I confess to being a little perplexed by regulators who are still restricting dividend payouts at banks, especially here in Asia. Are our Asian banks in a worse position than their US counterparts?
The US Federal Reserve has announced that most American banks will be able to pay out dividends and buy back shares after the end of June. Last year, the US central bank told American banks to stop those buybacks and limit dividend payments.
The move came as a huge blow to income investors. But the central bank has deemed that American banks are now strong enough to withstand an economic downturn, should one happen.
The announcement follows on the heels of the relaxation by the Bank of England’s Prudential Regulation Authority that has allowed banks to resume paying dividends. But the regulator did say that any distributions should be prudent.
However, many Asian banks are still restrained from a resumption of normal dividend payments. Singapore banks must cap their total dividends per share to 60% of the payout in 2019.
I wonder how much longer the dividend cap can remain in place. Are Asian banks really in a much worse state than their western counterparts? It doesn’t seem that way.
The book value of Asian banks, which is a measure of their intrinsic value has not been damaged by the pandemic. In fact, they have been rising steadily since 2013.
Was that because they were restrained from paying their usual dividends? Or was it because they were inherently strong and prudent in the first place?
We will probably never know. A bit like Schrodinger and his imaginary cat.
Point is income investors should always be prepared for the worst. Dividends are never guaranteed. We can make an educated guess about the level of payout from a company. But we can never be absolutely certain….
…. However, on balance, it does look like we are back on track for some kind of normalcy as far as bank dividends are concerned.
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David does not own shares in any of the companies mentioned.
