A key plank of uncertainty surrounding the UK banking sector has been removed with the Bank of England’s decision to lift the remaining curbs imposed during the pandemic on dividends and share buybacks.
The relaxation of these restrictions is also an acknowledgement that the sector is in pretty solid financial shape and marks an interesting contrast with the European Central Bank which signalled caution on a quick return to big dividends in the Eurozone.
“Prior to the 2007/8 financial crisis banks were seen as stolid and reliable dividend payers and were doing their best to reclaim this mantle when Covid hit,” said AJ Bell’s Russ Mould.
“Today’s news may feed expectations that the likes of Lloyds, Barclays and NatWest can emulate the recent actions of their American cousins and sanction super-sized shareholder returns by releasing excess capital build up through the course of the coronavirus crisis.
“However, some protections are being kept in place to ensure banks still have extra capital put by just in case and, in order not to make regulators twitchy, the sector may be wary of going too far, too fast on capital returns.
“We’ll find out very soon just how generous UK banks are prepared to be, with first half results season commencing at the end of July. The guardrails may have been removed, but the Bank of England will be expecting companies to act responsibly.”