RBNZ blocks banks from paying dividends to shareholders
New Zealand’s banks won’t be allowed to pay dividends to their shareholders after reaching an agreement with the banking regulator the Reserve Bank.
In a statement released yesterday Deputy Governor Geoff Bascand said it had agreed with the banks that during this period there would be “no payment of dividends on ordinary shares” and they should also not redeem non-common equity tier one capital instruments.
The restrictions came into place yesterday under revised conditions of registration for all locally-incorporated banks.
Bascand said they would remain until further notice with the aim of relaxing them when the economic outlook had sufficiently recovered.
Exactly what that means is not being specified by the regulator.
An RBNZ spokesman told the Herald it had not set a time limit on it given the uncertainty surround the coronavirus and its economic impact.
The move will be a big blow to the four big Australian-owned banks ANZ New Zealand, Westpac New Zealand, ASB and BNZ which have paid millions of dollars to their Australian parents in recent years.
In a statement to the NZX ANZ said the change meant it would not be allowed to redeem the $500 million of mandatory convertible perpetual subordinated securities on May 25.
However, it said the RBNZ decision would not affect the ability for capital notes to pay interest. “Interest is scheduled to be paid quarterly in arrears, is subject to ANB’s (ANZ bank’s) discretion and other conditions as set out in the investment statement, and is non-cumulative.”
The capital notes also have a provision to be converted to shares in ANZ in May 2020 or May 2022 which was subject to certain conditions.
The statement did not say whether the notes would be converted.
However, ANZ said its capital position remained strong with total capital of $13.4 billion, or 13.6 per cent of risk-weighted assets at December 31, 2019.
The move came after the European Central Bank recommendation last month that all banks stop paying dividends or buying back their own shares during the pandemic and at least until October.
And on Tuesday, the Bank of England ordered Britain’s seven largest banks to scrap dividends, share buybacks and any bonus schemes for executives for the rest of this year.
Various European governments are calling for all companies receiving government financial support to suspend dividends and France is threatening penalties to any company that refuses to comply.
Bascand’s announcement came as the RBNZ announced a term lending facility to back the Government’s business finance guarantee scheme which was unveiled late yesterday.
Nine banks made the cut to participate in the Government-backed $6.25b loan scheme to help businesses hit by the coronavirus crisis and subsequent national lockdown.
Businesses with turnover between $250,000 and $80m can begin applying for up to three-year $500,000 loans from any of the nine banks, ANZ Bank, ASB, Bank of New Zealand,
We are confident [the] financial system is well placed to respond to the impacts of coronavirus.
Heartland Bank, HSBC, Kiwibank, SBS Bank, TSB Bank and Westpac.
RBNZ governor Adrian Orr yesterday said: “We are working [with] the Government and . . . banks to provide the economic support that is crucially needed during this uncertain time.
“We are confident [the] financial system is well placed to respond to the impacts of coronavirus,” Orr said.
The big four New Zealand banks, which account for about 88 per cent of the banking system, are owned by the big four Australian banks.
The thinking in Australia is that bank dividends will be cut but pundits are divided about whether they will be officially banned.
ANZ paid A$1.60 per share in dividends in 2019, Commonwealth Bank of Australia, which owns ASB Bank, paid A$4.31, National Australia Bank, which owns Bank of New Zealand, paid A$1.66 and Westpac paid A$1.74.
Adrian Orr, RBNZ governor