Via Financial Times

The chief executive of ANZ has defended the right of Australia’s banks to pay dividends in spite of pressure on the industry globally against such payouts, arguing the country’s lenders have much stronger capital levels and earnings potential than international rivals.

“Australian banks have some of the highest levels of capital on a relative basis on their balance sheets in the world,” Shayne Elliott told the Financial Times in an interview. “We are more profitable than most banks and that means our ability to generate organic capital is also higher than in the UK and in most cases in the US.”

Banks across Europe, including Asia-focused lender HSBC, have bowed to pressure from regulators in recent weeks to withhold dividends in response to concerns about the impact of the coronavirus pandemic on their balance sheets. Last week, New Zealand told its lenders — most of which are owned by Australian banks — to halt dividends.

Australia’s prudential regulator Apra this week asked banks to “limit discretionary capital distributions” and consider “prudent reductions in dividends”, but stopped short of blocking payouts to shareholders. In a letter to banks and insurers on Tuesday, Apra urged the companies to defer decisions on dividends until the outlook was clearer, and said any payments should be at a “materially reduced level”.

The request followed a decision by Fitch to downgrade the credit rating of the country’s big four banks — ANZ, Commonwealth Bank of Australia, Westpac and National Australia Bank — citing the risk of rising bad debts and lower profits.

Chart of funding of banks operating in Australia by share of total funding

Shares in the four lenders fell as much as 3.5 per cent on Wednesday. The declines came alongside a warning from UBS that its first-half dividend forecast for ANZ, Westpac and NAB, which it had already slashed by 35 per cent, was “at risk of being cut further” due to Apra’s guidance.

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Australia’s dividend programme, under which investors get tax credits on dividends to offset against other income, makes bank dividends an important part of the country’s A$3tn ($1.8tn) pension system.

Mr Elliott, who spoke to the FT shortly before Apra’s advice on dividends was made public, said ANZ’s board would make a decision on whether or how much it would pay in dividends in early May. 

He said the coronavirus “tidal wave” was a much bigger threat to the economy than the global financial crisis in 2008. But he downplayed concerns that Australia’s ratio of household debt to income of almost 200 per cent — one of the highest in the developed world — could cause liquidity problems for lenders.

Mr Elliott said that some 6-7 per cent of ANZ’s mortgage book had asked for deferrals of six months, but that requests for deferrals were falling as government support schemes were announced.

Australia’s banks have built “fortress balance sheets” over the past decade and reduced their reliance on offshore debt markets for funding, said Mr Elliott, putting the sector in a strong position to withstand the crisis.

Apra estimated Australia’s main banks were in the top quartile of international banks in terms of capital buffers as of end-December. The big four reported cash profit after tax of A$26.9bn in 2019, according to KPMG. 

ANZ said in November, at its full-year results, that it had the seventh highest capital ratio (CET1) of any bank in the world at 16.4 per cent.

“We sold 24 businesses over the past four years, we shrunk our exposure to institutional banking, we exited retail in Asia, we exited commercial market ventures in Asia . . . and thank goodness because we now have this excess capital which puts us in a brilliant position relative to some of our peers,” Mr Elliott said.

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