Investors in UK banks will be breathing a sigh of relief after the regulator lifted its ban on dividends.
The Bank of England’s Prudential Regulation Authority (PRA) lent heavily on lenders to suspend their 2020 payouts when the pandemic hit, urging them to hold on to as much cash as possible to support the economy.
But after the major banks posted better-than-expected profits in the third quarter of the year, and began to lobby the PRA to let them resume their dividends, the regulator has relaxed its restrictions.
Dividend relief: The Bank of England’s Prudential Regulation Authority lent heavily on UK lenders to suspend their 2020 payouts when the pandemic hit
In an effort to avoid eye-watering payouts at a time when much of the country is still struggling, the PRA will not immediately give bank bosses free rein over their dividend policy.
Instead it has imposed ‘temporary guardrails’, limiting payouts to either 0.2 per cent of each bank’s risk-weighted assets or 25 per cent of their profits for the last eight quarters, after deducting any previous payouts.
Senior staff could also bag their Christmas bonus after all, as the regulator will lift its ban on extra pay.
However, it urged lenders to ‘exercise a high degree of caution and prudence’ and warned it would scrutinise all proposals.
The PRA said: ‘Banks remain well capitalised and are expected to be able to continue to support the real economy through this period of disruption.’
But the lifting of the dividend restrictions did little to cheer investors, who were still gloomy over the UK economy’s prospects following the pandemic and Brexit.
While shares in Asia-focused HSBC and Standard Chartered rose 0.7 per cent and 0.5 per cent respectively, Lloyds Bank fell 4.2 per cent, Natwest slid 4 per cent and Barclays 2.8 per cent.