Peter Routledge has warned investors that the regulator isn’t rushing to ease tighter restrictions on Canada’s banks
Investors in Canadian banks should not be expecting a quick easing of restrictions on share buybacks and dividends.
That’s the clear message from the new superintendent at the Office of the Superintendent of Financial Institutions (OSFI).
Peter Routledge told BNN that tighter controls introduced by the regulator at the start of the pandemic would not be lifted until there is certainty that financial stability risks have passed. He said it was better to do so late than early.
“We judge the level of financial uncertainty as diminishing, but not to a level where returning discretion for capital distribution increases to boards of directors is prudent as of yet. So we’ll just going to monitor that uncertainty and act accordingly,” he said.
Despite curbs on dividend levels, the OSFI chief said that banks are still able to make payments to investors and that pay-out ratios are “within historic norms.”
He urged investors to “please be patient” and cited the regulator’s track record of “reasonably good judgment” in these matters.
WP recently assessed the relative strengths of 7 Canadian bank stocks.
Buffer hike
Banking industry share buybacks and dividend hikes were banned in March 2020 under Routledge’s predecessor Jeremy Rudin, while the Domestic Stability Buffer was lowered to 1% from 2.25%.
The lower rate was designed to support banks in lending to individuals and businesses during the pandemic. However, the special rate is due to end in October 2021 to be replaced by a higher rate than pre-COVID at 2.50%.
Earlier this month OSFI said that it believed this new rate is “prudent given today’s environment, where key vulnerabilities such as household and corporate debt levels remain elevated—and in some cases have increased since March 2020.”
Resilient banks
In the BNN interview, Routledge said that banks have been resilient during the pandemic with loan losses not rising to levels that some feared early in the crisis.
The OSFI chief added that while things are improving, the regulator would not be setting thresholds or dates for lifting restrictions on banks.
He said that he would focus on learning OSFI “inside out” during his first 100 days but longer term he would be looking at the risk environment including climate risk, cyber risk, and the impact of digitalization on business models.
