Investors warned not to expect sizeable bank payouts
Most of the main UK banks will report half-year figures next week, hot on the heels of the Bank of England s move to ditch the remaining "guardrails" on shareholder payouts in the sector.
It had halted dividends in the sector in March last year when the pandemic struck, but said in December that banks could pay limited dividends.
In an update earlier this month, the bank said the limits were "no longer necessary" as it handed back dividend decisions to bank boards.
While it is unclear whether there will be any quick return to big dividends from the UK players, their US counterparts have recently handed out sizeable shareholder returns, which has raised investor hopes on these shores.
But the central bank was quick to reiterate calls for lenders to continue helping households and businesses as coronavirus support measures come to an end.
Danni Hewson, a financial analyst at AJ Bell, said banks may be cautious in following the lead of Wall Street with "super-sized" returns.
She said: "Some protections are being kept in place to ensure banks still have extra capital put by just in case and, in order not to make regulators twitchy, the sector may be wary of going too far, too fast on capital returns.
"The guardrails may have been removed, but the Bank of England will be expecting companies to act responsibly."
Glasgow-headquartered challenger bank Virgin Money will be first out of the stalls with its third-quarter figures on Tuesday, followed by half-year figures from Barclays, Santander and Metro Bank on Wednesday, Lloyds on Thursday, and NatWest on Friday.
Bad debts will be another key focus of the interim results, now that UK Government-backed loans to small businesses have started to become due in the first half, and with the furlough scheme due to end in September.
But the marked bounceback in the wider economy has improved the outlook for borrower defaults and many players such as Lloyds, HSBC and NatWest took the opportunity in the first quarter to release large sums of provisions put by last year.
Dean Jayson, head of UK banking at Accenture, said: "Many lenders will be cautiously optimistic that the most turbulent period has passed.
"The onus will now be on banks to demonstrate they are acting carefully and empathetically to mitigate the impact of defaults and provide a vital safety net for indebted customers."
Banks will also be under focus for their views on the economic outlook in the UK, given the recent surge in inflation and what this could mean for any action by the Bank of England to cool price hikes.
Earlier this month it was revealed that inflation had jumped to its highest level in nearly three years amid rising food and fuel costs, raising the spectre of higher interest rates. Increases in the cost of clothing and pub and restaurant drinks have also contributed to rising inflation.
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