All of the big five quoted banks may have passed the Bank of England's stringent stress tests but the narrow margin of safety at Lloyds and the Royal Bank of Scotland could limit their scope to start making dividend payments to shareholders, says investment platform provider AJ Bell.
“According to our research, based on consensus estimates, the big banks are forecast to pay out £11.7 billion to shareholders in 2015, or 16% of the total distribution expected from the FTSE 100 in 2015,” says Russ Mould, AJ Bell Investment Director. “The banks are also forecast to provide 45% of next year's expected total dividend growth but there now has to be a question mark over whether analysts' forecasts for Lloyds and RBS in particular are realistic, especially as both need permission from the Bank of England to resume their shareholder payouts.”
Notes for Editors
- On Tuesday 16 December, the Bank of England released the results of its stress tests for eight major UK banks and one building society, to assess their financial strength under a variety of scenarios, including a deep recession, house price crash and sudden jump in interest rates.
- This followed on from the European Banking Authority's stress tests and asset quality review, which Lloyds, RBS, HSBC and Barclays all passed.
- According to the results of the stress test, HSBC would have a common equity tier 1 (CET1) ratio of 8.7%, Standard Chartered 7.1%, Barclays 7.0%, Lloyds 5.0% and RBS 4.6%. The minimum threshold set by the Bank of England was 4.5%.
- According to consensus analyst estimates, Lloyds will reinstate dividend payments with the full-year results for its 2014 financial year and then, alongside HSBC, Standard Chartered, Barclays, further increase its distribution for 2015. RBS is forecast to recommence dividend payments for its 2015 financial year.
- Aggregate dividend payments from the FTSE 100, including special distributions, are expected by analysts to reach £71.9 billion for 2015, up from £66.6 billion for 2014, for a yield on the index of 4% at the 6,183 level. The big five banks are expected to contribute £11.7 billion, up from £9.4 billion in 2014.