RBNZ lifts restrictions on banks’ dividend payments

  • By Zilla Efrat

The Reserve Bank of New Zealand’s restrictions on registered trading banks’ dividend payments will be removed from 1 July 2022 – as long as there isn’t a significant worsening in economic conditions.

At the height of the COVID-19 pandemic in March 2020, the central bank put in place a complete restriction on banks paying dividends to their shareholders. The aim was to support financial stability at a time of acute uncertainty and volatility in the world economy and financial markets.

Then in March 2021, with the economy and financial system more resilient than expected, the RBNZ announced an easing of restrictions, with a 50 per cent dividend restriction put in place until 1 July 2022.

Now RBNZ Deputy Governor Christian Hawkesby says: “Underlying strength remains in the economy, supported by a strong labour market, sound household balance sheets, continued fiscal support and strong terms of trade.

“However, the economy is still facing headwinds, including heightened global economic uncertainty, cost pressures and low consumer confidence. As such, banks should ensure that they are well placed to manage the impacts of weaker activity on their balance sheets and to assist customers.”

With the restrictions coming to an end, Hawkesby says the RBNZ is communicating with New Zealand’s registered trading banks about its ongoing expectation that they put the need to support households and businesses at the centre of their assessment of the appropriate level of dividends.

They also need to continue to be prudent in determining the appropriate size of dividends paid to their shareholders.

He says banks’ dividend decisions should also take into account the higher capital requirements, which begin to apply to systematically significant banks at 1 July 2022, as set out in the RBNZ’s capital review.

With the dividend restrictions ending, Hawkesby says the RBNZ’s regular suite of prudential settings, including capital, liquidity and other measures remain in place to support financial stability.