Regulators are considering allowing banks to restart dividends next year, following a prolonged suspension of payouts due to the COVID-19 crisis.
Negotiations between the Bank of England (BOE) and commercial banks are ongoing and aim to allow banks to make shareholder payouts as long as loss-absorbing capital buffers remain strong, according to a report in The Times on Monday.
The deal would require commercial banks to continue lending to the real economy, the report said.
In April, HSBC (HSBA.L), Lloyds (LLOY.L), Barclays (BARC.L), Royal Bank of Scotland (RBS.L), Santander, and Standard Chartered (STAN.L) all cancelled dividend payments. The banks ruled out any other payouts for the remainder of 2020 and axed planned share buybacks.
It came after a public call from the Bank of England to stop payouts to shareholders during the COVID-19 crisis. The European Central Bank (ECB) put similar restrictions on eurozone lenders.
The Bank of England said in July it would review the dividend ban in the final quarter of 2020. The central bank said its decision would be “based on the current and projected capital positions of the banks and will take into account the level of uncertainty on the future path of the economy, market conditions, and capital trajectories prevailing at that time.”
According to The Times, one proposal on the table would see the regulator ending its ban as long as “capital ratios do not drop below an agreed floor” and net lending continues to rise.
Dividends were initially suspended in order to preserve capital and ensure banks had enough cash to lend to companies and households.
The Bank of England declined Yahoo Finance UK requests for comment.
Barclays chief executive Jes Staley said in a statement last week that the bank "recognises the importance of capital returns to shareholders," raising the prospect that a dividend or share buyback could be announced if and when restrictions are lifted.
"We obviously believe that the financial strength of the bank is there," Staley told journalists on a third quarter earnings call. "We feel that the bank is extremely well capitalised, we’ve been profitable every quarter this year, we’re very highly reserved and so that gives us a degree of confidence."
Staley said conservations between Barclays and the Prudential Regulation Authority (PRA) were ongoing.
"Let's see what we’re in a position to do at our year end results," he said.
Data released last week showed UK dividends fell 49.1% in the third quarter, dropping to £18bn ($23.3bn). It was the lowest third quarter dividend total for a decade.
Banks accounted for almost two-fifths of the cuts and oil companies another fifth, according to the Link Group Dividend Monitor. Travel and leisure retailers were the worst hit.
Including additional reporting by Oscar Williams-Grut.
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