New Zealand's banks will now be allowed to pay up to 50 per cent of their earnings out in dividends after the Reserve Bank eased restrictions.
The RBNZ blocked the banks from paying dividends to their shareholders in April last year in a bid to support financial stability amid the Covid-19 outbreak and ensure the flow of credit to the economy.
It was then extended in November. But today the Reserve Bank said economy activity had rebounded enough to ease the restrictions.
Geoff Bascand, Reserve Bank deputy governor and general manager financial stability, said the economy had come back stronger than anticipated at the start of the Covid-19 outbreak.
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"Economic activity in New Zealand has picked up over recent months. However, the road ahead remains uncertain. As we outlined in our February Monetary Policy Statement, economic recovery is patchy, and ongoing uncertainty is expected to constrain business investment and household spending growth.
"Given the uncertainties ahead, it is appropriate to retain some restrictions on the dividends that banks can pay."
Bascand said the 50 per cent restriction would remain in place until July 1 next year, at which point it planned to lift the restrictions entirely.
The Reserve Bank has written to the banks to inform them of the decision while asking that the banks be prudent in determining how much they pay to shareholders.
"We have delayed the implementation timetable of the capital review twice over the course of last year to allow banks the regulatory relief needed to support their customers. As economic conditions improve, building strong capital buffers needs to be prioritised."
Higher capital requirements for the banks were meant to start coming into force in July last year but have been delayed until July next year.