Lloyds, NatWest and Barclays in focus as BoE scraps dividends pay out restrictions on banks

Summary 

  • Bank of England has scrapped dividends pay out restrictions imposed in March last year.
  • Banks can now once again pay dividends to their shareholders after the significant recovery in the economy.
  • Investors would be eyeing top banking stocks like Lloyds, NatWest and Barclays, who had stopped dividend payment due to Covid.

Bank of England has scrapped all dividends payout restrictions on UK banks, imposed in March last year when the pandemic struck, putting the focus on the major banking stocks like Lloyds, NatWest and Barclays.

The Financial Policy Committee, which monitors the bank’s financial stability, said that the economic outlook in the United Kingdom has improved as a result of the rapid rollout of vaccines, and the level of uncertainty has dropped significantly because of which limits on shareholder dividend payment and buyback restrictions will be lifted. However, the committee still has cautions view and stressed that all banks should continue to support the economy, especially the small business which has seen 25% rise in debt levels since the pandemic started.

Few restrictions on dividend payment were lifted earlier in December 2020, which allowed banks to pay dividends up to 20 basis points of risk-weighted assets or 25% of cumulative eight-quarter profits.

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Let’s look at the banking stocks which may get positively impacted by the announcement:

Lloyds Banking Group Plc (LON: LLOY)

The Lloyds Banking Group is one of the largest financial service providers in the UK, serving close to 30 million customers. The company operates through two key segments: retail and commercial banking, insurance and wealth management products. The company’s stock has a secondary listing on New York Stock Exchange.

Recently, the bank closed a total of 44 branches across England and Wales. The bank said that the customers in these locations carried very few banking transactions by visiting the branches, and the bank plans to use these branches for a different purpose in the future. Due to the rise of digital banking, Lloyds bank customers surged to around 18 million. Majority of this, around 13.6 million are active app users. The bank will continue to support customers through telephone and online banking, video appointment services. Due to Covid, the Board of the bank had decided that it would undertake no quarterly or interim dividend payments till the end of 2020. Last year it had paid a dividend of 0.57 pence.

Lloyds Banking Group shares trade at GBX 47.33, up by 1.23% on 14 July at 09.00 GMT+1, with a market cap of £33.6 billion. In the last one year, the stock has given 54.5% returns to its shareholders.

NatWest Group Plc (LON: NWG)

NatWest Group offers various financial services like personal and business banking, insurance and cooperates finance.

NatWest Group’s senior unsecured debt rating has been upgraded to Baa1 (from Baa2) by Moody's Investors Services with a positive outlook after the company showed improvement in Baseline Credit Assessment.

In the year ended December 2020, the company generated £10,844 million in revenue with a pre-tax loss of £351 million. The company had declared dividends of 3p per share that was paid on 4 May 2021.

NatWest Group shares trade at GBX 205.7, up by 2.14% on 14 July at 09.00 GMT+1, with a market cap of £33.4 billion. In the last one year, the stock has given 67.8% returns to its shareholders.

Barclays Plc (LON: BARC)

FTSE 100 listed bank provides financial services in the UK and other countries. Barclays is considered as the systemically important bank by the committee of the Financial Stability Board.

Barclays has recently onboarded Evonne Tan, a former UBS banker, as the head of its private banking in Singapore. The company seeks to grab more business from wealthy entrepreneurs, family offices and businesses through its corporate and investment banking operations in Asia-Pacific. The bank’s board had decided not to pay any interim dividend for 2020, for the last year, it had paid a dividend on 1.0 pence.

Shares of Barclays Plc trades at GBX 172.48, up by 1.46% on 14 July at 09.00 GMT+1 with a market cap of £29.3 billion. The stock has given 44.5% return to its shareholder during the period of last one year.

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