LONDON — The Bank of England on Tuesday ditched limits on banks to pay dividends to their shareholders that were first introduced at the outset of the coronavirus pandemic as part of a package of measures to shore up the British economy.
The bank’s Financial Policy Committee, which monitors risks to financial stability, said the limits were “no longer necessary,” but stressed that lenders will need to provide ongoing support to the economy, not least because the government is ending its salary support scheme in September and emergency business loans start having to be paid back.
The bank halted dividends in the sector in March last year when the pandemic struck, but said in December that banks could pay limited dividends.
Though the committee said in its quarterly Financial Stability Report that the economic outlook has improved as a result of the rapid rollout of vaccines in the U.K., it warned that risks remain that could impact negatively on small businesses, many of whom have seen debt levels soar during the pandemic.
The report showed that debt levels of small businesses have increased by 25% since the end of 2019 as they tapped emergency loans provided by the British government to cushion the pandemic blow.
The committee cautioned that in hard-hit sectors such as hospitality, 11.8% of small firms were already behind on their loan repayments or had formally defaulted as of January.