Canada’s banking regulator is set to make an announcement today that could mean the lifting of restrictions preventing banks from increasing dividends or buying back shares.
Peter Routledge, head of the Office of the Superintendent of Financial Institutions, is scheduled to speak this afternoon about updates to the regulators’ priorities and policies including on capital distributions for federally regulated financial institutions.
The regulator imposed the restrictions on dividends and buybacks in the early days of the pandemic as it also eased some capital requirements at the banks, with the expectation that the extra capital room be used to lend to businesses and households while the economy ground to a standstill.
Major government support programs during the pandemic have also helped stimulate the economy however, and the banks are now sitting on cash far in excess of the minimum requirements.
At the end of October, OFSI restored the domestic stability buffer component of capital requirements to where it was before the pandemic, leading analysts to expect a lifting of payout restrictions to follow.
Nigel D’Souza, a banking analyst at Veritas Investment Research, says he expects the regulator to fully lift the restrictions because banks hold so much capital over the minimum requirement.
He noted that overall banks are required to maintain a total capital conservation buffer of 10.5 per cent, but that most banks are well above 12 per cent.
“I think banks are going to be unrestricted soon to raise dividends and to pursue share buybacks,” said D’Souza.
He said banks would likely move to increase dividend payouts in the first quarter of 2022.
“I would expect banks will move fairly quickly on adjusting their dividend to move in line with their historical payout average, which is typically around 45 per cent of earnings.”
This report by The Canadian Press was first published Nov. 4, 2021.
The Canadian Press
