Bank scraps lender dividend limits, but calls for sector to support recovery
The Bank of England has ditched pandemic curbs on lender dividend payouts, but said the sector will need to continue helping households and businesses as coronavirus support measures come to an end.
In its latest Financial Stability Report, the Bank said while the UK economic outlook has improved thanks to the rapid vaccination rollout, risks remain to the recovery and cautioned over soaring small business debt levels.
It said UK lenders are “resilient” in the interim result of its recent health check of the sector, but stressed they will need to provide ongoing support to the economy, with the furlough scheme ending in September and emergency business loans becoming due.
In a sign of the balance sheet strength among lenders, the Bank announced that the final so-called “guardrail” limitations on dividend payouts to investors have been scrapped.
It had halted dividends in the sector in March last year when the pandemic struck, but said in December that banks could pay limited dividends.
The FPC said those limits were “no longer necessary” as it handed back dividend decisions to bank boards.
The Bank of England has ditched pandemic curbs on lender dividend payouts (Kirsty O´Connor/PA)
But the Bank’s Financial Policy Committee (FPC), which monitors risks to financial stability, cautioned over debts built up in the pandemic among small businesses.
The report showed that debt levels of small businesses have soared by about 25% since the end of 2019 as firms have tapped government emergency loans.
This could lead to rising company failures as support schemes end and loans become due, the Bank warned.
It cautioned that in hard-hit sectors such as hospitality, 11.8% of small firms were already behind on their loan repayments or have formally defaulted as of January.
The Bank of England said: “Households and businesses are likely to need continuing support from the financial system as the economy recovers and the Government’s support measures unwind over the coming months.
“The FPC (Financial Policy Committee) continues to judge that the banking sector remains resilient to outcomes for the economy that are much more severe than the Monetary Policy Committee’s central forecast.”
