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APRA eases dividend restrictions, ASX bank shares rally

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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.

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Returns as of 6th October 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.

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