From 1 July, New Zealand banks will be able to pay full dividends to shareholders again, with the Reserve Bank removing COVID-related restrictions on payments in place since March 2020.
At the start of the pandemic, the RBNZ imposed a complete freeze on banks paying dividends to their shareholders, “in order to support financial stability at a time of acute uncertainty and volatility in the world economy and financial markets”.
This was loosened in March 2021, when it was clear the “economy and financial system [were] more resilient than expected”. At that time, the freeze was replaced by a mandated 50 per cent dividend restriction, planned to be in place until 1 July 2022, barring any further significant economic shocks.
Yesterday the RBNZ confirmed that the restriction will be lifted on 1 July as timetabled.
Despite heightened global economic uncertainty, cost pressures, and low consumer confidence there remains “underlying strength” in the New Zealand economy, supported by a strong labour market, sound household balance sheets, continued fiscal support, and strong terms of trade, said RBNZ deputy governor Christian Hawkesby.
However, banks should ensure that they are “well placed to manage the impacts of weaker activity on their balance sheets and to assist customers,” he said.
“With the restrictions coming to an end, we are communicating with the country’s registered trading banks about our ongoing expectation that banks put the need to support households and businesses at the centre of their assessment of the appropriate level of dividends, and continue to be prudent in determining the appropriate size of dividends paid to their shareholders.”
“Banks’ dividend decisions should also take into account the higher capital requirements, which begin to apply to systematically significant banks at the same date (1 July 2022),” Hawkesby said.