APRA Ends Restrictions on Dividends for Aussie Banks

The Australian Prudential Regulation Authority (APRA) said today that restrictions to bank dividends will end from 2021.

You see, once COVID hit earlier this year, and Australia was facing lockdowns and mortgage deferrals, APRA sent a letter to banks and insurers. In it, APRA said it expected them to ‘seriously consider deferring decisions on the appropriate level of dividends until the outlook is clearer’.

In July, APRA eased its stance a bit, telling banks and insurers they could start paying out dividends, but that they should keep at least 50% of their earnings.

Westpac, for example, suspended its interim dividend and will be paying a final dividend of 31 cents per share for the year — way less than the $1.74 it paid last year.

No dividend restrictions next year

Today, with the economy improving, APRA lifted its recommended guidelines on bank dividends. It said it won’t ask banks and insurers to keep a minimum amount of earnings next year…although risks remain.

In the words of APRA:

Since July, there has been an improvement in the economic outlook, bank capital and provisioning levels have strengthened, and the majority of loans that were previously granted repayment deferral have recommenced repayments. However, a high degree of uncertainty remains in the outlook for the operating environment.

In determining the appropriate level of dividends, APRA expects ADIs and insurers to remain vigilant, regularly assess their financial resilience through stress testing, and undertake a rigorous approach to recovery planning.

However, share prices for all the big four banks were down after the announcement. At the time of writing, Commonwealth Bank of Australia [ASX:CBA] is down 1.12%, National Australia Bank Ltd [ASX:NAB] dropped 0.91%, Westpac Banking Corporation [ASX:WBC] is down 0.85%, and Australia and New Zealand Banking Group Ltd [ASX:ANZ] is down 1.14%.

It’s likely because the announcement was already priced in, since APRA had flagged this as something it was considering about a month ago, and shares for the big four rallied back then.

What could happen next?

While this is good news, it’s likely banks may struggle in the future.

For one, Australian banks are very exposed to housing, with 60% of their loan totals made up of home mortgages, and we still need to see what will happen when JobKeeper ends next year.

But also, long-term low interest rates aren’t great news for banks.

If you are interested in dividend plays, why not check out our free report, ‘Five Dividend Stocks Set to Thrive in the Post-Pandemic Era’? You can access it here.


Selva Freigedo,

The Rum Rebellion

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

The Rum Rebellion