The big four banks will no longer be constrained by APRA’s pandemic rule book, which saw shareholders receive greatly reduced dividends as they grappled with the worst recession on record.
APRA expects the big four to “remain vigilant” and regularly assess their financial resilience when paying dividends but will lift its rule that banks could only pay out half of statutory profits as dividends.
“A decade-long process of increasing capital levels and bolstering resilience in the banking system has put Australian banks in their current position of strength, allowing the sector to support customers and the broader economy at a time of crisis,” said APRA chair Wayne Byres.
“The results of APRA’s extensive ADI stress testing provide reassurance that the banking system remains well positioned to absorb the impact of a severe economic shock and retain the capacity to continue supplying credit into the economy.”
Significant stress testing went into the decision, with APRA developing a “severe downside scenario” involving a 15 per cent fall in GDP, a rise in unemployment to over 13 per cent and a fall in national house prices of over 30 per cent. While capital ratios would fall 5 per cent under such a scenario, banks would remain well above minimum capital requirements even without taking mitigating actions.
“While the reduction in the number of loan repayment deferrals and improved economic outlook have allowed APRA to relax its July guidance for ADIs to retain at least half their earnings, the boards of ADIs and insurers are expected to maintain a prudent approach to capital management and dividend payouts,” Mr Byres said.
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