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.<\/p>\n
\u201cThe principle is: Keep as much ammunition in the armory as you possibly can,\u201d Kuben Naidoo, chief executive officer of South Africa\u2019s Prudential Authority and deputy governor of its central bank, said on a conference call hosted by Standard Bank Group Ltd\u2019s SBG Securities. \u201cWe don\u2019t know how long this crisis is going to last.\u201d<\/p>\n
The regulator was commenting on guidelines released late Monday on how lenders should handle shareholder payouts and executive compensation.<\/p>\n
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.<\/p>\n
Dividends already declared and investor payouts that lenders are legally obliged to make should still be paid, Naidoo said.<\/p>\n
What Bloomberg Intelligence Says<\/strong><\/p>\n South Africa\u2019s leading banks are likely to suspend all dividend payouts for six months and curb discretionary staff bonuses, adhering to guidance from regulators.<\/p>\n Authorities have acted decisively in response to the Covid-19 outbreak, with an easing of banks\u2019 capital and liquidity requirements, along with capital relief on restructured loans.<\/p>\n \u201cBonuses for executives is not an insignificant amount of money,\u201d and a moratorium on bonuses should be seen as a signal, Naidoo said.<\/p>\n \u201cIf this crisis is very deep and long, then you may well have banks and many companies in the economy saying \u2018we\u2019re going to pay people 70%-80% of their salaries\u2019,\u201d he added.<\/p>\n \u201cUnder those kinds of circumstances, executives cannot be giving themselves bonuses.\u201d<\/p>\n The guidelines come after the South African Reserve Bank issued a series of measures to give relief to the country\u2019s banks as the industry is called on to roll out assistance to customers such as new loans and payment holidays.<\/p>\n It follows steps in other markets around the world, where banks have suspended dividends and share buybacks to conserve their capital.<\/p>\n \u201cOverall it is a prudent and morally right decision during the crisis our economy is facing,\u201d said Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers in Cape Town. \u201cIt will also benefit banks so they have additional buffers.\u201d<\/p>\n Investec Group, which has private and investment banking operations in the UK and South Africa and is scheduled to release fiscal full-year results on May 21, will consider the recommendations and advise shareholders in due course, the company said in a filing.<\/p>\n Absa Group Ltd will pay its final 2019 dividend on April 20, but will \u201ccontinue to carefully consider our capital and funding position\u201d and the regulator\u2019s guidance for this year, the Johannesburg-based company said in a statement.<\/p>\n South Africa is also considering the establishment of a so-called funding-for-lending program to provide loan guarantees that may help to ease risks taken on by banks, Naidoo said, without giving any details. \u201cThose issues are being considered by the Treasury and the SARB,\u201d he said.<\/p>\n The five-member FTSE\/JSE Africa Banks Index reversed earlier losses to rally as much as 11% after Naidoo\u2019s comments, the most since December 2015. The index has declined 35% this year.<\/p>\n
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