Higher 'DSB' means smaller dividend increases for banks: Analyst
Changes to regulatory requirements for Canadian banks’ cash on hand will lead to stretched profits at the country’s big banks and could hurt dividend payouts, according to an analyst.
On Tuesday, the Office of the Superintendent of Financial Institutions hiked the domestic stability buffer to 3.5 per cent of risk-weighted assets, up from three per cent, effective Nov. 1.
The change means Canada’s big banks will need to carry Common Equity Tier 1 capital of at least 11.5 per cent of risk-weighted assets, though all six banks already carry more than that level.
Nigel D'Souza, financial services analyst at Veritas Investment Research, told BNN Bloomberg Tuesday the change won’t “impede the banks’ material operation,” but will lead to a further tightening.
“There will be profitability pressures for the Canadian banks,” he said.
“What this will do is constrain capital a little bit where banks will be more careful in terms of dividend payout increases or more restrictive on share buybacks.”
To listen to the full interview with D'Souza, click on the video at the top of this article.
With files from Bloomberg News