Visitors are silhouetted against the logo of the International Monetary Fund at the main venue for the IMF and World Bank annual meeting in Tokyo October 10, 2012. REUTERS/Kim Kyung-Hoon The International Monetary Fund (IMF) has backed the halting of dividend payments and share buy backs by banks in response to the Covid-19 pandemic.
According to the multilateral lender, the suspension of dividend payments by banks this year will help preserve much needed funding to ride the prevailing storm.
“As we brace ourselves for a deep recession in 2020, and only partial recovery in 2021, this resilience will be tested. Having in place strong capital and liquidity positions to support fresh credit will be essential. One of the steps needed to reinforce bank buffers is retaining earnings from ongoing operations. These are not insignificant,” said IMF Managing Director Kristalina Georgieva in an opinion article first published in the Financial Times on May 22.
Further, Kristalina urges bank shareholders to be supportive of the dividend skipping exercise with an eye on long term sustainability even if it means forgoing the seemingly regular income today.
“Of course, this has unpleasant implications for shareholders, including retail and small institutional investors, for whom bank dividends may be an important source of regular income. Nonetheless, in the face of the abrupt economic contraction, there is a strong case for further strengthening banks’ capital base,” she added.
“The interests of bank shareholders are aligned with those of bank supervisors and customers. All stakeholders will ultimately benefit if banks preserve capital instead of paying out to shareholders during the pandemic. Protecting the banking sector’s strength now means that, once the recovery picks up, shareholders can expect large pay outs — indeed the more profits retained now, the larger the eventual pay out.”
IMF staff calculate that 30 global systematically important banks distributed about Ksh.26.8 trillion ($250 billion) in dividends and share buybacks in 2019.
Some banks have so far voluntarily opted to suspend shareholder pay outs while regulators have in some jurisdictions pushed lenders into forgoing the annual payments.
In March, the Bank of England asked banks to suspend plans to pay dividends and cash bonuses to executives indicating it was ready to use its supervisory powers if anyone refused.
In Brazil, supervisors used their authorities to suspend dividend pay-out collectively.
Domestically, the Central Bank of Kenya (CBK) has not pronounced itself on the matter as banks voluntary pull out their dividends.On Monday, the board of […]
