Two of Britain’s biggest banks have signalled they are ready to start paying dividends again – just as the economy faces huge damage from lockdown measures and soaring job losses.
Bosses at NatWest and Lloyds have heralded their rock-solid balance sheets as regulators at the Bank of England prepare to review the ban on payouts to shareholders.
In an interview with The Mail on Sunday, NatWest chairman Sir Howard Davies said the bank was in a strong position and could resume dividends if regulators decided to lift the ban.
‘I’m not aware of anyone [among the big banks] who is in deep trouble,’ he added. ‘The banks would be in a position where they could distribute [dividends] at some level.’
However, he stressed that the payouts would be proportionate, adding that ‘nobody is going around the banking industry saying they want to pay a massive special dividend’.
Antonio Horta-Osorio, chief executive of Lloyds, said the board would not decide on dividends until the end of the year.
He said Lloyds would await an official ‘update’ on the ban –which is scheduled to take place within the next three months –and had a ‘very, very strong buffer’ to weather the economic storm.
In comments made to financial professionals at the online Barclays Global Financial Services Conference earlier this month – seen by the MoS –Horta-Osorio revealed that Lloyds’ capital buffers far exceeded the requirement set by the Bank of England.
The prospect of banks resuming dividend payouts comes just as the economy is expected to take a turn for the worse. Chancellor Rishi Sunak last week unveiled a new support package for businesses and employees after the Government imposed fresh restrictions on pubs and bars and warned of further clampdowns.
Analysis for The Mail on Sunday this weekend by the Item Club, which uses Treasury forecasting models, found another full lockdown would blow a £100billion hole in the UK economy.
While the damage may be less than the 20.4 per cent crash in gross domestic product seen in the lockdown during the second quarter of this year, ‘undeniably there would be a very big hit’, said Howard Archer, chief economic adviser to the Item Club, which is sponsored by accountant EY.
The slump in GDP during the second quarter wiped more than £104billion off UK output. The full extent of a similar shock would depend on how long any new measures lasted, he said.
Sir Howard said the Chancellor’s Job Support Scheme, which replaces the Government’s furlough scheme in November, was unlikely to avert a jobs crisis.
And he warned that the fear of job losses could pose an even bigger threat to the economy as families cut back on spending.
‘This is the depressing effect of unemployment,’ Sir Howard said. ‘Usually a lot more people fear they are going to lose their job than actually do.’ Some don’t get made redundant, but they do stop spending, he added. ‘So you have a double-whammy.’
However, Sir Howard said he was confident the banks would weather the storm and still be in a position to resume dividend payments to shareholders.
‘The banking system is open for business and there’s no sense of an impending credit crunch,’ he added. ‘The Bank of England has been very clear – they did not feel that if the banks paid the dividends as intended they would be in trouble. But they said the world is so uncertain the only sensible thing to do is to do nothing.
‘The question is when they get to the fourth quarter, have the mists cleared sufficiently to say we have seen the worst of this, therefore you can begin [paying dividends]?’
Banks were barred from paying dividends in March as the country went into lockdown amid fears bad loans would wipe out bank balance sheets.
They have now set aside £20billion to deal with bad loans, which are expected to pick up pace when the furlough scheme stops at the end of October.
Horta-Osorio said Lloyds will focus on helping customers manage debts to avert a wave of defaults. He said this will ensure Lloyds can limit the amount of loan write-offs it suffers.
Regulators at the Prudential Regulation Authority, which is part of the Bank of England, and the European Central Bank are set to decide within the next three months whether banks should be allowed to resume paying dividends.
This should give enough time to assess the economic fallout from a second wave of Covid-19 infections – before a potential return to dividend payouts in 2021.
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