Bank dividend talk still a non-starter for the Prudential Authority

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Deputy Reserve Bank Governor Kuben Naidoo. Photo: Freddy Mavunda © Business Day
Deputy Reserve Bank Governor Kuben Naidoo. Photo: Freddy Mavunda © Business Day
Freddy Mavunda
  • The Prudential Authority has left it up to banks to decide whether they want to make dividend payouts
  • If it  gave a 'soft yes or no' to the banks, it might as well have issued a directive, says the authority's CEO and Deputy Governor of the South African Reserve Bank Kuben Naidoo
  • The outlook for banks is even more hazy after the Health Ministry declared a second wave of coronavirus infections

South Africa’s banking regulator isn’t even ready to consider withdrawing its advice that no dividend payouts be made, unlike counterparts in Europe, as a second coronavirus wave stirs uncertainty over the economy’s outlook.

While the Bank of England last week offered U.K. lenders a path to normality and European Central Bank officials prepare to make a decision this week on possibly allowing capital-flush firms to make payouts, South Africa has taken a more hands off approach. Overseers have left it to the banks themselves to make the call.

"We have had several banks approach us and our response is: 'please don’t come to us, we aren’t interested in the merits of the case'," Deputy Governor of the South African Reserve Bank (Sarb) and chief executive officer of the Prudential Authority Kuben Naidoo said by phone.

"It is the board’s choice."

If it were to give "a soft yes or no" to the banks, then the watchdog may as well have issued a directive, he said.

The banks are divided over which way they’ll go. Investec paid an interim dividend with cash received from an asset manager. Absa has ruled out the likelihood, while Standard Bank and FirstRand, the continent’s largest lenders, have surplus capital that could go to shareholders.

"We would like banks to pay dividends and bonuses at some point, but we are not yet sure where we are with the Covid crisis," Naidoo said.

"It is true that the credit loss numbers are coming down. We just want a few more data points before we are sure we are out of the woods."

Profits have nosedived after banks raised provisions to manage doubtful debts and extended relief to customers hit by restrictions to contain the coronavirus. While the continent’s most industrialized economy emerged from a recession in the third quarter, output is still down from a year ago.

Dividends aren’t the only things on the agenda. The outlook for the nation’s lenders from Standard Bank to Capitec Bank is even more hazy after the Health Ministry declared a second wave of coronavirus infections last week.

Here are the views from some analysts on dividends, the economy and the virus:

Economic Tailspin

Patrice Rassou, chief investment officer at Ashburton Investments:

"A second Covid phase accompanied by lockdowns would send the already weak economy into a tailspin."

"The SARB was right to make sure banks conserved capital this year. I would expect dividends only to start being declared in the second half of next year."

David Shapiro, deputy chairman at Sasfin Securities:

The damage from Covid-19 cannot be grasped "until we return to normality. That’s the mystery."

"There are still going to be layoffs" across the economy. "What happens during rough times is people hold on as long as they can. But eventually you have got to let go."

"There’s still a lot we have to negotiate. We don’t have to be in a hurry to call the bottom."

Neelash Hansjee, portfolio manager at Old Mutual Investment Group:

"The key thing we need is growth. We need the structural reforms everyone keeps talking about, and then we need investment. It’s past the point of talking, we actually need action."

"What’s interesting with the banks is they have very strong balance sheets. They have taken the biggest provisions ever in their history and their capital levels are still adequate."

"The signal of paying dividends is good for the banking sector, just as a sign of confidence."

Chasing Growth

Craig Metherell, equity analyst at Denker Capital:

"As the banking sectors fortunes are closely linked to that of the overall economy it has been a relatively difficult period for banks to achieve sustained growth."

"Capitec stands out in this regard as they have carved out a niche segment, continue to be innovative and have consistently outperformed peers in terms of overall growth."

"A lack of growth opportunities invariably tempts management teams to explore M&A and cross-border opportunities, which come with their own idiosyncratic risks. Chasing growth, however, can lead to poor capital allocation decisions."

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