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Banks now allowed to pay some dividends, but RBNZ keeps restrictions in place until July 2022

Banks now allowed to pay some dividends, but RBNZ keeps restrictions in place until July 2022

The Reserve Bank (RBNZ) is easing the dividend restrictions placed on retail banks at the height of COVID-19.

Banks can now pay up to 50% of their earnings as dividends to their shareholders.

In other words, dividends can't exceed 50% of net profit after tax reported in the bank’s most recently completed financial year.

The restrictions 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.

The 50% dividend restriction will remain in place until July 1, 2022, when the RBNZ plans to remove limits entirely - "subject to no significant worsening in economic conditions".

The RBNZ’s restrictions on repaying holders of additional Tier 1 and Tier 2 capital, bond or debt instruments have also been lifted.

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 COVID-19. It was the first time the RBNZ put dividend restrictions on banks, while bond redemptions hadn't been halted in a blanket manner before.

“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”, RBNZ Deputy Governor and General Manager Financial Stability Geoff Bascand said.

“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.”

Bascand said the RBNZ had written to the banks to make it clear the regulator expected them to be prudent in determining the appropriate size of dividends paid to their shareholders.

He also said banks’ decisions should take into account the requirement to meet higher capital requirements resulting from the RBNZ’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,” Bascand said.

New higher capital requirements will start applying from July 1, 2022, when the dividend restrictions are removed. 

The Australian Prudential Regulation Authority (APRA), which supervises the parents of NZ's big four banks, discouraged dividend payouts last April and then moved to a 50% payout ratio in July. In April last year APRA said banks should "seriously consider deferring decisions on dividends given the uncertainty in the economic outlook," and should "offset any distributions to the extent possible through other capital actions." 

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30 Comments

Allow Westpac to resume dividend payments back to its parent in Sydney as a sop to head off their threat of retreat?

Precisely. They’re engaged in a public negotiation.

This man obviously has cushy board positions waiting for him at Aussie banks and probably a few REITs post his retirement from RBNZ.

There is no conflict of interest when corporations directly benefiting from your decisions post-date your share of the loot in the form of board fees and retainers.

Quite a precedence Sir John Key has set for public officials in this country.

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Advisor...appointing Don Key to the chair of ANZ NZ was the most cunning and subversive example of corporate signposting I have ever seen. If Key had had any morals at all he would have refused the position on the grounds that it would send very dangerous and harmful signals to existing and future politicians. But as we all know IF is a very big word.

It's becoming clearer that eventually NZ must cave in to easy $ flowing from mainland CCP, in order to sustain the current practices. When NZ opt to elect leaders that predominantly obsessed with 'numbers'.. then subconsciously? numbers that they'll get no matter what. Good governance is actually more than that, NZ long has been steer towards 'numbers, stats' by Neolib from late 80s/early 90s.. so? enjoy it.

Easiest way without wholesale changes of existing law would be to increase the refugee allowance, specifically for Hong Kong.

All Patriotic New Zealanders should avoid the Aussies like the plague, stealing the life out of New Zealand Banks and its customers. I have seen the light ...praise the Lord.......Have you yet?. Money dissapears like a flash these days of online banking wealth stealing...and the Aussie Banks have it down to a fine art.....probably bought a Banksy with the profits and gonna on sell to pastures greener. A pinch of salt in all I say....I am giving Aussie Banks a miss.......and so is the missus......Will they miss us...surely will, if we all...Club...Together...A Capital Idea...

Alter Ego...great idea and I put some TDs with NZ owned TSB and Kiwi bank last year without doing my homework. I would like to support them but after looking at their risk exposure to residential property (well over 80% in both cases) I feel I have no option but to discontinue to support them through TD investments. Their massive over exposure just makes them too dammed risky (unfortunately).
But I do agree that the Aussie owned banks are blood sucking leeches that we should have never allowed into NZ in the first place (very similar to our immigration blunders actually). I think they extract around seven or eight BILLION a year from our economy not to mention weakening our whole financial system through actions such as allowing interest only loans etc. As my (industry) famous boss in Thailand used to say about worthless staff, "kick them out, kick them out NOW".

Inflation is borr-owed into creation. Buying sensibly is not in the NZ psychy. Stealing from Taxpayers to support rental mental proliferation of social welfare support for the Rental Mental Brigade of Housing Support for Housing Stock. Theft is also supported by even more debt in NZ, than we can ever repay....A Housing Crash is supported by Orr and Jacinda trying to negate the Truth. Print and be damned, raise the price of Houses, by raising more and more borrowed money.
My Brother's Daughter in France has just bought a beautiful Stone House in his village with acres of Land for 150 Thousand Euros. ...in the Mayenne region.
Better to live in a cheap country than an over burdened and rental mental environment supporting heavily borrowed, "Leveraged" ....Kiwi Fiddlers on Interest Only.......Loans.

Take yer TD's and put them into cash.....or a Holiday home overseas......cheap as chips....not..like...................Free for All ...Houses....supported by eternal debt X 12 with Aussie and Kiwi Banks.......it is a rort.....we live in....not the best deal of all time. Savings have been decimated to Save these thieves........Aussies are main problem.......they ..."Profit" from this rort.....It is a Ponzi........They also wanted to reduce Interest rates into Negative Territory......another steal.......Stuff people should learn......never Pay someonelses ....Debt. Why do you think most Politicians are in on the Gravy Train of Leveraging up Houses and claiming it as a Tax Deduction.......Never "Trust" a Hidden Trust, nor a Politician who fiddles the Books...in his or her Favour. This has gone on long enough.......Honest Politicians.......what a sick joke......Join the Dots......see why we are the most over priced houses.....world wide..........and why they are leaky sieves and flooded with the unemployed, supported by Social Welfare, the elderly, the destitute, the criminal classes, we taught to hide their wealth...I call em Poll-lies and Bwankers..........Nearest I can get to Truth on this site, without being ostricised......(Bury yer Head in the Sand)........Not I.

Great comment x 100

Yep, we are having similar discussion in our house. I also follow a guy called Andrew Henderson who runs nomad capitalist. They specialise in help wealthy Americans with $11 million plus in assets relocate. New Zealand is nowhere near the top of his list. He has an entire Youtube video on reasons not to move to NZ.
Auckland is full of overpriced rot boxes owned by landlords that think they are entrepreneurs doing renters a big favour or homeowners who have eye watering levels of debt. Today we have another headline explaining business confidence is down.... again. But those businesses pay the salaries of the 2/3rds that have a mortgage or rent. Irrational exuberance backed by irrational confidence.

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So RBNZ can actually act without advising government or waiting for future announcement or waiting for future meeting / briefing to media and ..........

So what happens when it comes to Interest Only Loan ( which has a waiting / delayed for over few months) , specially now when speculators on rampage and is proven that IO loan is the source being used to get cheap and fast money to accelerate / multiply their purchasing power over FHB and thereby also multiplying the risk only on belief that house price ponzi will never stop as also supported by Jacinda Arden and promoted by Mr Orr.

Interest Only Loan, not being acted upon as the target set for housing price to grow has not reached yet ( not satisfued 30% to 50% growth in few months) where Mr Orr or may be Jacinda Arden wants it to achieve before taking action on speculative demand as only Speculators can help them to reach their goal fast.

Now that all yelling and hysteria trying to be created by so called investors is over, economists coming out with their assessment, which indicates that Mr Orr and Jacinda may achieve their targeted house price growth soon :

https://i.stuff.co.nz/business/124686399/kiwibank-forecasts-house-price-...

Housing corp are the speculator, competing with FHBs on the open market instead of developing their own stock. The speculator is another myth from the pulpit of bullshit

"The speculator is another myth"

Wrong.

I know of a number of speculators who will openly tell anyone who asks that "Property always goes up. You'd be mad not to be part of the game"
I'll bet you probably know one or two as well?

JKB...probably not the stupidest post this year, but definitely in the top three.

alittle...The RBNZ are (supposedly) independent of Govt so I understand Govt cannot tell them what to do with interest only loans. But what they can and need to do is to urgently contact Orr and ask him for confirmation that he will be announcing removal of interest only loans in May. The Govt can advise him that they need confirmation so they can take into account any changes happening in May when planning ahead. Even though the RBNZ is independent, the Govt can certainly provide them with signposting, alluding to the direction in which they are expected to move (nudge, nudge, wink wink). Come on Grant, pick up the phone and make the call. You made a good start last week but it will all be for nothing if you do not follow through with other measures as well. In the interests of the team of five million, let's do this.

“Economic activity in New Zealand has picked up over recent months"

Wasn't our GDP down -1%, much lower than expected?

It's the RBNZ - housing is the only economy they care about.

A sensible move.
It is time now to unwind other actions taken at the beginning of the pandemic, when it seemed that the end of the world was about to come, starting with the OCR cut and the introduction of QE.
Time also to immediately end interest only loans.

'Time also to immediately end interest only loans.'

After few months will announce a date for future announcement on interest only loan... circus continues.

Any action that reduces retained earnings, and thus capital, reduces the capacity of banks to lend.

Audaxes..good. Are there any other big benefits?

Do these people know no shame? And not even a mention of banks needing to prepare to recalibrate all loans back to traditional, normal risk, reducing (interest and principle) loans from May.

'Do these people know no shame?'

Politicians and Bureaucrats....what is shame !!

I would have thought that in the face of a possible very large house price correction that there is even less justification for dividend payments to the Aussie parents.

Good point.

Might we see another Hanover Finance-style extracting of a massive amount of money in "dividends" prior to leaving creditors out of pocket?

yaaay.. ngg is that mean the banks CAR or TD guarantee back on the table.. eg following the Wallaby? naa..

Orr must be confident the banks are well capitalized and that there will be very few mortgagee sales so an OBR event highly unlikely.

Probably a good call when Westpac have recently draw down $1bn from the RBNZ's coffers.