Canada’s banks will be able to resume buying back shares and increasing their dividends after regulators removed restrictions put in place to protect the financial system during the pandemic.
Banks may immediately begin increasing regular dividends and executive compensation, the Office of the Superintendent of Financial Institutions said in a statement Thursday. Subject to approval by the superintendent, they may once again repurchase their stock as well, OSFI said.
The risks associated with capital distributions “have abated somewhat,” Peter Routledge, head of OSFI, said during a virtual event Thursday. “I believe that now is the time for OSFI to lift this expectation.”
The move, which comes months after the Federal Reserve lifted similar constraints on U.S. firms, lets Canada’s banks start releasing the stockpile of capital they amassed to protect against a wave of pandemic-induced defaults that never occurred. Canada’s six largest banks could return a combined C$47 billion ($38 billion) in cash to shareholders and still exceed regulators’ capital requirements, according to an analysis by Bloomberg Intelligence.
The average common equity Tier 1 capital ratio for Canada’s six largest banks has crept up from 11.7% in the fiscal quarter ended January 2020, before the pandemic took hold in North America, to 13.3% at the end of July. That means the banks are currently holding about C$57 billion in capital beyond what regulators require, according to Bloomberg Intelligence. Even returning C$47 billion to shareholders would leave them with a C$10 billion cushion beyond what’s required.
The banks typically target a CET1 ratio of 11%, higher than the 10.5% regulatory minimum, and they have about C$47 billion in surplus capital above that higher level, Bloomberg Intelligence said.
The Federal Reserve allowed U.S. banks to resume buybacks in December 2020 and let lenders that cleared its stress tests restart dividend increases in June.
