Canada’s banking regulator says it will not lift restrictions on share buybacks and dividend hikes at the country’s commercial banks any time soon.
In a public speech, Office of the Superintendent of Financial Institutions (OSFI) Assistant Superintendent Ben Gully said the banking watchdog is monitoring the impact of a third wave of the pandemic and plans to leave current restrictions on Canada’s banks in place until the concerns subside.
"OSFI is acting prudently in the context of continued uncertainty related to COVID-19, and will maintain the restrictions until they are no longer fit for purpose and once we have greater clarity on the path forward out of the pandemic," said Gully.
OSFI imposed the bank restrictions in March 2020, which banned share repurchases, payout hikes and increases to executive compensation to ensure the banks have sufficient liquidity for lending. Since those measures were put in place, the Canadian economy has fared better than expected, which led to the banks cutting the amount of cash set aside for potential loan losses.
Along with lower loan loss provisions, the common equity tier one ratio (CET1) – a key financial buffer banks must keep in place in case of severe economic stress – at all big five banks have ballooned as cash otherwise earmarked for dividends, buybacks and acquisitions piles up.
