The bank of England (BoE) has announced it is ending its restrictions on banks’ dividend payouts and share buybacks, imposed earlier during the pandemic to “preserve banks’ capacity to absorb losses and support the economy in this environment of exceptional uncertainty”.
Stress tests have now shown the sector is able to weather the rest of the pandemic and cope with payouts, the central bank said.
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“We no longer need a special guardrail for shareholder distribution,” the BoE says in latest financial stability report released today.
“Taking into account the interim, results of the 2021 solvency stress test, the Prudential Regulation Authority judges that 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 Bank said.
“In addition, although considerable uncertainty remains, the level of uncertainty has decreased significantly since December 2020, in particular due to the progress of vaccination programmes.”
Fed and ECB have already removed restrictions
The BoE decision followed the decisions of the Federal Reserve Board of Governors and the European Central Bank, both of which eased payment restrictions to shareholders earlier this year.
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By GlobalDataThe BoE began to relax its de facto ban on dividends in December, but kept a cap of about 25% of quarterly profit and said 2021 dividends could be accrued but not yet paid. At the time, it said it aimed to provide a further update ahead of half-year results in late July.
The Monetary Policy Committee said today that while the rapid development of the UK vaccination program has helped improve the economic outlook, homes and businesses still have access to bank loans as the government’s coronavirus support measures have been lifted.
Banks are urged to continue supporting the economy
“The Bank of England expects banks to use all elements of the capital buffer as needed to support the economy through recovery,” the BoE said in a statement.
“It is the collective interest of banks to continue to support viable and productive businesses, rather than trying to protect their capital adequacy ratios by reducing loans that can have a negative impact on the economy.”
