By Alice Uribe
SYDNEY--Australia's prudential regulator has removed pandemic-related guidance designed to restrict dividend payments from the country's banks as the economy continues to improve and bank capital positions get stronger.
The Australian Prudential Regulation Authority said Tuesday that from the start of 2021 it would no longer hold banks to a minimum level of earnings retention. This comes after the regulator in July guided that banks should retain at least 50% of their earnings in 2020.
"While APRA will no longer hold banks to a minimum level of earnings retention, the onus will be on boards to carefully consider the sustainable rate for dividends, taking into account the outlook for profitability, capital and the economic environment," said APRA.
APRA Chairman Wayne Byres said there has been an improvement in the economic outlook and stability in financial markets since July.
"For banks, there has been a strengthening in capital positions and provisioning levels, and the majority of loans that were previously granted repayment deferral have recommenced repayment," he said.
In a separate report concerning bank stress testing during Covid-19 issued on Tuesday by the regulator, APRA concluded the banking system was well positioned to withstand a very severe economic downturn, whilst retaining the capacity to support the broader economy.
Still, APRA said it expects that banks and insurers, which the regulator in July guided should maintain caution on dividends, should still continue to moderate dividend payout ratios, and consider the use of dividend reinvestment plans or other capital management strategies to offset the impact on capital from distributions.
"There remains a high degree of uncertainty in the outlook for the operating environment, and all entities will need to maintain vigilance and careful planning in capital management," said Mr. Byres.
APRA said its revised guidance is intended to support banks and insurers in capital planning for the period ahead.
"If there is, however, a marked change in operating conditions or the expected outlook, APRA will provide further guidance as required," it said.
Write to Alice Uribe at alice.uribe@wsj.com
(END) Dow Jones Newswires
12-14-20 1810ET
