SA banks to defer dividends, bonuses to preserve capital South African Reserve Bank

SOUTH Africa is urging its banks to withhold ordinary dividends and executive bonuses for 2020 to preserve capital as the economic fallout from the coronavirus pandemic remains uncertain.

“The principle is: Keep as much ammunition in the armoury as you possibly can,” Kuben Naidoo, chief executive officer of South Africa’s Prudential Authority and deputy governor of its central bank, said on a conference call hosted by Standard Bank Group Ltd.’s SBG Securities.

“We don’t know how long this crisis is going to last.”

The regulator was commenting on guidelines released late Monday on how lenders should handle shareholder payouts and executive compensation.

The guidelines, an update to a previous note published on March 26, are not instructions, and banks will be able to decide for themselves on what route to take, he said.

Dividends already declared and investor payouts that lenders are legally obliged to make should still be paid, Naidoo said.

“Bonuses for executives is not an insignificant amount of money,” and a moratorium on bonuses should be seen as a signal, Naidoo said.

“If this crisis is very deep and long, then you may well have banks and many companies in the economy saying ‘we’re going to pay people 70 percent-80 percent of their salaries’,” he added.

“Under those kinds of circumstances, executives cannot be giving themselves bonuses.”

The guidelines come after the South African Reserve Bank issued a series of measures to give relief to the country’s banks as the industry is called on to roll out assistance to customers such as new loans and payment holidays.

“It follows steps in other markets around the world, where banks have suspended dividends and share buybacks to conserve their capital.

“Overall it is a prudent and morally right decision during the crisis our economy is facing,” said Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers in Cape Town.

“It will also benefit banks so they have additional buffers.”

The five-member FTSE/JSE Africa Banks Index reversed earlier losses after Naidoo’s comments to trade up as much as 6.3 percent to the highest level since March 26. The index has declined 37 percent this year. — Bloomberg

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