SYDNEY – Australian caution regulators on Tuesday called on banks and insurance companies to consider delaying dividend payments or using buffers such as dividend reinvestment plans until the impact of the coronavirus pandemic is better known.
But the Australian Prudential Regulatory Authority (APRA) stopped giving official directions, even as central banks around the world have limited plans to return capital to investors because the plague threatens revenue and disrupts operations.
APRA asks banks and insurance companies to limit the distribution of discretionary capital so that they have sufficient capacity to continue important functions such as loans and insurance guarantees.
“Banks and insurance companies have an important role to play in supporting the wider Australian household, business and economy during periods of significant disruption caused by COVID-19,” the regulator suggested in a letter to the sector.
Spokesmen for the Commonwealth Bank and Banking Groups of Australia and New Zealand, respectively the fourth and fourth largest lenders, declined to comment.
Media representatives for two other major Australian banks, Westpac Banking Corp and National Australia Bank, did not return requests for comment.
The regulator said dividends would need to be at “materially reduced levels” even when the board was confident that it could approve dividends before carrying out stress tests which needed to be discussed with APRA.
APRA added it expects the board to limit cash bonuses appropriately to executives and start other capital management plans pre-emptively, to maintain customer confidence and continue lending.
Analysts had predicted that Australia’s Big Four banks could cut dividends in the coming weeks because of the pandemic.
Meanwhile, Fitch Ratings downgraded the debt of four major banks and their debt instruments one level to ‘A +’, from ‘AA-‘ on Tuesday, the first of three major credit agents to do so. S&P Global and Moody’s Investor Service rank each of the “Big Four” Australian lenders ‘AA-‘ and ‘Aa3’.
“Fitch’s move might slightly increase the marginal cost of the issue of senior unsecured bonds for big banks,” said Azib Khan, banking analyst at Morgans Financial stockbroker.
“However, this is not much of a problem for large banks at this time because they have access to cheap funding through the RBA Term Funding Facility,” Khan added, referring to the central bank’s three-year loan facility which only charges them 0.25%.
(Reporting by Paulina Duran in Sydney and Rashmi Ashok in Bengaluru; Editing by Edmund Blair / Giles Elgood / Susan Fenton)
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