APRA warns banks on dividends

Regulator urges lenders not to erode capital reserves to pay larger dividends.

The Australian Prudential Regulation Authority (APRA) has warned banks not to erode its capital reserves to pay larger dividends to shareholders.

In a report exploring the current risk environment of the authorised deposit-taking institution (ADI) industry, APRA noted the continued profitability of the sector had been a key driver of growth in capital ratios over recent years, with the retention of profits and contributions from dividend reinvestment programs (DRP) responsible for most of the increase capital.

"More recently, ADIs have implemented various capital management initiatives that have started to slow the build-up of capital from profit retention," APRA said.

"Such initiatives have included removing discounts on dividend reinvestment programs, raising actual and target dividend payout ratios, paying special dividends and neutralising dividend reinvestment programs."

APRA said lenders' needed to carefully consider capital initiatives to ensure adequate buffers are built and maintained above the Prudential Capital Requirement specifically set by the regulator for each bank. 

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles