Westpac Banking Corp (ASX: WBC) is reportedly considering whether it may be forced to suspend dividend payments. The dividend decision is set to be revealed with the bank's half year results in May.
According to the Australian Financial Review (AFR), newly minted CEO Peter King is considering the bank's capital position as well as potential bad debts caused by coronavirus relief measures. Regarding the dividend position, King told the ABC, "that is something we will need to face in a month's time and we will do so based on the information at that time."
"If the regulators and government decided it was best for the country then obviously we would need to follow that advice," King said.
No bank dividends in New Zealand
His statement follows the Reserve Bank of New Zealand ordering New Zealand banks not to pay any dividends until the coronavirus crisis is over. The measure applies to all banks that are locally incorporated, including subsidiaries of Westpac and Australia and New Zealand Banking Group (ASX: ANZ).
The move is designed to ensure banks keep any profits they make in New Zealand to support local lending during the crisis. It means Australian-owned New Zealand banks that would normally pay a dividend to their Australian parents will not be able to. The Australian parents then, in turn, normally pay dividends to their shareholders.
New Zealand's Reserve Bank Governor Geoff Bascand said the measure would, "further support the stability of the financial system during this period of economic uncertainty."
Yesterday Australian Prime Minister Scott Morrison said the federal government was not considering ordering banks to suspend dividend payments "at this point."
Australian dividends remain under boards' control
But according to an article in the AFR, the policy is under consideration by the Council of Financial Regulators, with the Australian Prudential Regulation Authority (APRA) in talks with banks to understand their financial capacity for payments. APRA told the AFR, "for the time being, decisions on dividends and variable remuneration remain matters for boards to determine in line with their obligations under APRA's prudential framework."
Banks have long been considered a reliable source of income for investors. Shareholders have argued that cuts to bank dividends could force seniors and investors that rely on them for income onto welfare. But it's not just New Zealand that has scrapped bank dividends – some of the largest banks in the U.K. have also agreed to withhold dividend payments and hold onto cash during the coronavirus crisis.
UK cuts bank dividends
According to an article in the BBC, NatWest, Santander, Lloyds, and Barclays have all agreed to hold onto billions that would normally be paid to shareholders. The Prudential Regulatory Authority, which is part of the Bank of England, said:
Although the decisions taken today will result in shareholders not receiving dividends, they are a sensible precautionary step given the unique role that banks need to play in supporting the wider economy through a period of economic disruption.
