Tuesday, September 21, 2021

Bank of England removes dividend cap on UK banks

LONDON: The Bank of England on Tuesday removed limits on dividends that banks can pay to their shareholders, which were first introduced at the start of the coronavirus pandemic as part of a package of measures to shore up the British economy. .

The bank’s Financial Policy Committee, which monitors financial stability risks, said the limits are “no longer necessary.” But it stressed that lenders will need to provide continued support to the economy, not least because the government is ending its wage support scheme in September and emergency business loans have begun to be paid off.

The bank withheld dividends in the sector in March last year, but said in December that banks could pay limited dividends.

Although the committee said in its quarterly financial stability report that the economic outlook had improved as a result of the rapid rollout of vaccines in the UK, it warned that the risks could negatively impact small businesses, many of which saw debt levels rise. is during the pandemic.

Bank Governor Andrew Bailey said lenders were well positioned to “provide that support” and that it was in their collective interest to do so, noting that their financial results and long-term resilience were closely tied to the fate of the broader economy. Has happened.

The report showed that debt levels for small businesses have increased by 25 percent since the end of 2019 as they tapped emergency loans provided by the British government to cushion the shock of the lockdown. The committee cautioned that in difficult sectors such as hospitality, 11.8 per cent of small firms were already behind in their loan repayments or had formally defaulted by January.

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The committee also called for measures to protect against financial stability risks by banks and financial firms shifting key services to cloud computing companies and relying on a smaller number of covert providers.

The level of privacy and lack of transparency is a major concern among cloud computing providers, as companies do not want to leave themselves open to cyberattacks.

It warned that an increasing 18-month trend in reliance on companies such as Amazon, Google and Microsoft could pose a threat to financial stability, with a small number of providers and large amounts of data and services being outsourced.

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The bank’s governor, Bailey, said the “increasing reliance” on a small number of cloud service providers and others without more direct regulatory oversight of the flexibility of the services they provide could increase financial stability risks.

“We don’t want hackers to find guide books,” Bailey said. “We have to strike a balance.”

by Pan Pilas

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Bank of England removes dividend cap on UK banks
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