Big bank dividend payout ratios to hit 50pc: Goode

Former ANZ chairman Charles Goode expects big four dividend payout ratios to fall to 50 per cent over the next two years.

Former ANZ chairman Charles Goode says he expects the dividend payout ratios of the big four banks to fall to 50 per cent over the next two years, as bank profits halve as a result of rising bad debts and a sharp contraction in economic growth.

The banks last year paid out almost $24bn in dividends, but faced with rising loan losses and falling profits, Westpac and ANZ have deferred their interim dividends, while NAB slashed its interim payment by 64 per cent.

Commonwealth Bank reports its annual results in August, while the other banks rule off their annual balance sheets at the end of September.

“We don’t know how hard they have cut them yet because two banks have deferred them, but I think profits might even out this year and next at half of what they were, and the dividends will be at a 50 per cent payout ratio,’’ Mr Goode said.

“I think we will see more of that and that will affect a lot of people that rely on dividends for retirement income.

“While the banks are 20 per cent of the ASX, they are 30 per cent of the dividends paid by companies in the index.

“It will be a lower retirement income for retirees relying on dividend income and that will affect some expenditure and standards of living.”

APRA chief executive Wayne Byres said this week that the deferral of bank dividends might be a long-lasting policy.

While retirees will clearly suffer, Mr Goode said the cuts could also have serious consequences for the charitable sector. “With the fall in the sharemarket and falling dividends, a lot of private and ancillary funds in the philanthropic area will have less to give to charity, just at the time when they need it more,’’ he said.

“Next year we will see charitable donations to community operations less than this year.”

The cuts will also impact the Cormack Foundation, which in 2018-19 received more than $2.1m in bank dividends.

While Mr Goode said the banks were now in far better shape than they were at the time of the GFC, he feared for their independence from government in a post-COVID-19 world.

“There has been a worldwide strengthening of the banking system. With this crisis governments have had to use the banks and rely on them. There is a danger that they are becoming less independent and more part of government policy and more subject to government direction, not only in regard to tier 1 capital, but who they lend to, what credit security they may require and even what dividends they may pay. They are feeling the extended arm of government in interference and regulation and moving a little way towards being regulated utilities,’’ he said.

“I think their tier 1 capital will stay sound but it will fall because risk-weighted assets will grow faster than total assets, because deteriorating creditworthiness re­quires more capital. There will be more business loans in the portfolio as we seek to recover from this crisis. The regulators are also altering the accounting because you have to consider the default on a loan over the life of the loan rather than over 12 months.

“But as this crisis has shown they are a very vital part of our private enterprise economy.”