Reserve Bank retains some dividend restrictions and expects banks to be prudent
The Reserve Bank of New Zealand - Te Pūtea Matua - is easing the dividend restrictions placed on retail banks at the height of the COVID-19 pandemic.
The changes will allow banks to pay up to a maximum of 50% of their earnings as dividends to their shareholders.
A restriction preventing banks from paying any dividends was put in place in April 2020, and extended in November 2020, to support financial stability and the provision of credit in the economy due to the impacts of the COVID-19 pandemic on the New Zealand economy. The restrictions have been successful in this purpose.
“The New Zealand economy has rebounded to a stronger position than anticipated at the outset of the COVID-19 pandemic and as such, the complete restriction on dividends is no longer needed”, Reserve Bank Deputy Governor and General Manager Financial Stability Geoff Bascand says.
“Economic activity in New Zealand has picked up over recent months. However, the road ahead remains uncertain. As we outlined in our February Monetary Policy Statement, economic recovery is patchy, and ongoing uncertainty is expected to constrain business investment and household spending growth. Given the uncertainties ahead, it is appropriate to retain some restrictions on the dividends that banks can pay.”
The 50% dividend restriction will remain in place until 1 July 2022, at which point the Reserve Bank intends to normalise the dividend settings by removing the restrictions entirely (subject to no significant worsening in economic conditions).
We are writing to the country’s registered trading banks to advise them of our decision, and outlined our expectations that they will be prudent in determining the appropriate size of dividends paid to their shareholders. Banks’ decisions should take into account the requirement to meet higher capital requirements resulting from the Reserve Bank’s Capital Review.
“We have delayed the implementation timetable of the Capital Review twice over the course of last year to allow banks the regulatory relief needed to support their customers. As economic conditions improve, building strong capital buffers needs to be prioritised.”
- Letter to banks regarding dividend restrictions and Capital Review implementation (PDF 450KB)
- Further regulatory steps to promote cashflow confidence and stability – November 2020
- Capital Review go-to guide (PDF 600KB)
- Bank Capital Review Implementation timetable (PDF 420KB)
- New higher capital requirements begin to apply from 1 July 2022, as set out in the Reserve Bank’s Capital Review.
- The Reserve Bank’s restrictions on repaying holders of Additional Tier 1 and Tier 2 capital instruments have also been lifted.
- Dividends may not exceed 50% of net profit after tax reported in the bank’s most recently completed financial year.
- The restriction do not prevent a bank from paying an interim dividend (for example, at the half year). In such cases it is the total dividend paid in the year that is limited by the restriction.