According to an article in the Australian Financial Review (AFR), analysts are tipping the banks could be set to return billions to shareholders in 2021.
Why is the Westpac share price climbing higher?
The major banks, including Westpac, put aside billions for the coronavirus pandemic in 2020.
That was due to an expected harsh recession and increase in bad debts for the banks. However, a strong COVID-19 response and record government stimulus have combined to alleviate those fears.
In fact, the Westpac share price has rebounded strongly since cratering in the March bear market.
The JobKeeper scheme and a boost to JobSeeker have reduced the economic damage from COVID-19. That means shareholders could be in line for bigger payouts.
According to the article, Credit Suisse analyst Jarrod Martin is reasonably bullish on the banks. In a note to clients, Martin noted that the major banks may increase dividends as bad debts come in below modelled scenarios.
However, it wasn’t all good news. The bear case sketched out by Credit Suisse noted a vaccine failure and extended lockdowns could increase prudency on bank balance sheets.
Martin is tipping dividend payout ratios of 60% in FY2021 and 65% in FY2022 and FY2023. Jefferies analyst Brian Johnson is reportedly tipping payout ratios to climb as high as 70%.
That comes after the Aussie banking regulator lifted its temporary 50% cap on distributions instituted in 2020.
According to the AFR, the Big 4 banks took $7 billion in COVID provisions. A reversal of those could mean a significant capital return to shareholders in 2021.
The Westpac share price has been climbing higher in early trade, alongside many of its peers, despite no new announcements. At the time of writing, its shares are trading up 1.28% at $21.30.
How have the Aussie banks performed?
Big 4 bank shares like Westpac have had a rollercoaster year. The Westpac share price is down 13.7% in the last 12 months but up 8.6% in 2021.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. 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.
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