Britain’s largest banks collectively agreed to scrap nearly £8bn worth of dividends following mounting pressure amid the pandemic
The Bank of England is assessing whether it will extend the suspension of bank payouts, including dividends, bonuses and share buybacks, beyond the end of this year.
It comes after lenders previously agreed to suspend payouts in a bid to shore up capital against the pandemic.
Britain’s largest banks, including Barclays, HSBC and Lloyds, collectively agreed to scrap nearly £8bn worth of dividends following mounting pressure from the Bank of England. As well as scrapping dividends, lenders were also ordered to cancel plans for cash bonuses for executives this year.
However, the Bank of England has today (28 July) said that the Prudential Regulation Authority (PRA) will assess whether such suspensions should be extended beyond the end of the year.
The assessment will be based on the current and projected capital positions of the banks, and will “take into account the level of uncertainty about the future path of the economy, market conditions and capital trajectories prevailing at that time”.
In a statement, the PRA said it “regards distributions as an important and necessary part of the functioning of the banking system, but these decisions were a sensible precautionary step given the unique role of banks in supporting the wider economy through the period of economic disruption”.
News of the possible suspension comes as the European Central Bank extended its recommendation not to pay dividends until January 2021.
According to the bank, this updated recommendation on dividend distributions remains temporary and exceptional and is aimed at preserving banks’ capacity to “absorb losses” and “support the economy” in an uncertain environment.
The ECB will review whether this stance remains necessary in the fourth quarter of 2020, taking into account the economic environment, the stability of the financial system and the reliability of capital planning.