The Reserve Bank’s Prudential Authority has advised banks not to distribute ordinary dividends, and for bonuses to senior executives to be put on hold in the wake of Covid-19.

The central bank on Monday evening issued a statement announcing the regulatory relief measures to support the banking system as it faces the impact of the Covid-19 outbreak. These measures have been instituted by the bank’s Prudential Authority (PA) which regulates the banking and financial services sector.

“With the high probability that the impact of Covid-19 will result in heightened stress in the banking system, the PA is issuing a guidance note advising banks not to distribute discretionary ordinary dividends during this period.

“Similarly, bonuses for senior executives should also be put on hold during this period,” the statement read.

The measures of the PA are in addition to other steps previously taken by the Reserve Bank in response to Covid-19. They include the use of monetary policy tools to manage liquidity in the financial system – such a cutting interest rates by 100 basis points which resulted in an estimated R32 billion of cash flowing back into the economy, as well as the purchasing of government bonds and other adjustments in the repo market.

According to the Reserve Bank, these measures will ensure SA’s banking system is “robust and well-capitalised.”

The PA’s regulatory relief measures are across three fronts.

They include the following:

Capital relief on restructured loans that are in good standing before the Covid-19 crisis – which means these restructured loans will not incur a higher capital charge. “This amendment covers loans to households, small- and medium-sized businesses and corporates, and for specialised lending,” the Reserve Bank said.

A lower liquidity coverage ratio (LCR) – the LCR sets out the liquid assets a bank has to maintain, relative to its anticipated outflows. The LCR will be lowered from 100% to 80%.

Lower capital requirements – The PA has provided criteria to allow banks to dip into their capital buffer, if needed. “The PA plans to announce a timetable according to which banks can restore these buffers once the Covid-19 crisis has abated. “This timetable will be sensitive to the need to balance the rebuilding of buffers to ensure a resilient banking system, with the negative effect that such measures could have on credit extension and economic growth,” the Reserve Bank said.

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