Brendan Sproules, head of Citibank’s research department, said that APRA’s move to restrict bank dividends in 2020 may give banks the opportunity to reset the dividend payout rate. Mr. Sproules said in a report that as long as COVID-19 remains a threat, the remaining capital will be returned to shareholders in the form of repurchase only after large-scale vaccination and the risk of the epidemic has dissipated.
“Based on the industry’s current profitability and loan growth that is expected to result in 2-4% risk-weighted asset growth each year, we estimate that major banks can pay 75% to 85% of their cash income based on common stock dividends. They warned: “In the short term, the sustainable dividend ratio will be affected by the increase in bad debts and doubtful debt and the excess capital that puts pressure on the return on equity. “Although the surplus capital of major professional companies has sparked discussions about capital returns, Mr. Sproules warned that APRA’s latest capital management guidelines are related to the results of the stress test, and it clearly shows that despite COVID-19 still a threat , But excess returns will be difficult.
“Although these (stress test) results provide APRA with sufficient comfort to eliminate dividend restrictions, the threat of COVID-19 and the potential impact of the entire economy on credit losses and capital borrowing is expected to eliminate the possibility of large-scale buybacks Until the vaccine has become effective and reduces the risk of the banking system.” But investors may not have to wait too long. Analysts predict that the accumulation of excess capital, mainly from asset sales, will put pressure on APRA to begin allowing capital returns and dividends to shareholders.
