system, while at the same time acknowledging the difficult path ahead,” Mr Byres said.
However, APRA warns of the risks that the large Australian banks are still facing with the fallout from the COVID-19 pandemic.
“In the current environment, banks face additional challenges to their capital resilience, including the material volume of loan repayment deferrals (which are subject at present to regulatory concessions), greater financial impact from COVID-19, and restrictions on dividends from their New Zealand operations. APRA has therefore set an expectation that dividend payout ratios for ADIs will be maintained below 50 per cent for this year.”
APRA’s letter to ADIs also highlights the importance of utilising current capital buffers to absorb losses and meet the needs of customers.
“The years spent building up the capital strength of Australia’s banking sector to historical highs have been precisely for a time such as this. Further, APRA is committed to ensuring any rebuild of capital buffers, if required, will be conducted in an orderly manner,” Mr Byres said.
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