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Australian banking regulator flags change to dividend freeze, calls for prudence

SYDNEY, July 22 (Reuters) - Australia’s banking watchdog plans to update a capital return policy that has halted dividend payments from banks due to the coronavirus crisis, flagging flexibility in operations that focuses on the longer term viability of the financial sector.

In a speech on Wednesday to the Trans-Tasman Business Circle, a business lobby, the Australian Prudential Regulator Authority (APRA) Chairman Wayne Byres said the degree of uncertainty about the local economy was now lower than when it asked banks to consider deferring dividend payouts in April.

While warning that there was “no end in sight” to the health and economic crisis, Byres said capital markets were functioning in an orderly manner and stress-tests indicated the banks were “well-placed” to withstand any major headwinds ahead.

“Our goal is to combine on-going prudence with flexibility,” he said in the speech seen by Reuters. “That is, to ensure capital management practices clearly have regard to the continuing uncertainty in outlook, that stress scenarios can be overcome without having to resort to cutting business activity.”

APRA’s stress-tests assumed a slow recovery in gross domestic product growth over the three-year horizon, unemployment of about 10% in mid-2021 - up from 7.4% in June - and 30% falls in property prices.

“Even when faced with severely adverse scenarios, our analysis indicates the banking industry would remain well above minimum capital requirements.”

Since April, three of the four dominant banks - Westpac Banking Corp, Australia and New Zealand Banking Group Ltd’s, and National Australia Bank Ltd halted or cut dividend payments worth over A$7 billion ($4.99 billion).

“We will modify the guidance, and extend it for the remainder of this calendar year, shifting from the immediate, short-term emergency response in April to a setting with a somewhat longer-term outlook,” Byres said. ($1 = 1.4017 Australian dollars) (Reporting by Paulina Duran in Sydney; Editing by Shri Navaratnam)