Turkey Weighs End to Banks’ Dividend Freeze on Recovery Hope

Customers use automated teller machines (ATM) operated by Akbank TAS, center, and, Turkiye Garanti Bankasi AS, right, in the Besiktas district of Istanbul, Turkey on Wednesday, Oct. 9, 2019. The lira hovered near its lowest level since late August against the dollar while stocks and government bonds fell as the threat of U.S. penalties mounted after a Turkish military operation in northeast Syria got underway. Photographer: Kerem Uzel/Bloomberg
Customers use automated teller machines (ATM) operated by Akbank TAS, center, and, Turkiye Garanti Bankasi AS, right, in the Besiktas district of Istanbul, Turkey on Wednesday, Oct. 9, 2019. The lira hovered near its lowest level since late August against the dollar while stocks and government bonds fell as the threat of U.S. penalties mounted after a Turkish military operation in northeast Syria got underway. Photographer: Kerem Uzel/Bloomberg

(Bloomberg) -- Turkish authorities are considering the removal of a year-old ban on banks’ dividend payments, counting on an expected recovery in the $750 billion economy following the coronavirus pandemic, according to people with direct knowledge of the matter.

The banking regulator known as BDDK and the Ministry of Treasury and Finance are discussing a possible easing with commercial lenders, which are pushing for an official decision on dividend distribution before next month’s annual general meetings, the people said, asking not to be identified as talks are confidential.

Garanti CEO Urges Relaxation of Dividend Payout Limits: AA

The banking regulator and the ministry declined to comment.

Borsa Istanbul Banks Index extended gains to as much as 1.8% on the news, led by Akbank T.A.S. and Turkiye Garanti Bankasi A.S. Borsa Istanbul 100 index was up 0.7% as of 10:52 a.m. in Istanbul.

The planned move, should it materialize, stands to benefit lenders’ equities by helping lure foreign capital into the nation’s banks, according to Akin Tuzun, VTB Capital’s banking analyst.

“Abandoning the dividend freeze on banks would act as a strong catalyst for foreign investors,” Tuzun said. “It is likely to have positive impact on all banking stocks, but larger-capitalized lenders such as Akbank and Garanti may benefit slightly more.”

New Era

Officials see a window of opportunity to lift the ban on banks’ profit distribution imposed in December 2019 as mass vaccination kicks off in parts of the world, boosting hopes for a quick recovery. The plan -- which is backed by commercial banks -- would also mark another step in authorities’ efforts to undo the policies adopted by Berat Albayrak, President Recep Tayyip Erdogan’s son-in-law who resigned as economy czar in November.

Albayrak’s departure and the ouster of the central bank chief spurred a rally in the lira, boosting hopes among investors that Turkey will return to more orthodox policies promised by the new economic management.

That sets the nation’s lenders on course for improved profitability in 2021, with the average return on equity expected to rise above inflation for the first time since a currency crisis in 2018.

Similar debates are playing out elsewhere. European bank regulators put strict limits on payouts to shareholders in a long-awaited decision last December to lift a de-facto ban on dividends. In the U.S., the Federal Reserve gave Wall Street banks the green light to resume billions of dollars of stock buybacks.

(Updates with share moves, analyst comments starting in fourth paragraph.)