Bank of Israel May Let Lenders Reinstate Dividends This Year

(Bloomberg) -- Israeli lenders may be allowed to pay dividends and buy back shares again by the second half of this year, depending on progress in containing the coronavirus outbreak and rallying the economy, the country’s top bank regulator said. Banking stocks jumped the most in more than a month.

At the start of the pandemic last March, the Bank of Israel cut regulatory capital requirements for lenders while urging them to re-examine dividend and share buyback policies. Yair Avidan said cases for reinstating dividends would be examined individually and entail a return to tighter regulatory capital requirements.

“We’re still discussing the issue, basically due to the fact of uncertainty,” Avidan said in an interview Sunday. “In the optimistic scenario I can assume that in the second half maybe banks can start paying dividends again.”

Avidan said he didn’t expect banks to immediately return to the same dividend levels as before the coronavirus outbreak, but that they might come close by next year, depending on economic activity. The main banking index on the Tel Aviv Stock Exchange rose 2.8%, the most since Jan. 10, at 2:11 p.m. local time.

Similar debates are playing out elsewhere. In December, European bank regulators put strict limits on payouts to shareholders in a long-awaited decision to lift a de facto ban on dividends. In the U.S., the Federal Reserve gave Wall Street banks the green light to resume billions of dollars of stock buybacks.

The Bank of Israel’s latest financial stability report published Feb. 1 found that government aid and regulatory relief including loan payment deferrals helped the banking system keep credit flowing while maintaining capital ratios above requirements. Bank stocks, though, are trading below pre-crisis levels.

With the country’s real estate market under pressure, the Bank of Israel in December sought to cut mortgage costs with a directive that essentially reduced borrowing rates. However, in early February the central bank scolded lenders for not passing along benefits to consumers.

Recent data since that warning indicate more progress on that score, he said.

Here are some other points Avidan made:

• The local banking sector can support negative rates but it’s not currently on his agenda
• He’s working with lenders to use more technology to counter money laundering and terrorism financing
• He’s pushing banks to consider environmental issues as part of governance and risk analysis

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