Banks hardly touched their buffers in 2020, and most are ready to resume dividend payments

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SA Reserve Bank Governor Lesetja Kganyago says local banks liquidity coverage ratio is closer to 140%. As such, many have asked to resume paying dividends.
SA Reserve Bank Governor Lesetja Kganyago says local banks liquidity coverage ratio is closer to 140%. As such, many have asked to resume paying dividends.
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  • SA Reserve Bank Governor Lesetja Kganyago says local banks have 40% more liquidity buffers than they need.
  • He said most did not dip into these buffers during the Covid-19 crisis.
  • As such, many have asked to resume paying dividends.

South African Reserve Bank (SARB) Governor Lesetja Kganyago says things are going well for the local banking sector.

Speaking at the South Africa Tomorrow investor conference hosted by the JSE in collaboration with Absa CIB and Citi Group, Kganyago said the financial sector is close to being back to business as usual.

"The outlook for the financial sector is a positive one and is now not far from being back to business as usual," said Kganyago in conversation with the JSE CEO Leila Fourie during the conference put together for the UK, Dubai and Southeast Asia investors.

Kganyago said while South Africa's economic recovery as a whole has been ahead of the government's expectations, thanks to the commodity price boom cycle, the financial sector is proving why it has for years been South Africa's "key credit strength".

When the lockdown began, the SARB changed its rules to allow banks to dip into their regulatory capital buffers to assist clients in need of loan repayment relief. It lowered the industry's liquidity coverage ratio from 100% to 80% but soon realised that the industry didn't need that intervention from the central bank.

"What we have actually seen has been that the industry's average liquidity coverage ratio for South African banks is actually closer to 140%," he said. Kganyago said as the economy gradually reopened, it became clear that banks didn't dip into their capital buffers. They remained almost with the same level of liquidity buffers they had before the crisis.

Banks strong enough to resume dividend payments 

The SARB had asked local banks to suspend dividend payments and executive bonuses in return for allowing them to dip into their liquidity buffers. 

But now that they've demonstrated that they can support their customers and lend without compromising their liquidity, dividend payments may be back on the table.

"What we have seen over the recent while is that after we had given regulatory guidance that the banks must minimise bonus payments and dividends, they have now come back because they are on such a stronger footing to say they are now in a position to be resuming the payment of dividends and bonuses," said Kganyago.

Kganyago said the accelerating economic recovery and the improvement in South Africa's fiscal situation, one of the risky factors affecting the industry, means that overall, the sector is on a "very sound footing".  

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