NatWest Group PLC and Lloyds Banking Group PLC project to be dividend kings as

We are in the UK banking results season and generally, the banks are either feeling better about bad debts or reporting improving trends.

The latter basically means things are still a bit hairy out there but the situation is not deteriorating as quickly as in the preceding quarter.

Meanwhile, all of the major UK-listed banks are ship-shape and Bristol fashion when it comes to common equity tier 1 (CET1) ratios – a measure of their balance sheet strengths.

The solid balance sheets and the strong possibility that the banks might have been overcautious in their assessment of potential bad debts opens up the prospect that the banks, when fully released from constraints on dividend payments, could go back to being among some of the best dividend payers among blue-chip stocks.

Some, understandably, seem to be holding off on making promises until the government’s furlough support scheme ends on September 30 (unless it is extended), while all are waiting for the Prudential Regulation Authority (PRA) to issue new guidance on dividend payments; the PRA is expected to make its pronouncement before the major banks issue their interims.

Given all of that, it might be worthwhile having a quick shufti at the banks’ recent announcements to assess the trends.

Barclays

() is set to announce its first-quarter results tomorrow, but in its results for 2020, its credit impairment charges totalled £4.8bn, compared to £1.9bn the year before. That included a £2.3bn of non-default provision for “expected future customer and client stress”.

The fourth quarter saw the credit impairment charge fall 19% from the previous quarter at £0.5bn and was also down 6% year-on-year.

The CET1 ratio at the end of 2020 stood at 15.1%, up half a percentage point (50 basis points, if you prefer) on the preceding quarter.

The bank paid a dividend in respect of 2020 of a penny. With the shares at 190p or thereabouts, that gives a yield of 0.5%, which won’t get anyone’s pulses racing but the bank has at least “shown willing”. Based on broker dividend forecasts for three years in the future, that will gravitate to 5.1% based on the current share price.

The Asia-focused bank has announced its first-quarter results for 2021, and in its statement it said, “While there continue to be interest rate headwinds, expected credit losses and other credit impairment charges (‘ECL’) fell, reflecting the improved economic outlook.”

PLC () essentially clawed back US$0.4bn of its provision for ECL, which stood at US$8.8bn at the end of 2020, of which US$3.0bn was set aside in the first quarter of 2020. 

The CET1 ratio of 15.9% was unchanged from the end of 2020.

The bank said it would not pay quarterly dividends during 2021. Boo!

It will consider whether to announce an interim dividend at its 2021 half-year results in August. Huzzah!

Broker forecasts currently have the dividend yield three years in the future rising to 5.5%.

PLC () has also weighed in with its first-quarter numbers and revealed a net impairment credit of £323mln, driven by a £459mln release given the UK’s improved economic outlook.

That reduces provisions from the massive £4.2bn for the whole of £4.2bn, most of which – £3.8bn – came in the first half of the year.

The CET1 ratio of 16.4% before dividends and 16.2% after them is well ahead of the bank’s target of around 12.5% and regulatory requirements of a rate around 11%.

The lender will update the market on interim dividend payments with the half-year results.

The forecast dividend yield for 2024 is 5.8%.

PLC () was another bank announcing the release of provisions set aside for bad debts in its first-quarter update.

A net impairment release of £102mln in the first quarter of 2021 reflected…