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Dividends in focus as earning season begins for UK banks

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
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The financial district of Canary Wharf is seen from central London January 22, 2009. Britain has entered recession for the first time since 1991, official data is expected to confirm on Friday, with national output forecast to have fallen by 1.2 percent in the final three months of 2008. Britain will be the first major economy to publish gross domestic product data for the period, and is set to kick off a gloomy season of releases as the global economic downturn exacts a heavy price worldwide.   REUTERS/Toby Melville (BRITAIN)
Attention will be focused on payouts to shareholders. The Bank of England last year blocked banks from distributing capital as the COVID-19 pandemic struck, instead urging lenders to hold on to cash to cover a potential jump in bad loans. Photo: REUTERS/Toby Melville

investors are expecting Britain's biggest banks to announce billions of pounds in shareholder payouts when lenders report earnings for the first time since the Bank of England lifted its ban on dividends.

Earnings season begins on Thursday with full-year results from Barclays (BARC.L). The UK's other biggest banks — NatWest Group (NWG.L), HSBC (HSBA.L), and Lloyds (LLOY.L) — follow in the subsequent days.

Attention will be focused on payouts to shareholders. The Bank of England last year blocked banks from distributing capital as the COVID-19 pandemic struck, instead urging lenders to hold on to cash to cover a potential jump in bad loans.

Watch: What is a credit rating and why does it matter?

READ MORE: UK banks given green light to restart dividends with 'guardrails'

Government support schemes proved very effective and both job losses and company insolvencies have been lower than first feared. The Bank of England lifted its ban on dividends in December as a result.

"All eyes will immediately turn to the dividend," Russ Mould, investment director at AJ Bell, said of bank earnings. "Every one of the Big Five is expected to declare a dividend for last year and offer an increased payment in 2021."

FTSE 100 banks are expected to pay out £5bn ($7bn) to shareholder this year and £8bn next year, Mould said. HSBC, Barclays, Lloyds, NatWest, and Standard Chartered (STAN.L) are likely to account for a quarter of all dividends on London's bluechip index.

READ MORE: HSBC plans 'conservative' dividend after better-than-expected quarter

There could be some hiccups. Low interest rates and loss provisions mean bank profits likely halved in 2020. With the pandemic far from over, chief execs may be cautious about doling out cash just yet. The Bank of England has also told lenders to be ready for the possibility of negative interest rates within six months, adding more uncertainty to the mix.

On the other hands, patient investors will want something to salve the wounds of the last 12 months. Bank stocks have been among the hardest hit by the pandemic. The sector was already trading at a steep discount and it has only got worse in the last year. Investors who have stuck with it this long will want something for their troubles.

HSBC's Noel Quinn hinted at plans for a "conservative" dividend last year, while Alison Rose said she'd reward shareholders for their patience "as soon as possible".

READ MORE: NatWest CEO promises dividends 'as soon as possible'

Most in the City expect payouts to start flowing.

"We think it is relatively plain sailing on the capital distribution front for the UK banks from here," Bank of America analysts wrote last week.

Watch: Will interest rates stay low forever?