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NZ banks not allowed to pay dividends until recovery, RBNZ announces

Thursday 2nd April 2020

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Stuff reported today that NZ banks have agreed with the Reserve Bank cancel dividend payments for now. However, the deputy Reserve Bank Governor Geoff Bascand sees this as an interim measure and once the economic outlook improves the dividend ban may be lifted. 

Banks have also agreed not to redeem any "tier-one" capital instruments according to the Reserve bank. This will prevent them from buying back any redeemable perpetual preference shares they had sold to investors.

These measures are being implemented to ensure banks retain any profits made in NZ to support lending to NZ customers during this turbulent time.

These measures would "further support the stability of the financial system during this period of economic uncertainty".   This all helps the banking system with liquidity.

Unfortunately for shareholders of bank shares it means no income from dividend from these investment for now and possible for one to two years. 

The Reserve Bank has also announced that it would introduce “a new type of low-interest, three-year loan to banks to help them provide funding to businesses through the Government's Business Finance Guarantee Scheme.”

This scheme “will see the Government take on 80 per cent of the default risk on up to $6.25 billion of loans that banks make to small and medium-sized businesses to tide them through the crisis.”

Paraphrased from: Stuff

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