Will UK banks restore dividends in 2021?

The Big Four banks cancelled dividends in 2020 after the Prudential Regulatory Authority urged them to preserve capital to support the UK economy and offset a rise in bad loans due to Covid-19. But will dividends return in 2021?

  • UK banks scrapped billions worth of dividend payments to shareholders amid Covid-19
  • The size and scale of the economic fallout from the virus remains unclear
  • British lenders could see dividends return in 2021

The Big Four banks (Lloyds, Barclays, NatWest (formerly Royal Bank of Scotland) and HSBC) all cancelled their dividends in 2020 after the Prudential Regulatory Authority (PRA) advised British lenders to set aside capital to support the UK economy and a rise in bad loans due to Covid-19.

‘Although the decisions taken today will result in shareholders not receiving dividends, they are a sensible precautionary step given the unique role that banks need to play in supporting the wider economy through a period of economic disruption,’ the PRA said in a statement in April this year.

The news sent UK lenders shares tumbling, with many investors drawn to bank stocks for their reliable returns, but the economic fallout from the coronavirus pandemic looks likely to get a lot worse before its get better. But when will dividend payments return for shareholders?

When will UK banks pay dividends again?

The answer is unclear, with the Big Four all publishing second quarter (Q2) earnings in July that revealed the extent of the damage, with British banks setting aside more than £16 billion for potential loan losses – wiping out profits in the process.

Having said that, the overall health of British lenders remains relatively high and in much better shape than in the wake of the 2008 financial crisis due to banks operating under tighter regulations and capital requirements ensuring balance sheets were relatively well prepared for an economic shock.

Regulators decision to tell British banks to suspend dividends is certainly bad news for investors over the short-term. Over the longer term, however, it will not only allow banks to avoid collapsing under the weight of Covid-19, but support the recovery of the wider UK economy and help them to resume distributing capital to shareholders sooner.

‘Banks are well capitalised to weather this pandemic and that they should get through it without the need to raise capital, or in the worst case close the doors altogether,’ Morningstar analyst Niklas Kammer said earlier this year.

‘So, while we think that 2019 dividends, which have not been distributed yet, and 2020 dividends are likely to be cancelled fully. We think banks should be able to resume cash distributions in late 2021.’

Will UK banks bring back dividends in 2021?

The time it takes for UK lenders to resume dividend pay-outs to shareholders really depends on the size of loan losses due to the coronavirus pandemic. However, it is still unclear just how much damage the UK economy has suffered, with loan schemes to small and medium-sized businesses, along with the government’s furlough scheme postponing credit defaults for the time being.

But the job retention scheme is set to unwind in October - though there are calls for it to be extended - which could lead to a rise in loan defaults as up to nine million people who rely on it could be left without work.

If that is allowed to happen the UK economy will suffer tremendously and banks will see credit defaults rise. But until a complete picture is formed showing the actual size and scale of the damage of the pandemic it is difficult to know how long it will take for the UK economy and the banks it relies on to recover.

What is clear is the impact the dividend suspension and the grim economic outlook is having on UK banks, with Lloyds, Barclays, NatWest and HSBC shares all down more than 44% year-to-date with further losses likely in 2020.

How to trade stocks with IG

Looking to trade Lloyds, Barclays, NatWest, HSBC and other stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs in a few easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘Lloyds’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

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.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices 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.