The Bank of England scrapped pandemic-era curbs on dividends from HSBC, Barclays and other top lenders with immediate effect on Tuesday, saying its stress test showed the sector was well capitalised to cope with the fallout from COVID on the economy.
Bank of England Governor Andrew Bailey said the rapid rollout of the United Kingdom’s vaccination programme had led to an improvement in the economic outlook in recent months.
“But risks to the recovery remain. Households and businesses are likely to need continuing support from the financial system as the economy recovers and the government’s support measures unwind over the coming months,” Bailey said.
Shares in British lenders rose in early trading in London, with HSBC and NatWest up 2%. Barclays, Standard Chartered and Lloyds were all also up more than 1%, compared to a fractional 0.2% gain for the FTSE 100 index. HSBC shares traded in Hong Kong also extended gains after the news, up 4%.
As Britain entered its first lockdown in March last year to fight COVID-19, the BoE told lenders to suspend dividends and share buy-backs until the end of 2020. It also recommended scrapping bonuses for senior staff.
The aim was to make sure that banks had sufficient capital to maintain lending to businesses hit by the worst economic downturn in 300 years as pandemic unfolded.
The BoE eased its curbs last December as the pandemic’s fallout became clearer, saying payouts could resume within “guardrails”.
The BoE’s Financial Policy Committee (FPC) said on Tuesday that the “extraordinary guardrails on shareholder distributions are no longer necessary” following its annual stress test of banks’ financial health.
However, the regulator is still expected to keep a close eye on bonuses for senior bankers to ensure they remain prudent.
The U.S. Federal Reserve said in June that large banks would no longer face pandemic-era restrictions on how much they can spend in buying back stock and paying dividends.
The European Central Bank’s top banking supervisor Andrea Enria said this month the ECB plans to let euro zone lenders resume payouts to shareholders from October, barring a new economic slump.
CCYB KEPT STEADY
The committee also kept major banks’ counter-cyclical capital buffer (CCyB) at zero percent until at least December, meaning any subsequent increase would not take effect until the end of 2022 at the earliest.
The buffer is intended to rise and fall over the course of the economic cycle to limit lending at the top of a boom and boost it during a downturn.
“The FPC expects banks to use all elements of their capital buffers as necessary to support the economy through the recovery,” the BoE said.
However, the central bank sounded a note of caution about asset prices in its twice-yearly Financial Stability Report.
“There is evidence of increased risk-taking in financial markets and some asset prices look stretched,” it said.
On cryptocurrencies - about which the BoE has long had concerns - it said risks mostly seemed concentrated among small investors but there were signs of larger institutions getting involved, which could lead to spillovers into the wider economy.
Bailey said he wanted to ensure regulation did not loosen as Britain seeks to ensure London remains one of the world’s leading financial centres after Brexit.
“The UK’s reputation for strong standards, independent regulation and financial stability has been and will remain a crucial component of its attractiveness to internationally active financial institutions,” he wrote in a regular letter to finance minister Rishi Sunak.
Reporting by Huw Jones and David MillikenEditing by Gareth Jones
Source: Reuters