The Australian financial regulator on Tuesday urged banks and insurers to consider deferring dividend payouts or use buffers like dividend reinvestment plans until the impact of the coronavirus pandemic is better known.
But the Australian Prudential Regulation Authority (APRA) stopped short of giving an official directive, even as central banks across the world have restricted plans to return capital to investors as the outbreak threatens earnings and disrupts operations.
APRA asked banks and insurers to limit discretionary capital distributions so that they have sufficient capacity to continue essential functions like lending and underwriting insurance.
"Banks and insurers have a critical role to play in supporting Australian households, businesses and the broader economy during this period of significant disruption caused by COVID-19," the regulator advised in a letter to the sector.
Media representatives for the Big Four banks did not immediately returned requests for comment.
The regulator said dividends will need to be at a "materially reduced level" even when a board is confident that it can approve a dividend before conducting stress tests that will need to be discussed with APRA.
APRA added it expects boards to appropriately limit cash bonuses for executives and initiate other capital management plans on a pre-emptive basis, to maintain customer confidence and continue lending.
Analysts had already forecast that Australia's Big Four banks may cut dividends in coming weeks due to the pandemic.
(Reporting by Rashmi Ashok in Bengaluru; additional reporting by Paulina Duran in Sydney; Editing by Edmund Blair and Giles Elgood)
