APRA eases dividend restrictions, ASX bank shares rally

APRA has now advised ASX banks they can begin to pay limited dividends of up to half of profits, replacing earlier guidance to defer dividends by the regulator.

| More on:
ASX 200 tech shares Investor touching a screen with a smiley face icon on it, indicating a surging ASX share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In a media release today, the Australian Prudential Regulation Authority (APRA) updated its capital management guidance for banks and insurers.

Updated guidance

The guidance eases restrictions around paying dividends. As a result, this replaces its April recommendation, in which it advised that banks and insurers should be "seriously consider deferring decisions on the appropriate level of dividends until the outlook is clearer."

However, in today's release, APRA has indicated boards should seek to retain at least half of their earnings when making decisions on capital distributions, conduct regular stress tests, and make use of capital buffers to absorb impact of stress.

APRA Chair Wayne Bryes said, "today's announcement strikes a balance in recognising the strength of the financial system, while at the same time acknowledging the difficult path ahead."

"APRA has therefore set an expectation that dividend payout ratios for authorised deposit-taking institutions (ADIs) will be maintained below 50% for this year," he added.

APRA believes that, despite the environment being risky, it is now more confident in terms of how Australia's economy and financial institutions are being impacted by the coronavirus pandemic.

Banks rally

Bank share prices have rallied on the back of the news (at time of writing):

  • Australia and New Zealand Banking Group Ltd (ASX: ANZ) up 1.88%
  • National Australia Bank Ltd (ASX: NAB) up 1.56%
  • Westpac Banking Corp (ASX: WBC) up 1.43%
  • Commonwealth Bank of Australia (ASX: CBA) up 1.47%

In other bank news

Westpac Bank announced today it will be bringing 1,000 jobs back to Australia from overseas. The decision follows a surge in demand for customer assistance. This action is expected to initially increase the bank's costs by around $45 million per annum by the end of FY 2021.

Commonwealth Bank released a technology update yesterday. It announced 2 strategic partnerships with Square Peg and Zetta Venture Partners to support new banking ventures in artificial intelligence, data and analytics. In addition, the bank's technology venture building entity X15 has launched an app called Backr to help small business owners launch new digital-enabled businesses. 

In addition, Commsec (an online broker offered by Commonwealth Bank) has seen a surge in retail investor activity in FY20 with 400,000 new accounts, which is 2.5 times that of its typical average. The increase in trading accounts could point to strong trading revenues for brokers.

Last month, ANZ announced the sale of UDC Finance to Japan's Shinsei Bank for NZ$762 million. This transaction is subject to regulatory approval and is expected to be completed in the second half of 2020 calendar year.

National Australia Bank will release its Q3 trading update on Friday 14 August 2020.

Motley Fool contributor Matthew Donald owns shares of National Australia Bank Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A businessman slips and spills his coffee.
Bank Shares

Why is the CBA share price taking a tumble on Wednesday?

CBA shares are taking a fall today. Let’s find out why.

Read more »

A woman puts up her hands and looks confused while sitting at her computer.
Bank Shares

Why are ANZ shares tumbling 4% on Wednesday?

What’s going on with the big four bank’s shares today? Let’s find out why they are falling.

Read more »

A woman wearing yellow smiles and drinks coffee while on laptop.
Earnings Results

CBA shares on watch after delivering $2.5b quarterly profit

The banking giant has made a big quarterly profit. But will it be enough for the market?

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Bank Shares

3 reasons to sell NAB shares in November

Don’t bank on NAB shares rising from here, according to two experts.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Bank Shares

Why are NAB shares tumbling from their 17-year high?

The big four bank's shares have run out of steam. But why?

Read more »

Bank building with the word bank in gold.
Bank Shares

How long can ASX 200 bank shares keep smashing out new highs?

The ASX 200 Banks Index closed at a new all-time high yesterday.

Read more »

A woman's hair is blown back and her face is in shock at this big news.
Bank Shares

$150 a pop: Would I still buy CBA shares as they hit all-time highs?

Here's my take on CBA shares at $150...

Read more »

Friends at an ATM looking sad.
Bank Shares

Are ANZ shares a buy following the bank's latest results?

This broker has changed its mind following ANZ's earnings...

Read more »