Bank dividends in the spotlight after pandemic rules relaxed

Britain’s top lenders will be watched closely for any big investor payouts alongside half-year figures next week after pandemic curbs on dividends were scrapped.

Results from the likes of Lloyds Banking Group, Barclays and NatWest will be in sharp focus, coming hot on the heels of the Bank of England’s move to ditch the remaining “guardrails” on shareholder payouts in the sector.

It halted dividends in the sector in March last year when the pandemic struck, but said in December that banks could pay limited dividends.

The Bank said those limits were “no longer necessary” earlier this month as it handed back dividend decisions to bank boards.

While it is unclear whether there will be any quick return to big dividends from the UK players, their US counterparts have recently handed out sizeable shareholder returns, which has raised investor hopes on these shores.

But the Bank was quick to reiterate calls for lenders to continue helping households and businesses as coronavirus support measures come to an end.

Danni Hewson, a financial analyst at AJ Bell, said banks may be cautious in following the lead of Wall Street with “super-sized” returns.

She said: “Some protections are being kept in place to ensure banks still have extra capital put by just in case and, in order not to make regulators twitchy, the sector may be wary of going too far, too fast on capital returns.

“The guardrails may have been removed, but the Bank of England will be expecting companies to act responsibly.”

Next week will see challenger bank Virgin Money first out of the stalls with its third quarter figures on Tuesday, followed by half-year figures from Barclays, Santander and Metro Bank on Wednesday, Lloyds Banking Group on Thursday and NatWest Group on Friday.

Bad debts will be another key focus of the interim results, now Government-backed loans to small businesses have started to become due in the first half, and with the furlough scheme due to end in September.

But the marked bounce back in the wider economy has improved the outlook for borrower defaults and many players such as Lloyds, HSBC and Lloyds took the opportunity in the first quarter to release large sums of provisions put by last year.

Dean Jayson, head of UK banking at Accenture, said: “Many lenders will be cautiously optimistic that the most turbulent period has passed.

“The onus will now be on banks to demonstrate they are acting carefully and empathetically to mitigate the impact of defaults and provide a vital safety net for indebted customers.”

Banks will also be under focus for their views on the economic outlook in the UK, given the recent surge in inflation and what this could mean for any action by the Bank of England to cool price hikes.