Aussie Regulator Asked Banks for Dividend Payouts Deferral

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Aussie Regulator Asked Banks for Dividend Payouts Deferral

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SYDNEY, Australia – On Tuesday, the prudential regulator in Australia urged banks and insurers to consider dividend payouts deferral amid the coronavirus outbreak.

Although the COVID-19 pandemic has already massively affected the economy of the country, the totality of its effects is still for discovery. With this, the country’s prudential regulator is asking the banks and other insurance companies to consider delaying dividend payouts of making use of cushions such as reinvestment plans of dividends.

However, the Australian Prudential Regulation Authority (APRA) didn’t make an official order about the issue. It is despite the other central banks from all over the world already providing restricted plans to ensure that capitals will return to investors as the COVID-19 pandemic disrupts operations and threaten earnings.

APRA urged banks and insurance firms to limit their discretionary distributions of capitals to ensure that they remain to have sufficient capacity. It is also for banks and insurers to continue with doing their essential functions such as underwriting insurance and lending, APRA said.

The Australian regulator stated in a letter sent to the sector that banks and insurers have crucial roles that they need to play. APRA mentioned that these institutions are doing their work to support Australian households and businesses, including the country’s overall economy, especially during the massive disruption due to the COVID-19 pandemic.

Meanwhile, spokespersons from the number one and the fourth largest bank in the country, the Commonwealth Bank and the New Zealand Banking Group, declined to make any statement.

There weren’t any return requests for a statement from the medical representatives of the other two major banks in Australia, the National Australia Bank and Westpac Banking Corp.

Meanwhile, APRA stated that dividends have to be at its materially deducted level despite whether the lender’s board has confidence over the approval of profits. That should be the case before they start any stress test that they will also need to discuss with the regulator, APRA added.

The regulator further stated that it is expecting for boards to suitably limit their cash bonuses given to executive officials. APRA also commented that boards should start making other plans for their capital management as preemptive measures. It is to help maintain the confidence of their customers and continue with their lending offers.

Meanwhile, from the forecast of market analysts, the big four banks in Australia may be looking to cut dividends within a few weeks due to the ongoing health crisis.

On the other hand, the debt ratings of Australia’s four major banks got a downgrade from Fitch Ratings. The debt instruments of the lenders also decreased by a level on Tuesday from the previous A+ rating to the current “AA-.”

Fitch Ratings made the first move out of the three leading credit agencies that also made the downgrade. S&P Global also downgraded the rating for the big four banks in Australia to “AA-,” while Moody’s Investor Service rated the lenders an “Aa3.”

According to the stockbroker Morgans Financial’s banking analyst, Azib Khan, the recent move made by Fitch Ratings may cause a slight rise in the marginal cost for the major banks’ senior unsecured bond products.

However, Mr Khan noted that it may not be a massive issue for the biggest lenders in the country right now as they currently have access to much cheaper funding through the Term Funding Facility of the RBA. He is talking about the three-year lending facility from Australia’ central bank that only charges banks 0.25%.

Meanwhile, countless businesses are profoundly affected by the COVID-19 pandemic in the country at the moment.

Based on the results of the second survey of the Australian Bureau of Statistics (ABS), two-thirds of businesses in Australia already lost money due to the ongoing COVID-19 pandemic.

The ABS released the recent figures on Tuesday, which shows that 66% of businesses in the country said that their cash flow or turnover declined due to the virus. The ongoing health crisis already caused a widespread closure of companies across the country.

The survey also suggests that 40% of Australian businesses already changed their operation processes, especially on how they deliver their services or products. It primarily includes companies such as restaurants, which showed a massive shift into exclusive takeaways. This move in the business sector is to follow the strict regulation on physical distancing enforced by the territory, state, and federal government.

Based on the same survey, there are also 47% of Aussie businesses who said that they made significant shifts to their workforce due to the current health crisis. Frequent changes noted in the survey include staff temporarily changing their work hours, workers placed on leave, and changing the location where employees are working.

Meanwhile, a payment scheme will provide much-needed relief to most Australian workers profoundly affected by the coronavirus outbreak. Those who are eligible will get a fortnightly wage subsidy worth $1,500 for up to six months. That includes casual, part-time, and full-time employees.

Furthermore, Australian employees who are currently working from home are also eligible for 80 cents per hour that they are working from home as a tax deduction. It was from the announcement from the Australian Taxation Office on Tuesday.

The federal government also pledged a $189 billion worth of stimulus package in hopes to avoid the Australian economy from crumbling as the coronavirus outbreak continues.

State and territory governments in the country are also pitching in to help with the efforts to keep businesses afloat and workers in their jobs.

Recurring measures from the government included funding for local projects, license fees waivers, and deferral and waivers on payroll taxes. Some other supports also include reduced payment times and interest-free loans for small businesses who have contracts with the government. There are also available mentoring and advice for business owners who are currently struggling due to the health crisis.

Particularly in New South Wales, the state government already disclosed its first stimulus package but went on to expand the eligibility of the previous measures.

Including in the offers in NSW are waived payroll tax, scrapping of charges for businesses, investment in local projects, and deferral in commercial rent payments for companies on government properties.

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