How APRA hijacked bank dividend policy

And make no mistake, the Australian Prudential Regulation Authority, the financial regulator, was standing behind banks with a cattle prod pushing them through the opening.

APRA issued guidance for banks and insurance companies in early April on dividends and capital management.

“APRA expects that ADIs [authorised deposit-taking institutions] and insurers will seriously consider deferring decisions on the appropriate level of dividends until the outlook is clearer. However, where a board is confident that they are able to approve a dividend before this, on the basis of robust stress testing results that have been discussed with APRA, this should nevertheless be at a materially reduced level.”

While this statement implied there was some level of wiggle room for banks and insurers, there really wasn’t much.

Nor was the advice from APRA confined to one public statement. The regulator has been riding banks and insurers hard over the past month.


Westpac referred to “consistent guidance on dividends from APRA” even though it said the regulator had no concerns with its capital position.

“The board accepted APRA’s consistent feedback on dividends”, Westpac chief executive Peter King told The Sydney Morning Herald and The Age.

This makes something of a mockery of the banks’ statements about their boards’ agonised decisions about whether to pay shareholders.

In reality they had little choice.


It is no coincidence that, to date, all major banks and insurance companies have declared dividend deferrals or raised capital to buffer their balance sheets. On Monday, IAG announced there was “limited scope” to pay a final dividend in September, seemingly warning investors that deferral is likely.

However, QBE appears to have walked through door two, having undertaken a $1.3 billion capital raising in the week following APRA’s announcement of its revised capital management expectations.

The Commonwealth Bank, which operates on a different financial year calendar to the three other major banks, paid an interim dividend on March 31, one week before APRA issued dividend guidance.

By June 30, when CBA rules off its full-year, it may have more clarity on what credit provisions it expects to take.

Although it is in a stronger capital position than its peers, CBA will also come up against APRA if it wants to pay a regular-sized dividend.


What remains unclear is whether ANZ or Westpac will defer the dividend or make some payment at a later date. It is something on which the banks’ chief executives would not be drawn.

But it’s hard to imagine that the banks will be in a position to deliver a full-year dividend when they close their books on September 30.

Westpac profits in the half to March 2020 were hit by a $1.6 billion charge for COVID-19 and a $900 million provision for the penalty over the AUSTRAC scandal – contributing to a 70 per cent plunge in cash profit.

ANZ booked a 60 per cent fall in interim cash profit as it allocated $1 billion in provisions to cover the expected hit from the COVID-19 fallout.

APRA wants all financial institutions under its ambit to stockpile capital until the outlook is clearer.

The health crisis will likely have passed (in Australia) by September but the economic crisis, its depth and the shape of its recovery, is far less clear.

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