Bank Investors in Canada Are Told ‘Be Patient’ on Dividend Hikes

Investors in Canadian banks will have to “be patient” for higher dividends because regulators aren’t ready to lift limits on payouts, according to the country’s bank superintendent.

Peter Routledge, the new head of the Office of the Superintendent of Financial Institutions, said the restrictions implemented near the beginning of the pandemic, which prohibit banks and insurance companies from buying back shares or increasing their dividends, have served the financial system well during a volatile time.

“We judge the level of financial uncertainty as diminishing -- but not to a level where returning discretion for capital-distribution increases to boards of directors is prudent as of yet,” Routledge said in an interview on BNN Bloomberg Television.

“I know folks are interested in hearing from OSFI more on this issue. Please, I’d ask folks, be patient,” he said.

Bank Investors in Canada Are Told ‘Be Patient’ on Dividend Hikes

With the economy recovering and Canada’s banks collectively holding tens of billions of dollars in excess capital, it’s expected that major lenders will bump up their dividends as soon as they’re allowed to do so. The Federal Reserve eased similar restrictions this week after U.S. banks passed capital tests, with Morgan Stanley, Wells Fargo & Co. and other banks immediately announcing plans to return more money to shareholders.​

​In Canada, dividend increases are likely already factored into share prices. The yield on Royal Bank of Canada, the country’s largest lender by market value, dropped to 3.38% earlier this month -- the lowest since early 2018.

Routledge declined to give a timeline on for relaxing the rules. “OSFI has long stated -- and I repeat -- that we’ll continue to err on the side of being a little late in lifting the restrictions, as opposed to a little early,” he said.

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