BoI indicates banks should not pay dividends

Will Israel’s banks distribute no dividends for the third quarter of this year, despite the fact that they are expected to report strong results? In the past few days, the Banking Supervision Department of the Bank of Israel has been signaling such a development. So far, there is no written instruction, but rather a message from the Supervisor of Banks to the effect that in the current situation, in the light of the immediate effects of the war on the south of Israel and the tension in the north, and the general uncertainty, the banks are expected to refrain from paying dividends.

In a Zoom meeting held yesterday between Supervisor of Banks Daniel Hahiashvili and the heads of the banks, the subject of dividends was raised, indicating that the Bank of Israel is determined that the banks should weigh the matter seriously.

This message came a few days after the Banking Supervision Department made clear that it expected the banks to increase their credit loss provisions. Bank Leumi has already announced that it will make a provision of between NIS 800 million and NIS 1.1 billion.

The Bank of Israel’s demand for higher credit loss provisions and for restraint on dividend payments is intended to ensure that that the banks will have sufficient capital to continue to provide credit on reasonable terms.

Bank stocks fell sharply on the Tel Aviv Stock Exchange today, and the TA-Banks5 Index closed 2.82% off.

In March 2020, after the outbreak of the Covid-19 pandemic, the Bank of Israel’s instructed the boards of the banks to reconsider their dividend policies. Accordingly, the banks did not pay dividends in 2020. Only in July 2021 did the Bank of Israel change its approach, stating that there was no objection to the banks paying dividends, but adding that a dividend of more than 30% of 2020 earnings would not be considered prudent.

Published by Globes, Israel business news – en.globes.co.il – on October 31, 2023.

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