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Bank of England lifts curbs on bank dividends

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The Bank of England has removed curbs introduced during the Covid pandemic that restricted banks from paying dividends.

In March 2020, the central bank asked the UK’s largest lenders to suspend dividends and share buybacks until the end of 2020 because of unprecedented levels of economic uncertainty caused by the pandemic.

These restrictions have now been dropped with immediate effect after the BoE determined that “banks remain well capitalised and resilient to outcomes for the economy”.

Bank governor Andrew Bailey said: “The rapid rollout of the UK’s vaccination programme has led to an improvement in the UK economic outlook.”

However, he warned that “risks remain” from the pandemic. For example, households and businesses will need continued support from the UK financial system as the economy recovers and the Government’s support measures unwind over the coming months.

In an accompanying statement, the Banks’s Prudential Regulation Authority (PRA) said: “It is essential that banks continue to support households and businesses through the economic recovery and as the Government’s support measures unwind over the coming months, including in the event that economic outcomes are more severe than currently expected.

“Bank boards should therefore continue to exercise an appropriate degree of caution around the level of any shareholder distributions.”

Shares in HSBC, NatWest, Barclays, Standard Chartered and Lloyds rose this morning following the announcement.

Bumpy road to normality

Helen Bradshaw, portfolio manager at Quilter Investors, said: “While the banks have the green light to resume dividends, it is likely that caution will remain, and indeed guidance encouraged them to do so. While there is more certainty on the economic backdrop versus last December, we are not out of the woods just yet and precisely what happens after ‘freedom day’ remains a big unknown.

“In addition, as the government starts to withdraw its support packages, cracks may begin to show and a number businesses could struggle to find their own feet once again. This could lead to a tick up in defaults that the banks will need to absorb. While the lifting of restrictions is a positive development, the road back to normality could be bumpy. Dividends will remain under scrutiny.”


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