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Sunday, March 26, 2023

Bank of England lifted restrictions on dividend payments and share repurchases by British banks

The Bank of England lifted restrictions on dividend payments and share repurchases by UK banks imposed during the coronavirus pandemic, believing the sector was resilient enough to cope with any further shocks caused by COVID-19.

“There is no longer a need for extraordinary restrictions on the distribution of funds among shareholders,” – says the next report on financial stability, published by the British Central Bank.

The regulator cites the results of recent stress tests of banks and lower than expected losses on loans.

“The banking sector remains resilient (…) and has the ability to continue to provide support” amid the recovery in the UK economy after the pandemic.

This decision by the Bank of England follows similar moves by the US Federal Reserve System (FRS) and the European Central Bank (ECB), which have eased restrictions on payments to shareholders in recent months.

Shares of the largest UK banks that were affected by the restrictions, including Barclays, HSBC, Lloyds, NatWest and Standard Chartered, rose in price amid the news, pushing up the FTSE 350 banking index.

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In April last year, as COVID-19 spread in Europe, the Bank of England forced financial institutions to abandon the payment of dividends totalling about 7.5 billion pounds ($ 10.4 billion) to preserve credit worthiness and cover potential losses.

The regulator began to loosen the restrictions in December, but set a limit on dividend payments at 25% of quarterly profits and allowed only dividends for 2021 to be accrued, but not paid.

The decision to lift all restrictions will allow banks to announce an increase in dividends in their second quarter reports. However, many analysts expect boards of directors to act with caution amid the continuing rise in the number of cases of the coronavirus delta strain, writes the Financial Times.

The Financial Policy Committee (FPC) noted that while the rapid roll-out of vaccination programs in the UK has improved the economic outlook, homeowners and businesses will continue to need access to bank loans as government bailouts roll back.

“The FPC expects banks to use all elements of capital buffers as needed to support the economy during the recovery,” the Bank of England’s biannual review of the country’s financial system, published twice a year, said.

To help banks, FPC intends to keep countercyclical capital buffers at zero levels until at least December.

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