The Bank of England scrapped pandemic-era curbs on dividends from HSBC, Barclays and other top lenders with immediate effect on Tuesday, saying its stress test showed the sector is well capitalised to cope with the fallout from COVID on the economy.
Bank of England Governor Andrew Bailey said that in recent months, the rapid rollout of the UK’s vaccination programme has led to an improvement in the UK economic outlook.
“But risks to the recovery remain. Households and businesses are likely to need continuing support from the financial system as the economy recovers and the government’s support measures unwind over the coming months,” Bailey said.
As Britain entered its first lockdown in March last year to fight COVID-19, the BoE told lenders to suspend dividends and share buy-backs until the end of 2020. It also recommended scrapping bonuses for senior staff.
The aim was to make sure that banks had sufficient capital to maintain lending to businesses hit by the worst economic downturn in 300 years as pandemic unfolded.
The BoE eased its curbs last December as the pandemic’s fallout became clearer, saying payouts could continue within “guardrails”.
The BoE’s Financial Policy Committee (FPC) said on Tuesday that the “extraordinary guardrails on shareholder distributions are no longer necessary and judges that the interim results of the 2021 solvency stress test, together with the central outlook, are consistent with this decision”.
The U.S. Federal Reserve said in June that large banks would no longer face pandemic-era restrictions on how much they can spend buying back stock and paying dividends.
The European Central Bank’s top banking supervisor Andrea Enria said this month the ECB plans to let euro zone lenders resume payouts to shareholders from October, barring a new economic slump.
“The FPC expects banks to use all elements of their capital buffers as necessary to support the economy through the recovery,” the BoE said in its twice-yearly Financial Stability Report.
The committee decided to maintain the so-called counter-cyclical capital buffer at zero percent until at least December, meaning any subsequent increase would not take effect until the end of 2022 at the earliest.
