The New Zealand Central Bank is easing dividend restrictions on lenders as the local economy bounces back.

The current restrictions date back to the height of the Covid pandemic in April 2020, later extended in November.

According to the central bank, the regulations support financial stability and the provision of credit.

Now the country’s banks can pay up to a maximum of 50% of their earnings as dividends to their shareholders.

“The New Zealand economy has rebounded to a stronger position than anticipated at the outset of the pandemic. As such, the complete restriction on dividends is no longer needed”, Reserve Bank Deputy Governor and General Manager Financial Stability Geoff Bascand says.

“Economic activity in New Zealand has picked up over recent months. However, the road ahead remains uncertain. As we outlined in our February Monetary Policy Statement, economic recovery is patchy. Ongoing uncertainty is expected to constrain business investment and household spending growth. Given the uncertainties ahead, it is appropriate to retain some restrictions on the dividends that banks can pay.”

New restrictions in place until July 2022

The 50% dividend restriction will remain in place until 1 July 2022. Then, the Reserve Bank intends to normalise the dividend settings by removing the restrictions entirely. However, this is subject to no significant worsening in economic conditions.

“We have delayed the implementation timetable of the Capital Review twice over the course of last year to allow banks the regulatory relief needed to support their customers. “As economic conditions improve, building strong capital buffers needs to be prioritised,” adds Bascand.

The New Zealand move mirrors the decision of the US Fed. It is lifting restrictions on dividends and share buybacks from 30 June for bank’s that pass its stress tests.