Big lenders forecast to rein in dividends

ANALYSTS and bankers expect major lenders to cut dividend payments and tap bond markets for more funding to cope with tougher capital requirements as regulators look to insulate the sector from volatility.

Commonwealth Bank chief Matt Comyn and chief financial officer Alan Docherty will this week finalise a roadshow with Australian equity investors before holding similar meetings in New York next month, as well as in London and Hong Kong.

The bank traditionally meets investors following its full-year results and the presentations have often preceded CBA tapping bond markets.

However, the meetings this year come as Australia’s banks are under increasing pressure to boost their capital.

Last week, the Australian Prudential Regulation Authority said that from 2021, banks would only be allowed to have 25 per cent of their tier one capital — core funds held to help absorb losses — exposed to international operations or related parties.

That’s half the 50 per cent allowance in place now. It means banks like ANZ face higher costs because they will have to fund each unit separately.

That development came on top of an APRA decision last month, that Australian banks would need to raise an extra $50 billion of “tier two” bonds — riskier instruments that suffer losses before tier one capital is touched — by 2024.

The requirement will be ushered in under the watchdog’s new total loss-absorbing capital rules.

Separately, the Reserve Bank of New Zealand has proposed almost doubling its capital requirements for its biggest banks within five years. Estimates of the amount of additional capital raising from these measures were not available.

The big four are dominant market players in New Zealand as well as in Australia, with the biggest mortgage books in both countries. Reuters