Britain’s banks can resume paying some dividends and bonuses as they appear well capitalised and resilient to any further fall-out from the coronavirus pandemic, the Bank of England said on Thursday.
The BoE told Britain’s seven biggest lenders in March to suspend dividends and share buy-backs until the end of 2020, and to cancel payments of any outstanding 2019 dividends.
It also expected banks and building societies to scrap cash bonuses for senior staff to help maintain capital buffers and continue lending to companies and households going into economic lockdown to fight the pandemic.
On Thursday the BoE said the time had come to relax this advice for lenders including HSBC, Barclays, Lloyds and NatWest.
“The Prudential Regulation Authority judges that an extension of the exceptional and precautionary action taken in March is not necessary and that there is scope for banks to recommence some distributions should their boards choose to do so,” the BoE said in a statement.
Any distributions by large UK banks for this year should be “prudent” and fall within temporary “guardrails” published by the BoE on Thursday.
“In the meantime, for 2021 dividends the PRA is content for appropriately prudent dividends to be accrued but not paid out and aims to provide a further update ahead of the 2021 half-year results of large UK banks,” it said. Under the guardrail, dividends should not exceed 0.2% of a bank’s risk-weighted assets at the end of 2020, or 25% of cumulative profits over 2019 and 2020, after deducting prior shareholder distributions over that period.
Any bank that wants to pay more than under the guardrail, should engage with its supervisors and expect a “high bar” for justifying any exceptions, the BoE said.
Banks should also exercise a high degree of “caution and prudence” in determining the size of any cash bonuses, it added.
“The PRA will scrutinise proposed pay-outs closely to ensure large banks have applied the PRA’s rigorous remuneration regime in an appropriate fashion,” it said.
There will be stress tests of banks in mid-2021, with bank-by-bank results published at the end of that year, and the PRA said it will move to its standard approach to capital and dividends during 2021, with input from the stress test results.
Additonal reporting by Andy Bruce, editing by David Milliken and Elaine Hardcastle