NZ banks not allowed to pay dividends until recovery, RBNZ announces

Thursday, 2 April 2020

Reserve Bank deputy governor Geoff Bascand says dividend ban may be relaxed once economic outlook improves.

New Zealand banks have agreed with the Reserve Bank not to pay any dividends, Reserve Bank deputy governor Geoff Bascand said in a statement.

Bascand said banks had also agreed not to redeem any 'tier-one' capital instruments, which would prevent them for example from redeeming some interest-bearing instruments they had sold to investors during the moratorium.

The measures appear designed to ensure banks keep any profits they make in New Zealand to support lending to Kiwi customers during the crisis.

They apply to all banks that are locally incorporated, which includes ANZ, ASB, BNZ and Westpac.

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The Australian-owned New Zealand banks would normally pay a dividend to their Australian parents which in turn pay dividends to their sharemarket investors.

Bascand said the block on dividends would 'further support the stability of the financial system during this period of economic uncertainty'.

The bars would will remain in place 'until further notice, with the aim of relaxing them when the economic outlook has sufficiently recovered', he said.

ANZ advised investors that the agreement meant it would not be able to redeem $500 million of capital notes that its New Zealand arm sold to investors in 2015, as planned in May.

The notes are traded on the NZX's debt market and will continue to pay interest, and may instead end up being converted into ordinary shares in the bank.

Grant Davies, an adviser with sharebroker Hamilton Hindin Greene, said bank dividends to their parents were probably 'under pressure anyway, if not gone for this year'.

Beyond that, the new but delayed requirements for banks to increase the amount of capital they held in New Zealand would also have an impact, he said.

'From a 'security of the economy perspective' it all helps to ensure the banking system retains the level of liquidity which is required.'

Any investors holding bank shares at the moment should be aware it was going to be a 'lean year or two', he said.

The Reserve Bank also announced it would provide a new type of low-interest, three-year loan to banks to help them provide funding to businesses through the Government's Business Finance Guarantee Scheme.

That scheme will see the Government take on 80 per cent of the default risk on up to $6.25 billion of loans that banks make to small and medium-sized businesses to tide them through the crisis.