Dividend freeze lifted
Bank of Jamaica, BOJ, has ended the freeze on dividends, effective immediately, following a largely positive assessment of the financial system.
The stay on dividends for financial years 2019 and 2020 affected shareholders with stakes above one per cent in the affected financial holding companies and banking or deposit-taking institutions.
Last year, shortly after the detection of the COVID-19 pandemic in Jamaica, the central bank got the big institutions to agree to hold back on dividends to safeguard liquidity as the health crisis unfolded. Distributions to small shareholders with stakes of one per cent or less in the affected companies were not included in the freeze.
The agreement was broadened in December 2020 “in the context of the persistent uncertainty about the economic impact of the pandemic and the results of BOJ’s credit stress tests”, which the central bank also said pointed to the ongoing need for prudence to preserve regulatory capital.
The moratorium on dividends was then extended to the next two quarters, which would have rolled off in June, but that the decision would be revisited before that, at the end of March. The December meeting agreed that banking institutions would neither declare nor pay dividends, while the financial holding companies would continue paying dividends to the carved-out group of small owners.
The central bank now believes the economy has already sustained the “worst” of the COVID-19 pandemic, although uncertainty remains, sufficient to ease up on the dividend freeze.
“In this context, BOJ is of the view that the financial system has adequate capacity to absorb unexpected losses that could arise as the crisis unwinds,” it said in a statement on Tuesday.
It comes after the release of the most recent BOJ Financial Stability Report last week [see related report on Page C2], which indicated that deposit-taking institutions “remained resilient” to hypothetical interest rate, liquidity, foreign exchange and credit shocks.