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End of dividend restriction requires ongoing prudence - Reserve Bank

Contributor:
Fuseworks Media
Fuseworks Media

The Reserve Bank of New Zealand - Te PÅ«tea Matua is normalising the process for banks setting dividend payments, by removing the restrictions placed on the country’s registered trading banks at the height of the COVID-19 pandemic. The removal of restrictions will take effect from 1 July 2022.

In March 2020, we put in place a complete restriction on banks paying dividends to their shareholders, in order to support financial stability at a time of acute uncertainty and volatility in the world economy and financial markets.

With the economy and financial system more resilient than expected, in March 2021 we announced an easing in restrictions, with a 50% dividend restriction put in place until 1 July 2022. We noted that we intended to normalise the process by removing the restrictions on 1 July 2022, subject to no significant worsening in economic conditions, Deputy Governor Christian Hawkesby says.

"Underlying strength remains in the economy, supported by a strong labour market, sound household balance sheets, continued fiscal support, and a strong terms of trade. However, the economy is still facing headwinds, including heightened global economic uncertainty, cost pressures, and low consumer confidence. As such, banks should ensure that they are well placed to manage the impacts of weaker activity on their balance sheets and to assist customers."

"The restrictions have supported financial stability during the height of the COVID-19 pandemic. With the restrictions coming to an end, we are communicating with the country’s registered trading banks about our ongoing expectation that banks put the need to support households and businesses at the centre of their assessment of the appropriate level of dividends, and continue to be prudent in determining the appropriate size of dividends paid to their shareholders," Mr Hawkesby says.

Banks’ dividend decisions should also take into account the higher capital requirements, which begin to apply to systematically significant banks at the same date (1 July 2022) as set out in the Reserve Bank’s Capital Review. These requirements will help support financial stability and the wellbeing of New Zealanders.

With the dividend restrictions ending, our regular suite of prudential settings, including capital, liquidity and other measures remain in place to support financial stability.

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