Shares of the "Big Four" Australian lenders fell on Wednesday, following the regulator's request that banks and insurers "seriously consider" deferring dividend payouts until there was more clarity on the impact from the coronavirus pandemic.
The banks, three of which are due to announce dividend decisions alongside interim 2020 earnings from April 30, have been granted significant capital flexibility by the regulator and are widely expected to heed its request.
The four will therefore either defer dividend decisions or drastically cut dividends to levels that would pass a 'stressed' scenario, as per the regulator's request, analysts said.
"Banks losses under the stressed scenario may reach A$25-27 billion per bank and their capacity to pay dividends (without raising equity) materially diminishes," Macquarie analysts said in a note to clients.
Shares in Commonwealth Bank of Australia <CBA.AX>, Westpac Banking Corp <WBC.AX>, National Australia Bank Ltd <NAB.AX>, and Australia and New Zealand Banking Group Ltd <ANZ.AX> were down as much as 4.16% in afternoon trade. The broader market <.AXJO> was 0.70% higher.
Late on Tuesday, the Australian Prudential Regulation Authority (APRA) said it had asked banks and insurers to limit discretionary capital distribution so that they have sufficient capacity to continue essential functions such as lending and underwriting insurance until the virus impact is better known.
The request followed more severe restrictions imposed by central banks across the world in recent weeks.
The regulator said dividends will need to be at a "materially reduced level", even when a board is confident it can approve a dividend based on stress tests that would need to be discussed with APRA.
In response to the regulator's statement, Westpac said it is yet to make a decision regarding its interim dividend, while National Australia Bank said it will take APRA guidance into account when considering its dividend for the first half year.
Bank of Queensland Ltd <BOQ.AX>, Australia's ninth largest lender, on Wednesday reported interim cash earnings 10% lower than the previous year, and said it would defer its dividend until the economic outlook is clearer and stress testing results have been discussed with APRA.
"Dividend volatility in coming months created by this approach from APRA will unsettle many investors, particularly retail," Citibank analyst Brendon Sproules said.
"On the flip-side, more capital retained lowers the risk of substantial capital raisings and dilution to shareholders."
Citigroup earlier expected that without APRA's intervention, the Big Four may still cut dividends by as much as 18% in coming weeks due to the pandemic.
Separately on Wednesday, the regulator suspended issuing new banking, insurance and superannuation licences for a least six months because of uncertainty created by the virus outbreak.
(Reporting by Paulina Duran Sydney and Shreya Mariam Job in Bengaluru; Editing by Himani Sarkar and Christopher Cushing)
