Banks urged to hold back on divs, bonuses


Banks urged to hold back on divs, bonuses

Published Date: 2020-04-08 | Source: Stephen Gunnion | Author: Stephen Gunnion

Banks urged to hold back on divs, bonuses

The Prudential Authority of the SARB has relaxed capital requirements for banks but wants them to preserve cash in return.

Standard Bank and Investec are considering suspending distributions to shareholders this year after the Reserve Bank advised banks not to pay any dividends to shareholders or cash bonuses to its senior executives due to the heightened stress Covid-19 is likely to place on the banking system.

In a guidance note, the SARB's Prudential Authority (PA) laid out the measures it had taken to support the sector due to an expected rise in loans to distressed customers and increased bad debts. These included reducing the capital they are required to hold to cover their risk-weighted assets, a lower liquidity coverage ratio and capital relief on restructured loans that were in good standing before the pandemic. Its relief measures complement those already taken by the SARB.

It welcomed the measures already taken by banks to support their customers, such as a freeze in loan repayments in some cases, saying "a safe, sound and robust banking systems is a key part of South Africa's shock absorbers during these times". However, it said the Basel regulatory framework on capital adequacy for banks, which was strengthened after the global financial crisis over a decade ago, provided clear rules on discretionary dividend and bonus payments during times like these. It later clarified that the guidance applied to dividends for 2020 and not those already declared for previous reporting periods.

Last week, the European Central Bank ordered banks to freeze dividends and share buybacks until at least October to preserve liquidity that could be used to help households and companies through the crisis. A number of top British banks have also suspended dividends after pressure from the UK Prudential Regulatory Authority to conserve capital as a buffer against expected losses.

Absa said it would go ahead with the payment of its final dividend for 2019 after consulting with the Prudential Authority. While it recognised the need to conserve capital in the current environment, legal advice confirmed that a dividend must be paid as it had been declared and communicated to its shareholders.

Standard Bank said it would consider the guidance issued by the PA and would advise shareholders in due course. The bank said it remained well capitalised and liquid.

Investec, which is governed by both authorities and is due report its annual results on 21 May, said it would also advise shareholders of its course of action. It too said it remained highly liquid and well capitalised.

Absa rose 8.4% to R89.97 yesterday while Capitec gained 6.1% to R1,085 and FirstRand ended 2.5% higher at R39.68. Investec Limited increased by 4.4% to R36.17, Nedbank rallied 14% to R104.10 and Standard Bank closed 8.2% higher at R114.12.

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