By Stephen Wright

WELLINGTON, New Zealand--The Reserve Bank of New Zealand said retail banks can resume paying dividends as the economy has had a stronger-than-expected rebound from the pandemic.

The central bank has prohibited banks from distributing capital to shareholders for the past year to ensure financial stability and the supply of credit. Lockdowns and a border closure led to a record contraction in the economy last year.

Banks can now pay up to a maximum of 50 percent of earnings as dividends, the central bank said Wednesday. The restrictions will be completely removed from July 1 next year subject to no significant worsening in the economy, it said.

New Zealand's four largest lenders, which account for the bulk of banking industry assets, are owned by Australian banks.

The economic outlook remains uncertain despite improvement in recent months, the RBNZ's statement said.

"As we outlined in our February Monetary Policy Statement, economic recovery is patchy, and ongoing uncertainty is expected to constrain business investment and household spending growth," the central bank said.

Write to Stephen Wright at stephen.wright@wsj.com

(END) Dow Jones Newswires

03-30-21 1628ET