Watchdog tells banks to curb big dividends

SHAREHOLDERS in three of Australia’s major banks could miss out on more than $7 billion in dividends after the industry watchdog intervened to fortify the financial system.

And credit ratings agency Standard & Poor’s has revised to negative its outlook on the banks after warning it could strip Australia of its prized triple-A rating.

Westpac, National Australia Bank and ANZ have been sent back to the dividend drawing board after a directive from the Australian Prudential Regulation Authority. Commonwealth Bank sent out dividends last week.

The watchdog yesterday warned banks and insurers to rein in plans for dividend payments amid the stress on the economy due to the coronavirus pandemic.

In a letter, APRA chair Wayne Byres said they should “limit discretionary capital distributions in the months ahead, to ensure that they instead use buffers and maintain capacity to continue to lend and underwrite insurance”.

In recent weeks, the Bank of England and European Central

Bank have told retail banks not to pay dividends, while the Reserve Bank of New Zealand has banned the Kiwi arms of the big four Australian banks from shipping profits back to Australia for now.

Late yesterday, S&P Global Ratings downgraded its outlook on the credit ratings of the big four banks from “stable” to “negative” and said there was a one-in-three likelihood their ratings would be cut within two years.

Earlier, it downgraded its outlook on Australia from “stable” to “negative”, warning the nation could lose its prized triple-A credit rating, also within two years.

“The COVID-19 outbreak has dealt Australia a severe economic and fiscal shock,” S&P analysts said.