The rand
  • South African banks may pay dividends, and cash bonuses to their executives, again.
  • In early April 2020, the Prudential Authority said it "expects" that no such payments would be made, in light of the coronavirus crisis and associated regulatory breaks granted to banks.
  • In an updated guidance note, it now "expects banks to take into consideration" a set of targets and factors when making such payments during 2021.
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South African banks have been given the green light to – very carefully – start paying dividends on ordinary shares, and paying their executives cash bonuses, again.

New guidance from the SA Reserve Bank's Prudential Authority (PA) lays out a list of factors banks must take into consideration before they part with the cash, but lifts what many interpreted as an effective ban, which had been imposed early in April 2020.

Then, as now, the regulator told banks that they must "appropriately conserve capital to retain their capacity to support the real economy", and provide funding to both households and businesses.

But with the pandemic still rapidly evolving at the time, and the financial impact still largely unknown, the PA took a hard line in April 2020 on how that should be done, saying it "expects that no distribution of dividends on ordinary shares and no payment of cash bonuses to executive officers and material risk takers, should take place in 2020."

As of late last week, replacement guidance now says that the PA "expects banks to take into consideration", before paying dividends to shareholders or executives:

  • the adequacy of their current and projected capital and profitability levels
  • internal capital targets and risk appetite
  • current and potential future risks of the global pandemic.

Where payments are made, "payout ratios should be prudent and commensurate with the assessment of the current conditions and potential future uncertainty."

It has also added another firm expectation: "The benefits of the regulatory relief measures provided by the PA in 2020 should not be utilised for making distributions of dividends on ordinary shares and making payments of cash bonuses to executive officers and material risk takers."

Regulatory adjustments on South Africa's tightly-regulated banks freed up what the Reserve Bank in April 2020 estimated to be manoeuvring room worth more than half a trillion rand.

See also | 'This is wartime': The Reserve Bank just freed up half a trillion rand as Covid-19 relief loans

That was achieved by reducing the liquidity coverage ratio (LCR), the amount of money a bank must keep to hand in anticipation of outflows, from 100% to 80%; and by eliminating a capital buffer, which had been set at 1% of risk-weighted assets.

(Compiled by Phillip de Wet)

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