Skip to content

CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Why the Big Four Banks may suspend or reduce their dividends

As Fitch downgrades the banks and APRA issues guidance around capital distributions, we examine what these changes might mean for Australia's banks.

ANZ, CBA, Westpac & NAB Source: Bloomberg

Fitch downgrades

As uncertainty around the economic impact of the coronavirus pandemic escalates, Australia’s big four banks continue to come under pressure from investors, analysts and regulators.

In another blow to the banks, US-based ratings agency Fitch yesterday announced that it had downgraded the issuer default ratings of all the big four banks and their New Zealand subsidiaries – from ‘AA-/F1+’ to ‘A+/F1.’

This downgrade, said the ratings agency, was driven by the ‘expectations of a significant economic shock in 1H20 due to measures taken halt the spread of the coronavirus, followed by a moderate recovery through 2021.’

In broader terms, Fitch warned that as Australia’s economy enters an inevitable recovery phase, not only will some businesses likely fail to fully restart; but households may struggle to service their debt repayments which were (are) subject to ‘Covid-19 loan holidays’.

‘As a result, asset-quality metrics will likely weaken from current levels over the next 12-18 months and, for the four large Australian banks, we expect them to no longer be consistent with a ‘aa-‘ factor score,’ the ratings agency said.

ANZ, CBA, Westpac & NAB share prices: dividends under pressure

Complicating the outlook for the banks, in a letter addressed to Australia's authorised deposit taking institutions – APRA’s Chairman, Mr Wayne Byres – yesterday noted that due to the current climate, such institutions should be carefully considering their capital distribution plans.

‘APRA expects ADIs and insurers to limit discretionary capital distributions in the months ahead, to ensure that they instead use buffers and maintain capacity to continue to lend and underwrite insurance,’ Mr Byres wrote.

Such ‘limitations’ may include the ‘prudent reductions in dividends, taking into account the uncertain outlook for the operating environment and the need to preserve capacity to prioritise these critical activities.’

Where possible, Mr Byres elaborated that banks should aim to offset their dividend payments through the use of dividend reinvestment plans (DRP) and other capital management initiatives.

What are the banks to do?

In response to APRA’s letter; Macquarie analysts today said that the big four banks may be forced to either reduce or suspend their next wave of dividends completely.

Looking at a stressed scenario; Macquarie posits that bank losses could run as high as $25-27 billion – per bank. In this possible world, the banks’ ability ‘to pay dividends (without raising equity) materially diminishes,' it was noted.

If this kind of stressed scenario was also applied to the banks dividend planning, Macquarie concludes that, save for CBA, the ‘banks are likely to choose to suspend their dividends and look to reinstate it (and possibly pay a special dividend) if conditions normalise. We estimate that CBA should still be able to sustain a reduced dividend in the stressed scenario.’

What such normalised conditions would look like however remains deeply uncertain at this point.

How to trade bank stocks

What do you make of these developments: are you bullish or bearish on the big four's prospects? Whatever your view, you can trade the likes of ANZ, CBA, Westpac and even NAB – long or short – using IG’s world-class trading platform now.

For example, to buy (long) or sell (short) ANZ using CFDs, follow these easy steps:

  • Create an IG trading account or log in to your existing account
  • Enter ‘ANZ’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

Act on stock opportunities today

Go long or short on thousands of international stocks with CFDs.

  • Get full exposure for a comparatively small deposit
  • Trade on spreads from just 0.1%
  • Get greater order book visibility with direct market access

See opportunity on a stock?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Trade a huge range of popular stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See opportunity on a stock?

Don’t miss your chance. Log in to take advantage while conditions prevail.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Friday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.