Bank dividends are safe

One common retail investor query relates to the sustainability of the major banks’ dividends going forward. Historical dividend reductions in our view are the result of unique events. These include external liquidity shocks, high inflation and credit growth rates in an overheating economy (leading to monetary policy tightening that would have adverse consequences for credit quality and banks that are heavily dependent on wholesale funding), high current account deficit and largely higher unemployment – clearly not the case today. A benign outlook ahead for each of the economic indicators should then underpin the banks’ ability to continue paying dividends.