Dividend seekers will be pinning their hopes on a more accommodating policy on capital management from APRA next week, but don’t look for any rush on the part of sell-side banking analysts to restore dividends to their short-term forecasts.
“There remains a strong case for prudence, at least for the time being,” Wayne Byres, the APRA chief, cautioned in a speech for a Trans-Tasman Business Circle webinar yesterday.
“The primary purpose of capital is to facilitate new business and absorb losses, and APRA – and its fellow members of the Council of Financial Regulators – remain concerned to ensure the financial sector sustains the strength to continue to support households and businesses during the downturn and the subsequent recovery,” Byres reminded the industry.
“And financial institutions are still the beneficiaries of substantial – and in some cases quite direct – public sector support. Capital management, including dividend distribution, needs to be determined with all of this in mind.”
APRA having (more or less) shut the gate on bank dividends back in March, the banking regulator will be “will be updating our capital management guidance next week,” Byres said.
In the half-year reporting seasons for major banks in early May, NAB paid a heavily reduced interim dividend, while ANZ and Westpac “deferred” dividends. Macquarie Group (with a less sensitive business model) halved its final dividend.
Byres dangled a degree of hope for the chasers.
“We will modify the guidance, and extend it for the remainder of this calendar year, shifting from the immediate, short-term emergency response in April to a setting with a somewhat longer-term outlook,” he said.
“Our goal is to combine on-going prudence with flexibility: that is, to ensure capital management practices clearly have regard to the continuing uncertainty in outlook, that stress scenarios can be overcome without having to resort to cutting business activity, and that regulated firms are not unduly constrained from raising capital if and when needed.”
Byres then turned to APRA’s position on bank capital buffers and benchmarks.
“Capital buffers have been built up to be used in times of stress. Now is such a time.
“One of the first emergency measures we took [in March] was to announce that we would not be concerned if bank CET1 capital ratios fell below these benchmarks [and] we also suspended some other capital adjustments.
“But there is still some uncertainty about how quickly the buffers, once utilised, might need to be rebuilt. It is difficult to be precise on this point, but I want to be clear we have no intention of creating a capital cliff-face that banks or insurers need to rapidly climb.
“As we have done in the past, our approach will be to allow banks and insurers to rebuild (to the extent any rebuild is even required) in an orderly manner, and in a way that doesn’t unnecessarily constrain activity or economic growth.”