RBNZ Retains Certain Dividend Restrictions Amid Ongoing Challenges
RBNZ is easing the dividend restrictions placed on retail banks at the height of the COVID-19 pandemic. The changes will allow banks to pay up to a maximum of 50% of their earnings as dividends to their shareholders. The 50% dividend restriction will remain in place until July 01, 2022, at which point RBNZ intends to normalize the dividend setting by removing the restrictions entirely (subject to no significant worsening in economic conditions). This is also the date at which higher capital requirements begin to apply to systematically significant banks, as set out in the RBNZ Capital Review. RBNZ has written to the registered trading banks to advise them of the decision and outlined the expectations that banks will be prudent in determining the appropriate size of dividends paid to their shareholders.
The RBNZ restrictions on repaying holders of Additional Tier 1 and Tier 2 capital instruments have also been lifted. Dividends may not 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. Mr. Geoff Bascand, Deputy Governor and General Manager Financial Stability of RBNZ, pointed out that it is appropriate to retain partial restrictions on the dividends banks can pay amid ongoing uncertainties, even though economic activity in the country has picked up over recent months. 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 impact of the COVID-19 pandemic on the New Zealand economy. The restrictions have been successful in this purpose.
RBNZ also notes that bank decisions should consider the requirement to meet higher capital requirements resulting from the Capital Review of RBNZ. The higher capital requirements set out in the Capital Review begin to apply from July 01, 2022. Mr. Bascand also noted that RBNZ has 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. However, "building strong capital buffers needs to be prioritized.”
Related Links
- Letter to Banks (PDF)
- News Release on Restrictions, November 2020
- Capital Review Implementation Timeline, November 2020 (PDF)
- Capital Review Guide, 2019 (PDF)
Keywords: Asia Pacific, New Zealand, Banking, Financial Stability, COVID-19, Regulatory Capital, Dividend Distribution, Basel, Implementation Timeline, RBNZ
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
NGFS to Publish Climate Reference Scenarios in Coming MonthsRelated Articles
APRA Penalizes Heritage Bank for Incorrect Reporting of Capital
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
OSFI Releases Annual Report 2021-2022
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
APRA Finalizes Capital Adequacy Standards for Banks
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.
APRA Finalizes Guidance on Management of Climate Change Risks
The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.
EBA Publishes Single Rulebook Q&A Updates in November 2021
The European Banking Authority (EBA) Single Rulebook Question and Answer (Q&A) tool updates for this month include answers to 10 questions.
EC Finalizes Rules on Internal Approaches Benchmarking Exercise
The European Commission, or EC, finalized the Implementing Regulation 2021/2017 with respect to the benchmark portfolios, reporting templates, and reporting instructions for the supervisory benchmarking of internal approaches for calculating own funds requirements.
EC Proposes New Measures Under Capital Markets Union Package
The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.
European Council Adopts Position on Digital Finance Package Proposals
The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).
PRA Proposes Rulebook Changes; BoE Extends BEEDS Testing Window
The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.
