PRA welcomes dividend suspension by big banks

The Bank of England, the UK’s central bank, on Tuesday welcomed moves by Royal Bank of Scotland and Britain’s other biggest banks including Barclays, HSBC, Lloyds Banking Group and Santander to suspend dividends amid the coronavaris crisis.

The BoE’s Prudential Regulation Authority (PRA) said it also expects them not to pay cash bonuses to senior staff during the coronavirus epidemic. 

“The PRA welcomes the decisions by the boards of the large UK banks to suspend dividends and buybacks on ordinary shares until the end of 2020, and to cancel payments of any outstanding 2019 dividends in response to a request from us,” said the central bank in a statement.

“The PRA also expects banks not to pay any cash bonuses to senior staff, including all material risk takers, and is confident that bank boards are already considering and will take any appropriate further actions with regard to the accrual, payment and vesting of variable remuneration over coming months.

“In the assessment of the Financial Policy Committee and the Prudential Regulation Committee, the banks enter this period with strong capital positions, more than sufficient to accommodate the combined simultaneous impact of severe UK and global recessions and a financial markets shock – as demonstrated through their performance in our recent stress tests. 

“Although the decisions taken today will result in shareholders not receiving dividends, they are a sensible precautionary step given the unique role that banks need to play in supporting the wider economy through a period of economic disruption, alongside the extraordinary measures being taken by the authorities. 

“We do not expect the capital preserved to be needed by the banks in order to maintain adequate capital positions, but the extra headroom should help the banks support the economy through 2020.”

RBS said: “In order to serve the needs of businesses and households through the unprecedented situation presented by Covid-19, the Royal Bank of Scotland Group plc board of directors has decided to undertake no quarterly or interim dividend payments, accrual of dividends or share buybacks and defer decisions on any future shareholder distributions until the end of 2020.

“In response to a formal request from the Prudential Regulatory Authority, the board has also decided to cancel the final ordinary and special dividend payments in relation to the 2019 financial year and not submit them for approval to the RBS AGM to be held on 29 April 2020.

“RBS continues to maintain its robust capital and liquidity position and enters this period with more than sufficient capital to accommodate the combined simultaneous impact of severe UK and global recessions and a financial markets shock as demonstrated through our performance in recent Bank of England stress tests …”

RBS chief executive Alison Rose said: “RBS has a robust capital and liquidity position and we are focused on ensuring we support our customers and help them to navigate the immediate and longer-term challenges they are facing as a result of Covid-19.

“As we continue to build a purpose led bank we are committed to balancing the needs of all our stakeholders. 

“Helping people, families and businesses who need our support is the right thing to do at this time of significant uncertainty.

“The board remains committed to capital returns, will continue to review the situation and will look to resume distributions to ordinary shareholders in due course.”