APRA warns banks on dividends

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By a staff reporter

The Australian Prudential Regulation Authority (APRA) has warned banks not to erode its capital reserves to pay larger dividends to shareholders.

In a report exploring the current risk environment of the authorised deposit-taking institution (ADI) industry, APRA noted the continued profitability of the sector had been a key driver of growth in capital ratios over recent years, with the retention of profits and contributions from dividend reinvestment programs (DRP) responsible for most of the increase capital.

"More recently, ADIs have implemented various capital management initiatives that have started to slow the build-up of capital from profit retention," APRA said.

"Such initiatives have included removing discounts on dividend reinvestment programs, raising actual and target dividend payout ratios, paying special dividends and neutralising dividend reinvestment programs."

APRA said lenders' needed to carefully consider capital initiatives to ensure adequate buffers are built and maintained above the Prudential Capital Requirement specifically set by the regulator for each bank. 

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Anonymous,

" The major banks are leveraged about 80 times across their $1 trillion home loan books. Put differently, they are only holding about $1.25 of true loss-absorbing capital against every $100."
This is a comment from an article in the Financial Review.
What worries me is that the banks are still loaning money on residential mortgages at less than 20 percent equity and the Government (Tax Payer) is going guarantor.

Anonymous,

Pete your comments are exactly the reason why average people should not hold all their money in the banks, their money is simply not safe.

The government protection of bank deposits is not worth anything either, when it comes down ot it they would not be able to come up with the money should they have to do, Cyprus rings a bell.

Anonymous,

Na mate!

I recon the banks should have a race to see who can drive their share prices to the highest possible levels. It is just like a game of cricket. We can gamble with share prices as well. Who needs to take responsibility?

Oh APRA. This is the second time they have woken up since the GFC in the last few days. I had forgotten that it still exists!

Agreed Pete J and Steven. There is a point where Governments have to step up to the mark; and interfere. I have said LVRs each homebuyer MUST HAVE at least a 30.0% stake in the game. And as APRA said yesterday they are watching lending.

Homeowners taking out loans ought to be able to repay in when interest rates go back up.

But do not hold your breath. I would hate to see what checks and balances APRA have in place if any. And what recourse borrowers would ever have.

But we the taxpayer fund all these Government Bodies (regulators) who have been pretty weak.

Anonymous,

Oh and short-term interest rates: cash loans on credit cards; white-goods, etc. by LAW limit that to 4.0% above the cash-rate within three years; stepped down with immediate effect to 7.0% above, then 5.5% then 4.0% over three years!

That will also inject monies back into the economy.