Bank of England set to support banks' dividend plans
LONDON: The Bank of England is expected to approve banks' dividend plans this week, as the reporting season gets under way. Officials review the payouts to make sure banks are not giving out funds that they need to retain to maintain their financial strength. But despite the spread of violent moves in share prices from European lenders and into British financial institutions, officials are expected to approve the dividend payouts.
It will be seen as a vote of confidence in the industry, showing that the Bank of England still supports statements it made in December and January that the sector is now strong and stable.
The Bank's governor, Mark Carney, declared the banks safe when he unveiled the results of stress tests in December. Those tests concluded that banks are now strong enough to cope with a major recession and keep lending throughout, because they have built up capital buffers to protect themselves should they suffer losses. This week's decision on dividends will be the first "acid test" of that confident statement, a banking source said.
Analysts are also confident about the financial strength of the UK's major lenders. Ian Gordon at Investec predicted that Barclays will pay a full-year dividend of 6.5p, Lloyds will pay 2.25p and HSBC will pay 51 cents.
Royal Bank of Scotland and Standard Chartered have both already said they will not pay anything. RBS hopes to be able to pay a dividend in 2017, as profits return and it pays the government for the right to pay a dividend, a requirement imposed under the terms of the bank's bailout in 2008 and 2009.
Mr Gordon said: "All of the banks are adequately or even well capitalised. Barclays is facing the greatest scrutiny but even it is comfortable in my view. "It has some way to go building capital in the next few years, when other banks have already arrived at or near to the end point. "Barclays needs to unveil a raft of new measures, which it will do on March 1, most likely focused on cost reduction and risk-weighted asset reduction initiatives centred on its investment bank."