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Summary
- Bank of England has relaxed its earlier advice to suspend dividends and share buy-backs for the banks
- The decision of BoE came after The Prudential Regulation Authority, BOE’s arm that oversees the banking sector conducted two stress tests and concluded that banks in the country remain well capitalised to support the economy.
- BOE had banned banks to distribute dividends in the month of March during the imposition of the first lockdown, to conserve cash in the banking system
After much deliberation, the Bank of England (BoE) has finally given a green signal to the banks to restart paying dividends and initiate share buybacks. The decision is backed by two stress tests conducted by the Prudential Regulation Authority recently found that the banking industry is well capitalised and in good health to support the economy.
Though BoE while granting the permission has warned the banks to dispense cash within limits and maintain liquidity in the ambit of safety levels.
Initially, the decision could result in dividend payouts by the regular dividend-paying FTSE companies that had declared earlier that would not pay the eligible shareholders due to the crisis. Now, with the nod, the dividend payouts would bring some cheer to the festive season.
The pandemic crisis
The pandemic outbreak has brought the British economy to a grinding halt. Most of the businesses saw their revenues dip sharply, and people were confined to their homes following the lockdown in the second week of March.
The decision to ban dividend payouts was taken in a bid to preserve cash for the uncertain times. The BoE believed that the cash outflow if withheld would help in the future when banks would be required to issue overdrafts and other funding for the businesses while trying to recover from the pandemic.
While operations of most banks in the country have been hampered, a few have benefited from the pandemic stimulus scheme rollout, which saw a significant amount of money flow from the treasury through the banking system to its ultimate beneficiaries.
As per some reports, leading banks in the UK, such as Lloyds, Royal Bank of Scotland, Barclays, HSBC, and Standard Chartered were expected to pay a total of £15.6 billion to the shareholders, which was withheld due to the BoE ban.
The stimulus package rollout
Since the lockdown was imposed by the government, many schemes and packages were rolled out to help businesses to cope up with the crash in their activity levels.
One of the schemes was called the Coronavirus Business Interruption Loan Scheme (CBILS) under which companies could lend money to pay salaries and essential expenses. The amounts they lent out were guaranteed by the BoE.
The other loan scheme launched by the Government was the bounce Back Loan Scheme (BBLS) under which small businesses could directly apply for loans online, under lucid terms and no interest payment obligation for a one-year period. Most of the banks in the UK were active lenders under both schemes.
Top five banks who can now pay dividends after the BoE Decision
All the below five banks are regular dividend paying banks and had not paid dividends after the BoE dictate in March but can be expected to pay out now that the ban has been lifted.
HSBC Holdings plc (LON:HSBA)
(Source- EODHD/Others Thomson Reuters)
The shares of HSBC Holdings plc closed at GBX 400.60 per share as on 11 December 2020, losing 0.63 per cent over the previous day’s close.
Lloyds Banking Group plc (LON:LLOY)
(Source- EODHD/Others Thomson Reuters)
The shares of Lloyds Banking Group plc closed at GBX 34.07per share as on 11 December 2020, losing 4.49 per cent over the previous day’s close.
Barclays plc (LON:BARC)
(Source- EODHD/Others Thomson Reuters)
The shares of Barclays plc closed at GBX 136.06 per share as on 11 December 2020, losing 4.02 per cent over the previous day’s close.
NatWest Group plc (LON:NWG)
Source- EODHD/Others Thomson Reuters (last one week)
The shares of NatWest Group plc closed at GBX 150.35 per share as on 11 December 2020, losing 6.67 per cent over the previous day’s close.
Standard Chartered plc (LON:STAN)
(Source- EODHD/Others Thomson Reuters)
The shares of Standard Chartered plc closed at GBX 475.30 per share as on 11 December 2020, losing 0.50 per cent over the previous day’s close.
