APRA removes dividend restrictions for the banks

APRA has told Commonwealth Bank of Australia (ASX:CBA) and the rest of the big four banks that they will no longer have restrictions on their dividend payments…

| More on:
ASX dividend shares represented by cash in jeans back pocket

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

It has been a subdued day of trade for the big four banks on Tuesday despite some very positive industry news.

At the time of writing, Australia and New Zealand Banking GrpLtd (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) shares are trading flat, whereas National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) shares are trading slightly lower.

What was announced?

This morning the Australian Prudential Regulation Authority (APRA) has provided updated capital management guidance to authorised deposit-taking institutions (ADIs) and insurers.

This replaces its recommendation in July this year for banks to retain at least half of their earnings.

According to the release, from the start of 2021, APRA will no longer hold banks to a minimum level of earnings retention. This means the banks will be able to pay out as much as their earnings to shareholders as they see fit.

Though, it is worth noting that the regulator wants the banks to be vigilant when it comes to dividends.

APRA commented: "Since July, there has been an improvement in the economic outlook, bank capital and provisioning levels have strengthened, and the majority of loans that were previously granted repayment deferral have recommenced repayments. However, a high degree of uncertainty remains in the outlook for the operating environment."

"In determining the appropriate level of dividends, APRA expects ADIs and insurers to remain vigilant, regularly assess their financial resilience through stress testing, and undertake a rigorous approach to recovery planning. The onus remains on boards to moderate dividend payout ratios to ensure they are sustainable, taking into account the outlook for profitability, capital and the broader environment," it added.

Extensive stress testing.

APRA made the decision after looking at the results of extensive stress testing since the onset of COVID-19. These tests indicate that Australia's banking system is strong and could withstand a very severe economic downturn and still continue to support the economy by supplying credit to households and businesses.

The test included a Severe Downside scenario, which involved a 15% fall in gross domestic product (GDP), a rise in unemployment to over 13%, and a fall in national house prices of over 30%.

The result of the Severe Downside scenario was a 5 percentage-point fall in the CET1 capital ratio of the banking system from 11.6% to 6.6%.

However, the regulator notes that this remains well above the 4.5% minimum capital requirement. Furthermore, it does not factor in mitigating actions that would inevitably be undertaken to offset this impact.

APRA's Chair, Wayne Byres, commented: "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."

"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," he added.

Should you invest $1,000 in Rural Funds Group right now?

Before you buy Rural Funds Group shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Rural Funds Group wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Broker looking at the share price.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

Rising share price chart.
Share Gainers

Why Core Lithium, Goodman, GQG, and Macquarie shares are pushing higher today

These shares are starting the week in a positive fashion. But why?

Read more »

Man with rocket wings which have flames coming out of them.
Mergers & Acquisitions

Guess which ASX stock just rocketed 21% on takeover news

Investors are piling into the ASX stock following a confirmed takeover offer.

Read more »

Three guys in shirts and ties give the thumbs down.
Share Market News

Why AVITA, Botanix, Brainchip, and NAB shares are falling today

These shares are falling on Monday. But why?

Read more »

Three smiling corporate people examine a model of a new building complex.
Share Market News

Pexa affirms 2025 guidance but issues warning on costs

Let's see what the property technology company has announced today.

Read more »

A man sitting at his desktop computer leans forward onto his elbows and yawns while he rubs his eyes as though he is very tired.
Share Market News

These are the 10 most shorted ASX shares

Let's see which shares short sellers are targeting this week.

Read more »

Happy woman holding white house model in hand and pointing to it with a pen.
Share Market News

Domain shareholders rejoice after CoStar snaps it up for a large premium

It's a good week to be a Domain shareholder.

Read more »

Smiling man with phone in wheelchair watching stocks and trends on computer
Share Market News

5 things to watch on the ASX 200 on Monday

A decent start to the week is expected for Aussie investors.

Read more »