The large US and UK banks can resume distributing dividends. The European Central Bank will remove restrictions in September 2021.
On July 13, the Prudential Regulation Authority, a United Kingdom financial regulatory body, removed guardrails with immediate effect for the distribution of dividends to shareholders from 2020’s results. The restrictions were set up in the context of the Covid-19 pandemic.
The large U.K. banks like Barclays, HSBC, Lloyds Banking Group, NatWest, Santander UK and Standard Chartered will be able to remunerate their shareholders without restrictions. The “PRA judges that banks remain well capitalized and resilient to outcomes for the economy […] and that they should therefore be able to support households and businesses through the economic recovery”, the statement explained.
According to the PRA, uncertainty has significantly decreased with the rollout of vaccines compared to December 2020. In December, stress tests already suggested that the banks would be solid enough to finance the economic recovery but uncertainty remained high for 2021 because of the Covid-19 pandemic and the adjustments from the new relation with the European Union. As such, banks were still capped for distributing dividends. Restrictions have now been removed.
US banks the first ones to lift restrictions on dividends
At the end of March 2020, PRA requested to cancel payment of 2019 outstanding dividends because of the situation caused by the Covid-19 pandemic. It also asked to restrict bonuses of senior staff. Moreover, the boards of the large U.K. banks suspended dividends and buybacks on ordinary shares until the end of 2020.
The latest data show that the U.K. gross domestic product grew for the fourth consecutive month in May 2021. It still remains 3.1% below levels seen in February 2020.
The Federal Reserve of the United States already removed restrictions on dividend payments and share buybacks for 23 large banks after June 30.
On July 1, the European Central Bank shared the same conclusions on the strengths of the banking system and removed limits on dividends and buybacks. However, they planned to repeal them at the end of September 2021.
At the end of June, the Monetary Authority of Singapore conducted more stress tests before easing restrictions on dividends.
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Sources:
- PRA statement: Update on shareholder distributions by large UK banks, Bank of England, July 2021, Free access
- GDP monthly estimate, UK: May 2021, UK Office for National Statistics, July 2021, Free access
- Hearing at the European Parliament’s Economic and Monetary Affairs Committee, European Central Bank, July 2021, Free access
