BOQ will defer its interim dividend payment until the economic outlook becomes clearer – and other banks could follow.
BOQ will defer the decision on the payment of its interim dividend until the economic outlook is clearer and it has discussed the results of its stress testing with APRA.
“BOQ understands the impact of this decision on shareholders, however [it] also acknowledges this guidance as a prudent step for the industry,” said BOQ chairman Patrick Allaway.
BOQ has become the first of Australia’s banks to cut its dividend, with Westpac saying that “no decision has yet been made” on the 1H20 dividend and NAB saying it will take APRA’s guidance “into account” as part of its half-year results process. Westpac and NAB will announce their half-year results on 4 May and 7 May respectively.
BOQ’s decision follows a letter APRA sent to ADIs and insurers warning that “decisions on capital management need to be forward-looking” in an environment of “significant uncertainty”.
“During this period, APRA expects that ADIs and insurers will seriously consider deferring decisions on the appropriate level of dividends until the outlook is clearer,” said APRA chairman Wayne Byres. “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.”
On 7 April, Australia’s big four banks were also hit with a historic downgrade of their long-term issuer default rating by Fitch Ratings on the expectation of economic contraction and a rise in unemployment and business insolvency.
“The negative outlook reflects the major downside risk to Fitch’s economic outlook, which could further weaken WBC’s financial profile below our expectations at its current rating level in the next two years,” Fitch wrote in its downgrade of Westpac.