The Bank of Israel may allow banks to restart paying dividends in the second half of 2021, depending on progress in containing the coronavirus pandemic and potential economic recovery.
BoI’s Supervisor of Banks, Yair Avidan, disclosed this in a recent report.
He said the dividend payouts could be initially capped at around 15 per cent, up to 40 per cent before the pandemic.
“This central bank’s cautious approach to profit distribution is credit positive for Israel’s banks because it ensures that they will retain more capital to strengthen their safety buffers against pandemic-related asset quality deterioration.
“We expect loan performance to weaken because of the economic downturn, with real GDP contracting by 2.4 per cent in 2020, increased unemployment, and because pandemic-related support measures to businesses and households, such as extended unemployment benefits and loan payment deferrals, will gradually be phased out,” the official stated.
Israeli banks have discontinued dividend distributions and share buybacks around April 2020, following the BoI’s request in March that banks reexamine their policies.
However, Avidan noted that reinstating dividends and other distributions would be considered on a bank-by-bank basis and a return to the higher regulatory capital requirements.
Israel has just emerged from a third lockdown between December 27, 2020, and February 7, 2021.
The lockdown restrictions likely weighed on the country’s economic activity at the start of 2021.
However, Avidan added, “We project growth of 4.7 per cent this year and 4.4 per cent in 2022, up from the 2.4 per cent contraction in 2020.”
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