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SA banks given reserved blessing to pay dividends

Protecting cash reserves must still take priority amid ongoing uncertainty from the Covid-19 pandemic.
Image: Mike Hutchings, Reuters

South Africa’s banking regulator eased guidance to lenders that they shouldn’t pay dividends and executive bonuses — though warned that protecting cash reserves must still take priority amid ongoing uncertainty from the Covid-19 pandemic.

Where boards approve such payouts, they should be “prudent and commensurate with the assessment of current conditions and potential future uncertainty,” Prudential Authority Chief Executive Officer Kuben Naidoo said in a note to the industry. Banks should also refrain from using proceeds from regulatory-relief measures for either of those purposes, he said.

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“Banks play a critical role in continuing to provide the necessary required funding to the wider economy amid the Covid-19 pandemic,” Naidoo said. “In light of the above, it is essential that banks conserve their capital resources, among other things, to continue to retain their capacity to support.”

The instruction is a relaxation of a guidance issued by the Prudential Authority 10 months ago that lenders should withhold dividends and bonuses, while Naidoo said in November the ruling would only be lifted after South Africa emerged from uncertainty caused by the pandemic. The game changer may be the international rollout of vaccines, which has prompted the South African Reserve Bank to revise global growth forecasts for 2021.

The move also comes after the Bank of England offered UK banks a reprieve when it listed its own de facto ban on dividends in December.

While Investec Ltd. unexpectedly announced a first-half dividend in November, larger South African rivals such as FirstRand Ltd. and Standard Bank Group Ltd. held off in 2020. They are expected to resume payments to shareholders after last year raising significant rainy-day provisions to help manage souring loans.

The central bank extended regulatory relief to banks while urging them to preserve capital in April, a move designed to help lenders and their customers avoid loan defaults. Borrowers were granted payment breaks, and lenders introduced a credit-guarantee program backed by government to aid small and medium sized businesses.

“The Prudential Authority considers it critical that banks continue to fulfill the fundamental role of providing the required funding, among other things, to households and businesses amid the Covid-19 pandemic,” Naidoo said.

© 2021 Bloomberg

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I wonder if Standard Bank will pay dividends this year.

A lot of pensioners are semi dependent on income from dividends as are most pension funds.

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