Banks to pay £7BN dividend bonanza

Big five lenders defy economic crunch to release extra cash – as profits soar to highest since 2008

BANKS are plotting a dividend bonanza as they prepare to record their highest profits since the global financial crisis.

Britain’s top five lenders – Lloyds Banking Group, HSBC, Barclays, NatWest and Standard Chartered – are set to report pretax profits totalling £33billion for 2021, paving the way for bigger payouts to shareholders.

The Mail on Sunday can reveal that senior bankers are now in talks with the Bank of England about releasing cash set aside for bad loans in time for their quarterly earnings report in around two weeks.

Analysts expect the big five will pay out £7billion in dividends this year, up from £3.3billion last year – in addition to share buybacks.

And expectations of an interest rate hike – a boon for lenders – are mounting as inflation rises and as employers dish out record pay increases.

But the boomtime for banks comes just as the economy grapples with surging gas prices, supply chain problems and the end of the furlough scheme.

Chancellor Rishi Sunak is also expected to announce a cut to the 8 per cent tax levied on bank profits in his budget later this month. And a limit on banker bonuses could soon be ditched.

A source close to the Treasury said: ‘It’s one of those things we don’t want to rule out further down the line.’

Analysts believe the end of furlough has left bankers cautious.

However, one top banker said: ‘I’m not anticipating a surge [in unemployment] at all.

‘We’re in dialogue with the Prudential Regulation Authority at the moment on how much you want to release out of your provisions. We’re all sitting with far too much cash on our balance sheets.

‘Our models throw up a huge number of money to release, but let’s be careful, we’ve got a winter to get through. We’ll definitely make a release of some kind [in October].’ A rival banker said: ‘We expect further releases, although we’re not certain if it’ll be October or February.’

Russ Mould, an analyst at investment website AJ Bell, said: ‘It is possible there will be further releases in banks’ upcoming results, especially after the near £20 billion they set aside for bad debts last year.’

Matthew Beesley, chief investment officer at Artemis Investment Management, said: ‘The end of furlough was expected by many to lead to a rise in unemployment.

‘However, it seems that high street banks have been moderating their expectations for business failures and bad loans.’

Analysts at Barclays point out that ‘all banks are well capitalised’ but noted HSBC has ‘greater appetite to do buy-backs’ potentially with full-year results.

They added that banks ‘see scope for further [provision] releases in coming quarters’ and expect a period of lower than normal losses from bad debts next year.