Banking regulators have paved the way for the resumption of dividend payments by Britain’s biggest lenders next year.
In a statement rushed out following an enquiry from Sky News, the Prudential Regulation Authority (PRA), which sits within the Bank of England (BoE) said it saw "scope for banks to recommence some distributions should their boards choose to do so, within an appropriately prudent framework".
The announcement will be greeted with relief in the boardrooms of the UK's biggest banks, including Barclays, HSBC Holdings and Lloyds Banking Group, which were banned from shareholder payouts when the coronavirus pandemic hit in March.
Nevertheless, the PRA's move failed to improve sentiment towards lenders' shares, with most trading little-changed after the statement was released about half an hour before the market close.
The regulator said it would scrutinise dividend proposals in the context of an expectation that "any distributions would not create excess vulnerabilities to stress for a given bank or impede its ability or willingness to support households or businesses".
Since the COVID-19 crisis erupted, banks have lent tens of billions of pounds through a range of state-subsidised schemes, with repayments scheduled to begin next year.
The PRA warned banks that the resumption of dividends would not give them a licence to hand out large cash bonuses, saying: "The PRA expects firms to exercise a high degree of caution and prudence in determining the size of any cash bonuses granted to senior staff given the uncertain outlook and the need for banks to deploy capital to support the wider economy.
"The PRA will scrutinise proposed pay-outs closely to ensure large banks have applied the PRA's rigorous remuneration regime in an appropriate fashion."
This year's dividend ban prevented Barclays, HSBC, Lloyds Banking Group, NatWest and Standard Chartered from paying billions of pounds to their shareholders, accentuating the squeeze on income funds reliant on some of the biggest dividend-payers in corporate Britain.
Banks including HSBC said at their third-quarter results that they would be keen to pay conservative dividends for 2020 as impairment charges for bad loans appeared to be lower than expected.
Third-quarter results for all of the major UK banks were stronger than City forecasts, increasing the pressure on regulators to allow them to resume payments.
A PRA's communications official initially said in response to an enquiry from Sky News that she could not comment and was awaiting guidance on the dividend issue, before the detailed announcement was rushed out just minutes later.
