The Bank of England has lifted its emergency restrictions on UK-based banks paying dividends, arguing that the sector “remains well capitalised and resilient” in the wake of the Covid-19 pandemic.
The Bank’s Prudential Regulation Authority said in a statement on 13 July that the restrictions on bank’s paying dividends would be lifted “with immediate effect”.
In December 2020 the Bank announced temporary “guardrails” for distributions to shareholders in relation to 2020 financial year results. It also said that for 2021, banks could announce dividends but not pay them out.
This followed pressure on major UK lenders such as HSBC and Barclays by the Bank in March 2020 to suspend their dividends, as the world stood on the brink of the Covid-19 crisis and world markets went into freefall.
All remaining restrictions have now been lifted following a review of the sector’s financial health by the PRA.
“Banks remain well capitalised and resilient to outcomes for the economy that are much more severe than the Monetary Policy Committee’s central forecast, and that they should therefore be able to support households and businesses through the economic recovery,” the PRA said in a 13 July statement.
“Although considerable uncertainty remains, the level of uncertainty has decreased significantly since December 2020, in particular due to the progress of vaccination programmes,” it added.
Shares in major UK bank’s jumped when the London Stock Exchange opened this morning following the Bank’s announcement that it was scrapping dividend restrictions.
Barclays shares rose 1.7% to 175p, Lloyds Banking Group shares rose 1.6% to 47p, HSBC shares jumped 2.4% to 422p, Santander shares rose 1.5% to 267p and Natwest shares rose 2.5% to 212p.
However, Threadneedle Street warned bank boards to keep a tight rein on shareholder payouts and said that backing the economic rebound should be their key priority.
“It is essential that banks continue to support households and businesses through the economic recovery,” the PRA said.
“Bank boards should therefore continue to exercise an appropriate degree of caution around the level of any shareholder distributions,” it added.
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