Bank of Jamaica (BOJ) has cleared the way for financial holding companies (FHCs) and deposit-taking institutions (DTIs), via their boards, to resume the distributions of declared dividends for financial years 2019 and 2020 to shareholders owning more than one per cent of issued shares.
The BOJ also stated that FHCs and DTIs can declare and distribute dividends for 2021 to shareholders owning more than one per cent of issued shares.
However, the central bank urged financial institutions to remain prudent in their decisions to declare and distribute dividends, against the background of yet significant uncertainties associated with the COVID-19 pandemic.
The agreement to resume dividend declaration and distribution reflects the fact that the quantum of loans that were afforded payment accommodations since the onset of the COVID-19 pandemic has fallen.
The BOJ says it believes that the worst of the impact of the pandemic on the economy “is behind us, although the economic outlook remains uncertain”.
In this regard, the BOJ noted that the financial system has adequate capacity to absorb unexpected losses that could arise as the crisis unwinds.
Citing the position of the Financial System Stability Committee, the BOJ further said the agreed position also reflects the commendable efforts of financial institutions over the past year to proactively manage the risks arising from the COVID-19 crisis.
Since mid-March 2020, financial institutions has been experiencing extraordinary demand for liquidity in order to facilitate the needs of their customers and to build buffers against growing uncertainty associated with the outbreak of the COVID-19 pandemic in Jamaica.
In this context, Bank of Jamaica consulted with the boards of FHCs and DTIs in May 2020 and obtained their agreement to suspend the distribution of dividend to relatively large shareholders.
The central bank noted that this agreement was broadened in December 2020 in the context of the persistent uncertainty about the economic impact of the pandemic and the results of BOJ’s credit stress tests, which pointed to the ongoing need for prudent capital planning to preserve regulatory capital.
DTIs agreed that they would not declare or pay any dividend over the next two quarters. At the same time, FHC’s could declare dividends, albeit with limited distributions to shareholders owning one per cent or less of issued shares.
The BOJ noted that, along with the FHCs and the DTIs, it agreed to review the arrangement at the end of March 2021.