By Paulina Duran
SYDNEY, April 2 (Reuters) - Australia's Big Four banks may cut dividends in coming weeks, tracking similar moves in Europe and New Zealand, to save their capital as a buffer against the economic fallout from the coronavirus pandemic, analysts said.
The European Central Bank, the Bank of England and the Reserve Bank of New Zealand have all announced restrictions on plans to return capital to investors, including in the form of dividends. believe there is an increased risk that dividend restrictions may also be applied to banks in Australia," said Azib Khan, analyst at brokerage firm Morgans Financial Ltd.
While Prime Minister Scott Morrison has said regulators do not yet see restrictions on capital returns as necessary for Australia, analysts say a sharp jump in credit losses in coming months due to the virus will trigger dividend cuts regardless.
An outright ban on dividends "remains unpalatable at this time" as that would mean stopping up to A$35 billion ($21 billion) in cash flows to investors, the majority of which are residents, banking analysts at Citigroup (NYSE:C) said.
But major "banks will likely bring forward dividend cuts to May, knowing that these dividends were likely to be cut in 2H20 on higher bad and doubtful debts", they added.
Citigroup estimates Westpac Banking Corp WBC.AX , National Australia Bank NAB.AX , and Australia and New Zealand Banking Group ANZ.AX - the second, third and fourth-biggest lenders in the country, will cut dividends by up to 18%.
Shares of Australia's Big Four, including top lender Commonwealth Bank of Australia CBA.AX , crashed 23%-31% in March as measures to contain the virus hit the real economy.
They were down up to 5.6% on Thursday, while the broader market .AXJO was 1.98% lower as the coronavirus crisis weighed on investor sentiment. In Australia, the virus has infected more than 5,000 people and killed 23. MKTS/GLOB
Australia has already taken measures to help its financial system weather the virus crisis that, according to brokerage Shaw and Partners, will likely cause bad debt charges for the major banks to top A$34 billion over three years, exceeding that seen in the aftermath of the financial crisis.
The Reserve Bank of Australia last month moved to provide unprecedented support to banks' liquidity, while the government has provided wage subsidies that are expected to reduce mortgage stress in coming months. banking watchdog, the Australian Prudential (LON:PRU) Regulation Authority, has also relaxed expectations on bank capital ratios to ensure lenders are well positioned to continue providing credit to the economy in current challenging conditions.
"COVID-19 poses significant forward earnings risks to the banks by way of slower forward credit growth, net interest margin pressure, declining fees and rising loan losses," said Brian Johnson, a banking analyst at Jefferies Australia.
"These are all reasons to cut bank dividends." ($1 = 1.6447 Australian dollars)