Financial institutions get the green light to resume dividend distribution

Local financial holding companies (FHC) and deposit-taking institutions (DTI) have been given the green light to resume dividend distributions for their 2019 and 2020 financial years, the Bank of Jamaica (BOJ) announced on Monday April 6, 2021..

The central bank in May 2020 issued a directive to suspend the distribution of dividends in order to conserve capital and further improve institutions’ lending and loss-absorbing capacities in the context of the economic slowdown caused by the COVID-19 pandemic.

Last Thursday, the BOJ met with financial institutions, during which it was agreed that they could choose to resume dividend distributions to shareholders holding more than one percent of issued shares that had been declared for their 2019 financial years and 2020.

It has also been agreed that dividends for 2021 may be declared and distributed to shareholders holding more than one percent of the issued shares.

In the context of still significant uncertainties related to the COVID-19 pandemic, the BOJ continues to urge financial institutions to remain cautious in their decisions to declare and distribute dividends.

“The agreement to resume the declaration and distribution of dividends reflects the fact that the amount of loans granted since the start of the COVID-19 pandemic has declined,” the central bank said in a statement.

Additionally, the BOJ believes that the worst of the pandemic’s impact on the economy is behind us, although the economic outlook remains uncertain.

“Against this background, the Bank of Jamaica believes that the financial system has adequate capacity to absorb unexpected losses that may arise as the crisis unfolds,” he said.

This common position also reflects the laudable efforts of financial institutions over the past year to proactively manage the risks arising from the crisis.

Since mid-March 2020, financial institutions have experienced an extraordinary demand for liquidity to meet the needs of their customers and create buffers against the growing uncertainty associated with the outbreak of the COVID-19 pandemic in Jamaica.

In this context, the BOJ consulted the boards of directors of FHC and DTI in May 2020 and obtained their agreement to suspend the distribution of dividends to relatively large shareholders.

This deal was expanded in December 2020 amid continued uncertainty over the economic impact of the pandemic and the results of the BOJ’s credit stress tests, which underscored the continued need for prudent fund planning. to preserve regulatory capital.

It was further agreed that DTI would not declare or pay dividends in the next two quarters and that FHC could declare dividends, but would continue to limit such distributions to shareholders holding one percent (one percent) or less. shares issued.

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