Shareholders can expect better dividends from banks and insurers next year after a regulator removed limits on payouts designed to ensure the institutions remained stable during the pandemic.
The Australian Prudential Regulation Authority on Tuesday said it would from January 1 remove its requirement that the companies retain at least half their earnings.
APRA imposed the limit in July, which left shareholders with greatly reduced dividends.
For example, NAB last month declared a fully franked final dividend for 2020 of 30 cents per share. Its 2019 equivalent was 83 cents per share, fully franked.
Yet the regulator said the economic outlook had improved, and people who deferred loan repayments had resumed paying back debt.
Banks and insurers have set aside additional funds to deal with the rise in bad debts from customers left without work due COVID-19.
Still, executives making dividend decisions were urged to be vigilant.
The onus remained on board members to keep dividend payouts sustainable, and consider the outlook for profitability and the broader environment, APRA said.
“Stress testing” of the banks helped inform the decision.
The regulator used a scenario in which gross domestic product fell by 15 per cent, unemployment rose to more than 13 per cent and house prices slumped by more than 30 per cent.
The banks did not cut costs or raise funds in the scenario.
The regulator found the banks could withstand the downturn and continue providing credit.
The APRA decision has not helped the big four banks on the share market.
ANZ, the Commonwealth, NAB and Westpac were all lower by more than one per cent at 1325 AEDT, amid a wider downturn.