RBNZ to Allow Local Banks to Partially Resume Dividend Payments

New Zealand’s central bank has eased restrictions on bank dividend payments, allowing them to distribute as much as 50% of net income to shareholders.

The decision partially reverses steps the Reserve Bank took in April last year to provide more credit to the economy via the banking system. The remaining 50% limit will be lifted in July 2022 subject to no worsening in economic conditions, the central bank said in a statement Wednesday in Wellington.

New Zealand’s enjoyed a V-shaped recovery in the second-half of 2020 after the RBNZ slashed interest rates and the government unleashed a record fiscal stimulus to support incomes. The decision to halt dividends was aimed at supporting financial stability and keeping capital within the banking system. The nation’s four biggest banks are all wholly owned units of Australian lenders.

“Ongoing uncertainty is expected to constrain business investment and household spending growth,” Reserve Bank Deputy Governor Geoff Bascand said in a statement Wednesday. “Given the uncertainties ahead, it is appropriate to retain some restrictions on the dividends that banks can pay.”

The revised restrictions will continue to support financial stability, he said.

“While the restrictions on dividends have been eased, the RBNZ expects banks to exercise prudence in determining the appropriate size of dividends to pay to their shareholders,” Bascand said in a letter to bank chief executives. “The limit set in the revised restriction is an upper limit, and should be treated as such.”

Banks should put the need to support households and businesses at the center of their assessment of the appropriate level of dividends, and any payments “should not impede the bank’s ability to provide this support during what is likely to be a prolonged period of economic recovery,” he said.

Dividend decisions should also reflect the need to have “robust capital trajectories that will enable them to meet the higher capital requirements in the medium term,” he said.

A restriction on redeeming non-Common Equity Tier 1 capital instruments has been lifted completely.

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