MENU

APRA warns banks over dividends

Australia’s major banks have been on the radar of the Australian Prudential Regulation Authority (APRA) this week, having been issued with two separate warnings regarding lending standards and dividends being paid to shareholders.

Earlier in the week, it was announced that APRA had warned the banks against relaxing their mortgage lending standards so as to protect against a situation similar to the sub-prime crisis that sparked the global financial crisis. With interest rates sitting at an all-time low and competition between the banks heightening, it has been feared that lending standards could be relaxed in order to capture more customers.

Now, as reported by The Australian Financial Review, the regulator has set its sights on the dividends being paid by the banks, warning against unnecessarily depleting capital reserves to appease shareholders’ demands.

The low interest rate environment has seen investors flock towards high-yielding stocks, which has also driven up the value of the banks’ shares. On the back of record profits, Commonwealth Bank (ASX: CBA) raised its annual dividend to a record $3.64 whilst ANZ (ASX: ANZ) and NAB (ASX: NAB) bought back shares to increase shareholder value. Meanwhile, Westpac (ASX: WBC) also paid shareholders a special dividend.

Prior to the Commonwealth Bank releasing its full-year report last month, it was heavily anticipated that the corporation would announce a special one-off dividend of its own, considering their record-breaking profit. However, the bank refrained from doing so, opting to maintain a conservative approach to managing its capital in case of a downturn in the economy.

Foolish takeaway

APRA said “Capital initiatives need to be carefully considered by ADI’s (authorised deposit-taking institutions) to ensure adequate buffers are built and maintained.” Whilst the regulator recognises that the banks have adequate capital buffers, it was vital that they are able to be sustained well into the future.

Are you interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading


Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!